Donald Trump’s recent attacks on the Fed have caused some— including those who should know better— to claim that Trump is threatening the central bank’s independence.
The problems with that statement is that the Federal Reserve is not really independent. The Fed has a long history of tailoring monetary policy to suit the needs of the incumbent President. Critics of Audit the Fed claim that an audit would give Congress more control over the Fed, but nothing in the bill gives Congress any new powers.
Campaign for Liberty Chairman Ron Paul addressed the issue of whether President Trump’s tweets threaten Fed independence earlier this year:
Trump’s Tweets End the Myth of Fed Independence
POSTED BY Ron Paul
July 30, 2018
President Trump’s recent Tweets expressing displeasure with the Federal Reserve’s (minor) interest rate increases led to accusations that President Trump is undermining the Federal Reserve’s independence. But, the critics ignore the fact that Federal Reserve “independence” is one of the great myths of American politics.
When it comes to intimidating the Federal Reserve, President Trump pales in comparison to President Lyndon Johnson. After the Federal Reserve increased interest rates in 1965, President Johnson summoned then-Fed Chairman William McChesney Martin to Johnson’s Texas ranch where Johnson shoved him against the wall. Physically assaulting the Fed chairman is probably a greater threat to Federal Reserve independence than questioning the Fed’s policies on Twitter.
While Johnson is an extreme example, history is full of cases where presidents pressured the Federal Reserve to adopt policies compatible with the presidents’ agendas — and helpful to their reelection campaigns. Presidents have been pressuring the Fed since its creation. President Warren Harding called on the Fed to lower rates. Richard Nixon was caught on tape joking with then-Fed chair Arthur Burns about Fed independence. And Lloyd Bentsen, President Bill Clinton’s first Treasury secretary, bragged about a “gentleman’s agreement” with then-Fed Chairman Alan Greenspan.
President Trump’s call for low interest rates contradicts Trump’s earlier correct criticism of the Fed’s low interest rate policy as harming middle-class Americans. Low rates can harm the middle class, but they also benefit spend-and-borrow politicians and their favorite special interests by lowering the federal government’s borrowing costs. Significant rate increases could make it impossible for the government to service its existing debt, thus making it difficult for President Trump and Congress to continue increasing welfare and warfare spending.
President Trump will have a long-lasting impact on monetary policy. Two of the three sitting members of the Fed’s board were appointed by President Trump. Two more of Trump’s nominees are pending in the Senate. The nomination of economist Marvin Goodfriend may be in jeopardy because Goodfriend advocates “negative interest rates,” which is a Federal Reserve-imposed tax on savings. If Goodfriend is defeated, President Trump can just nominate another candidate. President Trump will also be able to nominate two other board members. Therefore, by the end of his first term, President Trump could appoint six of the Federal Reserve’s seven board members.
The specter of a Federal Reserve Board dominated by Trump appointees should cause some to rethink the wisdom of allowing a secretive central bank to exercise near-monopoly control over monetary policy. Fear of the havoc a Trumpian Fed could cause may even lead some to support the Audit the Fed legislation and the growing move to allow Americans to “exit” the Federal Reserve System by using alternatives to fiat money, such as cryptocurrencies and gold.
Given the Federal Reserve’s power to help or hinder a president’s economic agenda and reelection prospects, it is no surprise that presidents try to influence Fed policy. But, instead of worrying about protecting the Fed from President Trump, we should all worry about protecting the American people from the Fed. The first step is passing the Audit the Fed bill, which Congress should do before adjourning to hit the campaign trail. This will let the people know the full truth about America’s monetary policy. Auditing, then ending, the Fed is key to permanently draining the welfare-warfare swamp.
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The Senate has finally adjourned to go home and campaign. They will be back on November 13, one week after the election.
Before leaving, the Senate confirmed 15 judges as part of a deal between Senate Majority Leader McConnell and Senate Minority Leader Chuck Schumer.
