US Mulls ‘official’ QE 3.0, Operation Twist AND Fiscal Stimulus

Again, it’s almost too predictable that the path dependency of political authorities have been to resort to more central bank activism and to apply additional government spending on emergent signs of economic weakness.

In the US, the QE 2.0 has still been in motion despite the official program for its closure last June.

Yet, over the interim there have been modified actions which can be extrapolated to stealth QE 3.0: such as extended zero bound rates until 2013 and the reinvesting of principal payments (whose mix of asset purchases would be altered partly to induce mortgage refinancing).

This news account gives light to the potential course of action by Team Ben Bernanke after his speech last night, from Bloomberg, (bold highlights mine)

Federal Reserve Chairman Ben S. Bernanke said policy makers will discuss the tools they could use to boost the recovery at their next meeting this month and stand ready to use them if necessary.

Policy makers “are prepared to employ these tools as appropriate to promote a stronger economic recovery in the context of price stability,” Bernanke said today in Minneapolis, echoing points from his Aug. 26 remarks in Jackson Hole, Wyoming.

The Fed chief, in a speech to economists, stopped short of signaling what he believes is the central bank’s best option to aid the economy. He said in previous remarks that the Fed’s measures to bolster growth include lengthening the duration of securities in its $1.65 trillion Treasury portfolio and buying more government bonds.

Media calls this portfolio rebalancing towards the lengthening of the duration of securities held as ‘Operation Twist’ which apparently aims to lower long term interest rates in order to induce the marketplace to get exposed into more risk assets. This has been part of Bernanke’s dogma of the wonkish Financial Accelerator where

changes in interest rates engineered by the central bank affect the values of the assets and the cash flows of potential borrowers and thus their creditworthiness, which in turn affects the external finance premium that borrowers face

The constant alterations of monetary policy reveal of how the previous QEs has failed. And such experiment/s will likely be put in place ahead of another official QE. The next FOMC meeting will be on the third week of September.

Of course, Ben Bernanke sees inflation as having little risk for him to have the mettle to toy around with such experimental measures.

From Marketwatch.com

see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy

The perceived low risk inflation regime has partly been because of the way the bond markets have been structured which many ideologically biased experts use as measure for inflation, and also of the constant manipulations of the commodity markets as part of their signaling channel to manage ‘inflation expectations’. Even gold markets have been subjected to price suppression scheme according to the Wikileaks

And the barrage of QE in the headlines of late, which I read has been part of this communications management tool being employed to condition the public for the next official QE.

Of course, the last act won’t come from the Bernanke’s Federal Reserve, as President Obama has offered to join in by introducing more government spending coupled with temporary tax cuts to please the opposition (Republicans).

This from the Bloomberg,

President Barack Obama called on Congress to pass a jobs plan that would inject $447 billion into the economy through infrastructure spending, subsidies to local governments to stem teacher layoffs, and cutting in half the payroll taxes paid by workers and small-business owners.

The package is heavily geared toward tax cuts, which account for more than half the dollar value of the stimulus, and administration officials said they believe that will have the greatest appeal to Republican members of Congress.

“The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” Obama told a joint session of Congress tonight, according to a text of the address released by the White House.

A $105 billion infrastructure proposal includes money for school modernization, transportation projects and rehabilitation of vacant properties. Most of the economic impact from the infrastructure spending would be next year though some of it would come in 2013, an administration official said.

“Ultimately, our recovery will be driven not by Washington, but by our businesses and workers,” the president said. “But we can help. We can make a difference.”

The administration estimated that $35 billion it’s seeking in direct aid to state and local governments to stem layoffs of educators and emergency personnel would save the jobs of 280,000 teachers, according to a White House fact sheet.

It has never been the question whether past policies worked. It’s just doing the same thing over and over with practically the same results which represents as plain insanity and the misplaced belief on miracles from centrally planned actions.

Economic reality will eventually unmask the charade of shifting resources from productive activities to non-productive activities that will not only lead to capital consumption but also lead to cronyism, corruption, regime uncertainty, economic and financial fragility and political instability. Obviously Obama's is desperately trying to shore up his re-election odds, whose popularity rating has fallen to new lows.

Nonetheless we will be seeing expanded stimulus from all fronts in the US and the world which means a vastly distorted financial markets. More stimulus on top of the existing ones which means increasing systemic risks from artificial boosters or substance dependency.

This also means traditional metrics in the assessment of the financial marketplace will hardly be effective.

Will the Global Central Banks Coordinate a Global Devaluation or Plaza Accord 2.0?

Policymakers easily change tunes especially when faced with fickle political exigencies

ECB’s President Jean-Claude Trichet, once a reluctant inflationist, will join the US in resorting to ‘open arms’ inflationism.

From the Bloomberg, (bold emphasis mine)

European Central Bank President Jean-Claude Trichet said threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further action should the debt crisis worsen.

The economy faces “particularly high uncertainty and intensified downside risks,” Trichet said at a press conference in Frankfurt today after the ECB left its benchmark rate at 1.5 percent. While monetary policy is still “accommodative,” financing conditions have worsened in parts of the 17-member euro region and the ECB stands ready to pump more cash into markets if needed, he said.

The Bank of England recently refrained from extending credit easing (QE) programs, this could be temporary.

From another article from Bloomberg, (bold emphasis mine)

Bank of England officials resisted calls to extend economic stimulus as they attempt to navigate a path between accelerating inflation and a faltering recovery.

The nine-member Monetary Policy Committee, led by Mervyn King, maintained the target of its bond program at 200 billion pounds ($320 billion), as forecast by all but one of 41 economists in a Bloomberg News survey. It also held the benchmark interest rate at a record-low 0.5 percent today, as predicted by all 57 economists in a separate poll. The pound rose against the dollar after the announcement.

Central banks are refocusing on bolstering growth, with the Bank of Canada saying yesterday there is a “diminished” need for it to raise rates and Sweden’s Riksbank abandoning a planned tightening. While two U.K. policy makers who were calling for rate increases dropped that position last month, the Bank of England may be reluctant to do more so-called quantitative easing with inflation more than double its target.

Again my view is that central bankers appear to be looking for justifications to employ the increasingly unpopular QE programs.

However as shown above, some of the hardliner’s stance can easily give way when confronted by the prospects of a reemergent crisis.

For political authorities, an adapted political stance have mostly been symbolical. For the public hardwired to expect actions from these authorities, it would be politically difficult or unpopular not give in, as crisis can instantaneously change popular perception. Put differently, an aura of desperation can shift what seems unpopular today to become popular tomorrow, and thus political actions can be as capricious as political sentiment.

Yet given the predilection towards QE policies, analysts at Morgan Stanley speculate that a Plaza Accord 2.0 will likely be the course of action for global central bankers.

From Barrons, (bold emphasis mine)

Is a Plaza Accord 2.0 ahead? Some 26 years ago this month, the major industrialized nations hatched a plan to lower the dollar and unleash a wave of liquidity that raised global equity markets in the mid-1980s. Could it happen again?

Yes, say Joachim Fels, Manor Pradhan and Spyros Andreopolous, who head Morgan Stanley's global economics. In a report released Wednesday, they write that monetary authorities of the developed economies -- the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England -- could react to "weak growth and soggy asset markets" with coordinated easing.

In addition, they note that surprise easing moves by leading emerging-market economies, Brazil and Turkey, would complement the process. And while the Morgan Stanley team doesn't mention it explicitly, the Swiss National Bank's decision to peg the Swiss franc to the euro also would be consistent with an internationally coordinated easing move.

In my view, competitive devaluation has not only been happening, but has been intensifying. Although coordination may only be part of the story, perhaps applied to Western and developed economy central banks. Nevertheless the path towards policy harmonization could be in the works as proposed.

Yet I’m not sure about the effects of a global concerted and coordinated devaluation.

Although one thing seems certain: This policy addiction or obsession to debauch or destroy the currency serves as THE reason to own gold.

South Korea Joins the Currency Devaluation Derby

Competitive devaluation has been the central bankers’ conventional response to emergent financial and economic problems. It seems part of their operating manual. And Asian central bankers have been engaging in the same inflationism as with their crisis affected Western counterparts.

From the Wall Street Journal, (bold emphasis mine)

Is anyone really surprised inflation in South Korea has hit a three-year high? They shouldn't be. Seoul is, like so many other East Asian governments, in large part a victim of economic policies hatched in Washington. Yet Korean policy makers seem to be doing everything they can to make their monetary problems worse.

The government was quick to blame last week's price-rise data—up 5.3% for August compared to the same month last year—on that old inflationary whipping boy, the weather. Summer flooding supposedly depressed agriculture supplies and pushed food prices higher. Perhaps that even explains part of it.