As I wrote last week, the Senate voted on legislation overturning President Trump’s regulation expanding short term health insurance plans. The vote was 50-50. Senator Susan Collins from Maine was the only Republican to vote for the bill. Every Democrat Senator voted yes.
You can see that vote here.
The Senate also passed the Water Resources Development Act (WRDA). Senator Mike Lee (R-UT) was the only Senator to vote no.
You can see that vote here.
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September marked a decade since the bursting of the housing bubble, which was followed by the stock market meltdown and the government bailout of the big banks and Wall Street. Last week’s frantic stock market sell-off indicates the failure to learn the lesson of 2008 makes another meltdown inevitable.
In 2001-2002 the Federal Reserve responded to the economic downturn caused by the bursting of the technology bubble by pumping money into the economy. This new money ended up in the housing market. This was because the so-called conservative Bush administration, like the “liberal” Clinton administration before it, was using the Community Reinvestment Act and government-sponsored enterprises Fannie Mae and Freddie Mac to make mortgages available to anyone who wanted one — regardless of income or credit history.
Banks and other lenders eagerly embraced this “ownership society”’ agenda with a “lend first, ask questions when foreclosing” policy. The result was the growth of subprime mortgages, the rush to invest in housing, and millions of Americans finding themselves in homes they could not afford.
When the housing bubble burst, the government should have let the downturn run its course in order to correct the malinvestments made during the phony, Fed-created boom. This may have caused some short-term pain, but it would have ensured the recovery would be based on a solid foundation rather than a bubble of fiat currency.
Of course Congress did exactly the opposite, bailing out Wall Street and the big banks. The Federal Reserve cut interest rates to historic lows and embarked on a desperate attempt to inflate the economy via QE 1, 2, and 3.
Low interest rates and quantitative easing have left the Fed with a dilemma. In order to avoid a return to 1970s-era inflation — or worse, it must raise interest rates and draw down its balance sheet. However, raising rates too much risks popping what financial writer Graham Summers calls the “everything bubble.”
Today credit card debt is over a trillion dollars, student loan debt is at 1.5 trillion dollars, there is a bubble in auto loans, and there is even a new housing bubble. But the biggest part of the everything bubble is the government bubble. Federal debt is over 21 trillion dollars and expanding by tens of thousands of dollars per second.
The Fed is unlikely to significantly raise interest rates because doing so would cause large increases in federal government debt interest payments. Instead, the Fed will continue making small Increases while moving slowly to unwind its balance sheet, hoping to gradually return to a “normal” monetary policy without bursting the “everything bubble.”
The Fed will be unsuccessful in keeping the everything bubble from exploding. When the bubble bursts, America will experience an economic crisis much greater than the 2008 meltdown or the Great Depression.
This crisis is rooted in the failure to learn the lessons of 2008 and of every other recession since the Fed’s creation: A secretive central bank should not be allowed to manipulate interest rates and distort economic signals regarding market conditions. Such action leads to malinvestment and an explosion of individual, business, and government debt. This may cause a temporary boom, but the boom soon will be followed by a bust. The only way this cycle can be broken without a major crisis is for Congress both to restore people’s right to use the currency of their choice and to audit and then end the Fed.
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Only if they are not paired with tax cuts.
Ever since the seventies, Republicans have argued that the economic growth spurred by tax cuts would raise enough government revenue to overcome any negative effects on the deficit. But Peter Suderman, writing at Reason Magazine, argues that tax cuts may harm economic growth if they increase deficits — and that the GOP does not care:
Republican leaders, however, dismissed these estimates, saying that economic growth spurred by the tax cuts would make up the difference. Never mind that Republicans had made similar claims about the likely deficit effects of the tax cuts passed under George W. Bush, and those claims had proven wrong. This time would be different. As Ryan said last year while the tax plan was moving through Congress, “We believe that . . . with economic growth that gives us more revenue with where we need to be.” The tax bill passed. The deficit increased and is now on track to hit $1 trillion years earlier than previously expected.