But alarm bells also should be ringing over energy prices. The consumer inflation data included increases of between 2% and 10% on various oil and gas products as the government scales back increasingly unaffordable subsidies. No Korean oil fields were flooded since there aren't any Korean oil fields to flood. Clearly something bigger than Mother Nature is afoot.

Such as monetary policy, both in the U.S. and in Korea. Korea has been hit by the same dollar tidal wave the Federal Reserve has unleashed on the rest of the world. These inflows have caused inflation spikes all over, with consumer price rises of nearly 4.5% in Thailand, more than 3% in Malaysia, above 5% in Singapore and so forth in recent months. A weak-dollar policy out of Washington inevitably strains everyone else in what still is the Asian dollar bloc.

Korea, however, has managed to make matters worse by attempting a form of competitive devaluation of the won on the sly. Dollar inflows have also sparked currency appreciations in most corners of Asia, with the yen (up 17.5% vis-à-vis the dollar since January 2010), Singapore dollar (14%) and Thai baht (10%) leading the pack.

But in Seoul, the central bank has refrained from raising interest rates that are still negative after accounting for inflation, despite unsustainably robust growth and mounting evidence of rising prices. Data on foreign-exchange reserve accumulation over the past two years also suggest the government may be quietly buying dollars and selling won, although the government denies this.

Political authorities, adapting the mercantilist view, have been averse to see their currencies appreciate, so their common response has been to resort to the beggar thy neighbor approach of inflating the system.

The five year chart of the South Korean won (from yahoo). The won has not recovered from the 2008 collapse relative to the US dollar.

The race to destroy currencies has been the principal reason why gold prices will continue to blossom.

The Negative Impact of the New Chinese Property Law

Here is an example of how discriminatory laws can adversely affect people’s relationship.

This from the New York Times, (bold emphasis mine)

Millions of Chinese women, and some men, woke on Aug. 13 to discover their spouse had, in effect, become their landlord.

On that day, the Supreme Court’s new interpretation of the 1980 Marriage Law came into force, stipulating that property bought before marriage, either outright or on mortgage, reverted to the buyer on divorce. Previously, the family home had been considered joint property. Experts agree the change would mostly affect women, since men traditionally provide the family home.

The result has been uproar — and, in the cities, a rush to add the wife’s name to title deeds.

Some husbands have agreed to this, but others have balked, and Chinese news outlets have already reported on marriage breakdowns caused by a husband’s refusal to add his wife’s name.

How this law came about?

The government says that in an era of soaring property prices — up about 500 percent since 2000, according to the National Bureau of Statistics — the law must protect a family’s investment. Parents and other relatives often contribute money to buy an apartment for their son, in order to help him attract a wife.

The law does not specify gender, so a woman who bought an apartment would also get it back at divorce. Yet social scientists say far fewer women buy family homes.

The interpretation is intended to address an immediate problem, and not build a perfect, logical system, a senior Supreme Court official, Du Wanhua, told legal experts last year, Southern Weekend reported in a recent article, “The Behind-the-Scenes Struggle of the New Marriage Law.”

But marriage law specialists said court officials ignored their opinions, listening instead to property law specialists.

The above is a lucid example of the untoward unintended consequences of the political actions by an elite group of people who believed that they knew what was best for their constituents. This represents what the great F. A. Hayek calls as the ‘pretence of knowledge’ or ‘fatal conceit’.

Yet the government will not be held accountable for the negative externality or the costs of such laws.

In addition, as admitted by the officials the new law has been meant to “address an immediate problem” which is what politics has mostly been about—short term at the expense of the long term.

Paul Krugman’s Rationalization of Record Gold Prices

Here is Paul Krugman's take on today's record gold prices (quote from the Business Insider) [bold emphasis mine]

The logic, if you think about it, is pretty intuitive: with lower interest rates, it makes more sense to hoard gold now and push its actual use further into the future, which means higher prices in the short run and the near future.

But suppose this is the right story, or at least a good part of the story, of gold prices. If so, just about everything you read about what gold prices mean is wrong.

For this is essentially a “real” story about gold, in which the price has risen because expected returns on other investments have fallen; it is not, repeat not, a story about inflation expectations. Not only are surging gold prices not a sign of severe inflation just around the corner, they’re actually the result of a persistently depressed economy stuck in a liquidity trap — an economy that basically faces the threat of Japanese-style deflation, not Weimar-style inflation. So people who bought gold because they believed that inflation was around the corner were right for the wrong reasons.

My comments

This is an example of a biased ex-post analysis wherein facts are fitted into a theory or model.

First of all, Mr. Krugman assumes a causal linkage between gold prices and interest rates without telling us why gold became the preferred choice of investors among the many possible ‘other investment’ alternatives.

Gold’s prices has just simply been assumed as fait accompli.

Second, it isn’t just gold that’s been rising but the precious metals group and most of the commodity sphere. His model has been silent on this.

The S&P GSCI Energy Index (GSCI), Dow Jones-UBS Agriculture sub index (DJAAG) and Dow Jones-UBS Industrial Metals (DJAIN) are all in an uptrend (yeah blame emerging markets!)

Third, Mr. Krugman does not explain why this relationship did not hold true in the 90s where interest rates had been in a secular decline along with the bear market of gold prices.

Neither does he explain how this model worked when gold prices soared along with ascendant interest rates during the stagflation decade of 1970-1980s

Lastly if Mr. Krugman’s analysis is right, then why hasn’t he predicted today’s record gold prices?

Celebrating Unsung Heroes of Capitalism: Keith W. Tantlinger

From the New York Times (bold emphasis mine)

Nearly six decades ago, Keith W. Tantlinger built a box — or, more accurately, the corners of a box. It was a seemingly small invention, but a vital one: it set in motion a chain of events that changed the way people buy and sell things, transformed the means by which nations do business and ultimately gave rise to the present-day global economy.

Mr. Tantlinger’s box, large, heavy and metal, is known as the shipping container. Though he did not invent it (such containers had been in use at least since the 19th century to haul heavy cargo like coal), he is widely credited with having created, in the 1950s, the first commercially viable modern one.

The crucial refinements he made — including a corner mechanism that locks containers together — allowed them to be hefted by crane, stacked high in ships and transferred from shipboard to trucks and trains far more easily, and cheaply, than ever before.

Thus, without ever intending to, Mr. Tantlinger, an engineer who died at 92 on Aug. 27 and who had long worked out of the limelight, helped bring about the vast web of international trade that is a fact of 21st-century life. More than any other innovation, the modern shipping container — by turns venerated and castigated — is now acknowledged to have been the spark that touched off globalization.

In short, Mr. Tantlinger's propagation and commercialization of the shipping container, which he did not invent but refined on, signifies as one of the main instruments used in international trade. Or our access to a wider variety of products has partly been facilitated by his efforts.

Thanks Mr. Tanlinger.

Heyday for Asian Bankers as the Region’s Millionaires Swell

Asian bankers are having a field day as the number of millionaires in the region swell

From Bloomberg (bold emphasis mine)

Asia-Pacific millionaires outnumbered those in Europe for the first time in 2010, according to a survey by Capgemini SA and Bank of America Corp. More millionaires means more spending and more demand for private wealth managers from banks such as BSI SA, JPMorgan Chase & Co. (JPM), UBS AG (UBSN) and HSBC Holdings Plc. (HSBA)Recruiters say too many banks are hunting too few experienced staff in the region, pushing up salaries and crimping profits.

“Good bankers have at least one offer on the table, if not two,” said Collardi, 37. “Today, if you want to be successful in hiring, you need to be forceful.”

Global demand for client relationship managers is expected to rise 13 percent over 2011 and 2012, while growth in the Asia- Pacific region will be double that, PricewaterhouseCoopers LLP said in an e-mail. That’s pushed top salaries in Singapore to almost twice the level in Switzerland, the world’s biggest offshore wealth manager, according to London-based recruitment firm EMA Partners International.

Senior private bankers in Singapore earn between $160,000 and $410,000 a year, while the comparative range in Switzerland is $152,000 to $210,000, EMA estimates.

“People are simply paying too much and that cannot be justified from an economic point of view,” said Thomas R. Meier, Zurich-based Julius Baer’s CEO in Asia. If a bank pays 30 percent more than a person’s salary at his previous employer, and the new recruit ends up adding just 5 percent more to revenue, the bank will feel the pinch, the 48-year-old said.

The premium to attract somebody new in Asia is 20 percent to 30 percent of their base compensation, said Matthew Streeton, partner at The Consulting Partnership, a Singapore-based recruitment firm. Usually, private bankers get a guaranteed bonus in their first year on top of the base salary and thereafter earn an annual bonus based on performance, he said…

Asia’s 3.3 million high-net-worth individuals had $10.8 trillion in assets, compared with the $10.2 trillion accumulated by their 3.1 million counterparts in Europe, according to the report published in June by Capgemini and Bank of America’s Merrill Lynch Global Wealth Management.