Once again, there is scant evidence to support the notion that economic growth would compensate for the deficit effects of a second round of tax cuts. On the contrary, there is reason to believe the opposite. Although the Joint Committee on Taxation (JCT) projects that making those tax cuts law would produce a modest growth bump in the next decade, it would not come close to offsetting the total deficit increase. Even accounting for that growth, it would still leave a deficit impact of about $545 billion by 2028. That is in addition to the impact of last year’s tax law.
More importantly, the JCT projects that adding to the debt would likely raise interest rates, especially in the following decade, resulting in adverse effects on the economy. According to the JCT, after 2028, under a second round of tax cuts, “while employment will continue to be somewhat higher than projected under present law, investment and GDP will be lower than under present law, and the budgetary feedback from this effect will become negative.” This is in line with a Penn-Wharton Budget Model analysis published earlier this year that found extending the individual tax cuts from last year’s bill would add $5 trillion to the debt by 2040 “and actually reduces GDP during the first 10 years and beyond.” Under the GOP’s preferred tax plan, in other words, the economy ends up smaller than it would be otherwise.
Over and over again, Republicans have claimed that their tax plans will reduce the deficit by increasing economic growth. But the promised deficit reductions have never materialized, thanks in part to the fact that the GOP has repeatedly paired revenue-reducing tax cuts with federal spending increases. Just last week, in addition to the tax bill, the House GOP passed an $853 billion spending bill. Under Republican control, Congress added $2.4 trillion to the national debt during the 2018 fiscal year.
Going forward, rising debt and deficits are likely to become a significant burden on the economy and should a further round of deficit-financed tax cuts occur, it will only increase the drag. Yet that is what Republicans say they want. The available evidence suggests that in the long term, Republican tax policy is now anti-growth.
Read the whole piece here.
So, you might ask, if you agree with Suderman (and I do), then why did Campaign for Liberty support the tax cuts?
Because tax cuts put more money into the people’s hands and less in the hands of politicians and bureaucrats. Individuals know better how to spend their money to meet their needs than government officials.
So libertarians should always support tax cuts. We should also never support them “because they grow the economy,” and we should never support them” because they will generate more revenue for government.” Instead, we should work for tax cuts below the point in the “Laffer curve” where they maximize government revenue.
We must also never get caught in the D.C. game of offsetting tax cuts with other tax increases to make sure the government does not lose revenue. After all, you would not say a thief should only return stolen property if they can steal enough from others to make up for the loss.
To even speak of tax cuts as a loss for the government is to accept the statist premise that government has a moral right to our income . . . where, in fact, it actually owns all property, and so-called private property is merely a gift from government.
So how do we avoid increasing deficits? By offsetting tax cuts with spending cuts. We don’t have a tax problem. We have a spending problem, and critics of GOP tax policy are right to point out the benefits of tax cuts will be short lived if they are not paired with spending cuts. But that does not mean we should oppose tax cuts. It means we should put more pressure on them to cut spending.
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According to former Federal Reserve Board Governor Kevin Warsh, the U.S. is on the verge of a new Cold War with China — but this one is going to be economic.
“We’re at the risk of a real ‘cold war’ between the world’s two largest economies,” said Warsh, who was on President Trump’s list for Fed Chairman before Jerome Powell was chosen. “The last 30 years we’ve been living and breathing globalization as if it’s an inevitable force,” but now, it seems the six-decade-long bubble has finally popped.
During a CNBC interview, Warsh used the term “cold war” to describe the economic standoff, not the decades-long “mutually assured destruction” nuclear stalemate with Russia.
“We are probably on the precipice of a brand new relationship with the Chinese,” Warsh told CNBC.
He asked, “Could we be at the beginning of a 10- or 20-year cold war?” If so, an economic cold war between the countries could have major implications for the global economy like causing a global growth scare and repricing risk assets.
Already we see Americans losing jobs as a results of President Trump’s trade tariffs. An economic cold war with China would be devastating and could even lead to a global depression. The good news is that, if those of us who know the truth do our jobs, we can either force the policy makers to adopt free market politics that will avoid a crash or make sure the depression leads to the death of the Keynesian welfare-warfare state and the fiat money system that underlies it.