Recruiters say private bankers need an apprenticeship because wealthy clients expect to be advised by someone with experience who can understand their goals.

Remarkably Asian bankers are even paid more than their bosses or multinational employers.

Yet all these signify as mounting evidence of an ongoing paradigm shift from a myriad of agglomerated forces, such as globalization, wealth convergence, the internet, technology driven innovation and differences in the degree of the welfare state, economic freedom and applied administrative, fiscal and monetary policies.

Peter Buffett: Freedom over Money

Not everything is about money. Peter Buffett, son of one of the world's richest and investing savant Warren Buffett, gave up his inheritance of Berkshire Hathaway shares (worth about $72 million in 2010) for the freedom to live a life as musician.

Peter Buffett writes, (hat tip Professor Russ Roberts) [bold emphasis mine]

My inheritance was relatively modest, but it was more than most young people receive to get a start in life. Having that money was a privilege, a gift I had not earned. If I'd faced the necessity of making a living from day one, I would not have been able to follow the path I chose.

Would my father have helped me get started if I'd chosen a career on Wall Street? I'm sure he would have. Would he have given me a job at Berkshire Hathaway if I'd asked for one? I suppose so. But in either of those cases, the onus would have been on me to demonstrate that I felt a true vocation for those fields, rather than simply taking the course of least resistance. My father would not have served as an enabler of my taking the easy way out. That would not have been an exercise of privilege, but of diminishment.

This demonstrates the differences of value preferences. Peter's priorities are different from his father's. One cannot measure individual choices from aggregates or statistics.

Yet like Professor Roberts, who counselled his students “not to take the job that pays the most money” but instead go for trade which delivers “satisfaction, meaning, leisure, beauty, pride, and honor,” I recently advised my newly graduate eldest son not to seek the pursuit of money as the primary objective for career development, but to go for specialization in the field which he feels comfortable with.

After all, achieving career excellence is about the ability to serve consumers; where consumers ultimately determine one’s market value or career success (outside the political spectrum).

Euro Crisis: Path towards United States of Europe?

Is the Emmanuel Rahm creed of using crisis as an opportunity to expand political power being tacitly enforced in the Eurozone?

This from the New York Times, (bold emphasis mine)

As leaders in Europe try to contain a deepening financial crisis, they are also increasingly talking about making fundamental changes to the way their 17-nation economic union works.

The idea is to create a central financial authority — with powers in areas like taxation, bond issuance and budget approval — that could eventually turn the euro zone into something resembling a United States of Europe.

Officials have been hesitant to publicly endorse such a drastic change. But privately they say the issue has gained urgency in recent months, as it has become clear that Europe’s current approach, which requires unanimity on any significant moves, is unwieldy and inefficient. The idea is being promoted by some global financial officials, who worry about the risks that continued uncertainty in Europe poses to the global economy.

Recently, for instance, when an official from a European central bank met with a financial official in Washington, his host brandished the Articles of Confederation, the 1781 precursor to the United States Constitution, to use as an example of why stronger unions become necessary…

And that is why, despite all the political obstacles, Europe appears to be inching closer to a more centralized approach, and some officials are going public on the issue…

The idea of a European Treasury that would enforce fiscal discipline on wayward countries, while also having the power to spread European Union wealth from healthier countries to ones struggling to pay their debts, is fiercely unpopular among voters in many countries. Those in prosperous nations like Germany do not want to see their taxes used to bail out countries that borrowed their way into trouble. And those in weaker nations are reluctant to allow outsiders to dictate how their governments spend their money and tax their citizens.

I have dealt with this earlier.

Those who believe that the success of the Euro will depend on ‘fiscal and political union’ will acclaim this move as a necessity. They would see this as an elixir. Again, they would be wrong.

As I pointed out earlier, the Soviet Union (or Yugoslavia) had them both, but this didn’t stop these unions from dissolution. Proponents of the political-fiscal union nostrum, only look at the US as THE model, without looking at others. This is called the focusing effect.

Yet everything boils down to fundamental economics, where spending more than one can finance would extrapolate to insolvency, bankruptcy and or eventual political dismemberment. No amount of fiscal or political union will stop this. Politics will never supersede economics.

The obsession to centralize and its fulfillment would account for the death knell for the Euro.