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The Senate — defying my expectations and past tradition — remains in session even though we are only a month away from the mid-term election.
The big vote this week could occur today, as Senator Tammy Baldwin (D-WI) is offering a privileged resolution under the Congressional Review Act overturning President Trump’s regulation expanding the availability of short-term insurance plans that are not subject to many ObamaCare restrictions. These plans allow people who cannot afford ObamaCare plans to obtain affordable health insurance.
Well we can’t have that!
The vote is expected to fail, but it is part of Democrats’ strategy to stoke fear that Republicans will deny care to those with previous-existing conditions, even though most Republican plans keep the pre-existing conditions mandate. Of course, if Republicans have the courage to actually fight for for free-market health care, they could show how a free-market health care system would find innovative ways to protect people with pre-existing conditions.
Michael Cannon at Cato has more on this here.
The Senate will also consider the Water Resources Development bill, which funds Corps of Engineers’ projects.
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Last week, I wrote about Senator Rand Paul’s efforts to stop U.S. taxpayer dollars from supporting Afghanistan military units that turn a blind eye to child sexual abuse. As I mentioned, this practice is common, but U.S. troops have been ordered to ignore it.
This is a difficult topic to write about, but an important one for several reasons. As taxpayers, we have a right to know when funds are being used to support such activity. Supporters of the war in Afghanistan claim we are there to promote human rights. I cannot possibly imagine any security interest that would justify turning a blind eye to rape, but I can see how this would create further resentment of the U.S. among Afghans — especially since the Taliban put an end to the practice and uses the promise of rescuing sexual slaves as a recruiting tool.
Jack Hunter, writing in The American Conservative, provides some more details on this issue.
American troops have been in Afghanistan since 2001. According to the State Department, U.S. officials have obviously been aware of this problem on some level since at least 2010.
For years, it appears to have been the policy of both the Pentagon and Afghanistan’s allies to tell U.S. troops to look the other way when Afghan soldiers raped young boys.
Why aren’t we sounding the alarm on this? Why isn’t anyone trying to stop it?
In December, Congressman Walter Jones (R-NC) sent a letter to Secretary of Defense James Mattis noting that the report exposes “rampant pedophilia among high-ranking Afghan military and police leaders” and that the “American people must know the entire truth about this horrific issue.”
This abuse “has been going on for years and we’ve been supporting it financially,” Jones told NBC News.
Last week, Senator Paul offered an amendment in committee that would withhold all American funding of Afghan forces until a “U.S government watchdog in Afghanistan could verify those forces were not using children as child soldiers or sex slaves.”
Paul told his fellow members of the Senate Foreign Relations Committee, according to a transcript obtained by Breitbart, “I think that the committee is right to be gravely concerned with sexual trafficking and abuse of young people around the world in a variety of countries. I think we shouldn’t turn a blind eye towards when our allies are responsible for this, as well.”
Sen. Paul’s amendment was by blocked by Senators Bob Corker (R-TN) and Bob Menendez (D-NJ). Sen. Corker said that while he agrees with Sen. Paul in spirit, withdrawing U.S. funding of Afghan forces to verify “zero cases of sexual slavery” was impractical from a “broad U.S. national security standpoint.”
In other words, not even rampant pedophilia enabled by U.S. taxpayer dollars is enough to stop funding our unwinnable war in Afghanistan.
It’s darkly amusing how abuse is invoked by Washington hawks to get involved in wars, but when it’s pointed out that U.S. military intervention is actually enabling human rights abuses, no argument is strong enough to bring the troops home.
It’s as if war itself is the priority.
“Why are we still shedding our soldiers’ blood for pedophiles?” Congressman Walter Jones asked on the House floor in February.
It was a good question then.
Read the whole piece here.
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Last week the United States, Mexico, and Canada agreed to replace the North American Free Trade Agreement (NAFTA) with a new United States-Mexico-Canada Agreement (USMCA). Sadly, instead of replacing NAFTA’s managed trade with true free trade, the new USMCA expands government’s control over trade.
For example, under the USMCA’s “rules of origin,” at least 75 percent of a car’s parts must be from the US, Canada, or Mexico in order to avoid tariffs. This is protectionism designed to raise prices of cars using materials from outside North America.
The USMCA also requires that 40 to 45 percent of an automobile’s content be made by workers earning at least 16 dollars per hour. Like all government-set wages, this requirement will increase prices and decrease employment.
The USMCA also requires Mexico to pass legislation recognizing the “right of collective bargaining.” In other words, this so-called free trade agreement forces Mexico to import US-style compulsory unionism. If the Mexican legislature does not comply, the US and Canada will impose tariffs on Mexican goods.
The USMCA also requires the three countries to abide by the International Labour Organization (ILO) standards for worker rights. So, if, for example, the bureaucrats at the ILO declared that Right to Work laws violate “international labor standards”’ because they weaken collective bargaining and give Right to Work states an unfair advantage over compulsory unionism states and countries, the federal government may have to nullify all state Right to Work laws.
The USMCA also obligates the three countries to work together to improve air quality. This sounds harmless but could be used as a backdoor way to impose costly new regulations and taxes, such as a cap-and-trade scheme, on America.
This agreement also forbids the use of currency devaluation as a means of attempting to gain a competitive advantage in international trade. Enforcement of this provision will be difficult if not impossible, as no central bank will ever admit it is devaluing currency to obtain a competitive advantage in international trade. Of course, given that the very act of creating money lowers its value, the only way to stop central banks from devaluing currency is to put them out of business. Sadly, I don’t think the drafters of the USMCA seek to restore free-market money.
The currency provision will likely be used to justify coordination of monetary policy between the Federal Reserve and the Mexican and Canadian central banks. This will lead to region-wide inflation and a global currency war as the US pressures Mexico and Canada to help the Fed counter other countries’ alleged currency manipulation and challenges to the dollar’s reserve currency status.
A true free trade deal would simply reduce or eliminate tariffs and other trade barriers. It would not dictate wages and labor standards, or require inter-governmental cooperation on environmental standards and monetary policy. A true free trade deal also would not, as the USMCA does, list acceptable names for types of cheeses.
Those of us who support real free trade must not let supporters of the USMCA get away with claiming the USMCA has anything to do with free trade. We must also fight the forces of protectionism that are threatening to start a destructive trade war. Also, we must work to stop the government from trying to control our economic activities through regulations, taxes, and (most importantly) control of the currency through central banking and legal tender laws.
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Well by Monday we may have a new Supreme Court Justice as the Senate should vote on the nomination of BrettKavanaughh to the court on Saturday.
The Senate this week passed the FAA reauthorization bill by as vote of 93-6. The six “no” votes were:
John Barrasso (R-WY)
Mike Lee (R-UT)
Ed Markey (D-MA)
Jeff Merkley (D-OR)
Rand Paul (R-KY)
Ron Wyden (D-OR)
See here for details on this bill.
Last week, Senator Rand Paul tried to attach language to an anti-human trafficking bill that would have blocked U.S. taxpayer funds from going to Afghanistan police and military units whose members sexually abuse young boys — a common practice in Afghanistan.
This amendment, which should have sailed through, was blocked by Senate Foreign Relations Chair Bob Corker (R-TN) and Ranking Member Bob Menendez (D-NJ) who offered a substitute amendment studying the problems.
Breitbart has more:
However, Chairman Bob Corker (R-TN) and Ranking Member Bob Menendez (D-NJ) backed a counter-amendment to require the Departments of Defense and State to report on implementation of recommendations made by SIGAR on ending the practice.
Corker said he had “major concerns” with Paul’s approach, calling it unachievable.
“While I enthusiastically support the spirit of Senator Paul’s amendment, and understand what he’s trying to do, I have major concerns with the approach his amendment takes. It would guarantee the withdraw of U.S. support for Afghanistan by setting an unachievable standard requiring the SIGAR verification that there are zero cases of sexual slavery or the utilization of child soldiers by any unit or even individual within the Afghan military or police forces,” he said.
Corker added that such a withdrawal of U.S. support would be problematic from a “broad U.S. national security standpoint,” and eliminate the U.S.’s ability to try to end the practice.
Paul argued that blocking U.S. funds would provide some punishment for the practice and have some effect, whereas requiring a report would have “no effect.”
“Having a report on this will have no effect, and I think essentially turns a blind eye to a horrific practice that’s going on there,” he said. “I think many of us here would say we should have zero tolerance for having sex slaves.”
“We can’t have zero tolerance for sex slaves? Sure, we should, and if there’s evidence of it, they shouldn’t be getting any of our money. And so I absolutely think that we need a stronger version of it, and that the second degree would gut it and make it meaningless and in essence show tacit support for allowing the practice to continue,” he added.
I would take Senator Corker’s concerns about how ending support for the abhorrent practice of abusing children seriously if the U.S. military did not discipline U.S. soldiers who intervene to save children from abuse or didn’t instruct troops sharing barracks with Afghan soldiers to ignore the cries of young boys kept as sex slaves.
The fact that your tax dollars are supporting g this type of activity is truly abhorrent and should be remembered the next time some interventionist talks about how the U.S. is bringing democracy to Afghanistan.
Read the whole Breitbart piece here.
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Your kids won’t get bugs in their food…
Yes, that is now happening in public schools. Baylen Linnekin writing at REASON magazine has the details:
Earlier this month, seventh grader Madison Smith and some of her middle school peers at Madisonville Public School in Madisonville, Tennessee, found what appeared to be maggots in granola sold at the school. The good news, I guess, is that the bugs may have been mites instead of maggots, and the school apologized and assured concerned parents in a Facebook post that such problems wouldn’t happen again.
The bad news, besides the fact kids found bugs in their food in the first place, is that at least one more student found a bug in his food just days later, after the school system had assured parents it’d solved the problem. The bugs led angry parents to call out the school board at a previously scheduled meeting.
It’s not just bugs but lunches of questionable nutritional value that are approved by the federal government:
These parents are hardly the only ones angry about school lunches. In Greenfield, Indiana, reports indicate parents “are upset after they say their children were served two breadsticks as their main entrée for lunch this week.”
The state defended the practice, saying it jives with USDA school-lunch rules because the school also served a protein with the breadsticks, namely a cheese dipping sauce.
“Cheese, per the USDA, is considered a protein and therefore we see schools that offer that sometimes as a protein,” said a spokesman.
The practice seems widespread. Other schools that participate in the USDA school lunch program in Indiana engage in similar practices.
The problems with school lunches go back decades and can not be blamed on Donald Trump or Michelle Obama:
According to federal government data,” I report in the book, “the USDA School Lunch Program served 258 million fewer lunches in 2014 than it did at its high point, in 2010. The number of students paying full price for school lunches today—now 8.8 million— is at its lowest point in recorded history. That’s a drop of more than 50 percent in full-price lunch sales since 1970.”
You could blame these poor outcomes—or today’s school lunch menus that serve kids unfathomable foods such as chili crispitos—on the Trump administration, which rolled back recent school-lunch reforms driven by then-First Lady Michelle Obama. But, as I detailed in a 2014 column on Mrs. Obama’s reforms, the new and improved lunches developed under her watch featured such nutritious lunches as whole grain pepperoni pizza, hot dogs with tater tots, and whole grain chicken nuggets with blueberry bread.
In other words, school lunches have been lacking no matter whether Democrats or Republicans are/were in charge. Today, though – thanks to a rollback under Trump’s USDA of the Obama-era rules – school lunches have been restored to what they were before Michelle Obama’s reforms made them “differently” bad.
Read the whole article here.
Maybe the solution is to get the federal government out of the school lunch business—along with every other aspect of education?
If you’re interested in conducting your own education, check out the Ron Paul Curriculum.
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