Apparently the current political winds hasn’t been to wean away from the welfare state, instead, such gradualist actions toward a ‘United States of Europe’ implies of the opposite—the preservation and expansion of the tripartite political architecture of the welfare state-central bank-banking system. In other words, use the political union to save the banking system and expand control over the marketplace.

This reveals that the politicians of the Eurozone seek models that only suit their self-interests.

As earlier noted, the political climate of the Eurozone could be symptomatic of the state of the mental health of many Europeans.

Many Europeans Suffer from Mental Illness

That’s from Reuters,

Europeans are plagued by mental and neurological illnesses, with almost 165 million people or 38 percent of the population suffering each year from a brain disorder such as depression, anxiety, insomnia or dementia, according to a large new study.

With only about a third of cases receiving the therapy or medication needed, mental illnesses cause a huge economic and social burden -- measured in the hundreds of billions of euros -- as sufferers become too unwell to work and personal relationships break down.

"Mental disorders have become Europe's largest health challenge of the 21st century," the study's authors said…

Mental illnesses are a major cause of death, disability, and economic burden worldwide and the World Health Organization predicts that by 2020, depression will be the second leading contributor to the global burden of disease across all ages.

Wittchen said that in Europe, that grim future had arrived early, with diseases of the brain already the single largest contributor to the EU's burden of ill health.

The four most disabling conditions -- measured in terms of disability-adjusted life years or DALYs, a standard measure used to compare the impact of various diseases -- are depression, dementias such as Alzheimer's disease and vascular dementia, alcohol dependence and stroke.

The last major European study of brain disorders, which was published in 2005 and covered a smaller population of about 301 million people, found 27 percent of the EU adult population was suffering from mental illnesses.

Although the 2005 study cannot be compared directly with the latest finding -- the scope and population was different -- it found the cost burden of these and neurological disorders amounted to about 386 billion euros ($555 billion) a year at that time. Wittchen's team has yet to finalize the economic impact data from this latest work, but he said the costs would be "considerably more" than estimated in 2005.

Let me guess, the above signify as indirect consequences of the welfare state.

Also, with 4 out of 10 people suffering from mental disorders, many of them are likely politicians and from the bureaucracy, so it would not be farfetch to deduce that the political and regulatory environment could also be symptomatic of the above diseases.

Regime Uncertainty: Assault on Private Property Rights

Professor Robert Higgs explains, (bold emphasis mine)

it has to do with widespread inability to form confident expectations about future private property rights in all of their dimensions. Private property rights specify the property owner’s rights to decide how property will be used, to accrue income from its uses, and to transfer these rights to others in various voluntary arrangements. Because the content of private property rights is complex, threats to such rights can arise from many different sources, including actions by legislators, administrators, prosecutors, judges, juries, and others (e.g., sit-down strikers, mobs).

Because of the great variety of ways in which government officials can threaten private property rights, the security of such rights turns not only on law “on the books,” but also to an important degree on the character of the government officials who administer and enforce the law. An important reason why regime uncertainty arose in the latter half of the 1930s, for example, had to do with the character of the advisers who had the greatest access to President Franklin Roosevelt at that time—people such as Tom Corcoran, Ben Cohen, William O. Douglas, Felix Frankfurter, and others of their ilk. These people were known to hate businessmen and the private enterprise system; they believed in strict, pervasive regulation of the market system by—who would have guessed?—people such as themselves. So, as bad as the National Labor Relations Board was on paper, it was immensely worse (for employers) in practice. And so forth, across the full range of new regulatory powers created by New Deal legislation. In a similar way, the apparatchiki who run the federal regulatory leviathan today can only inspire apprehension on the part of investors and business executives. President Obama’s cadre of crony capitalists, which he drags out to show that “business is being fully considered,” in no way diminishes these worries.

Thus, regime uncertainty is a multifaceted and somewhat nuanced concept. Many economists don’t like it because it cannot be measured and compiled along with other standard macro variables in a convenient data base.

Read the rest here

Every time governments intervene in the marketplace someone’s property rights gets affected. The unintended consequence is risk aversion from heightened atmosphere of uncertainty.

Hot: Swiss National Bank to Embrace Zimbabwe’s Gideon Gono model

The Swiss National Bank has impliedly adapted Zimbabwe’s Central Bank Governor Gideon Gono’s hyperinflationary model.

From Reuters, (bold emphasis mine)

The Swiss National Bank said on Tuesday it would set a minimum exchange rate target of 1.20 francs to the euro and would enforce it by buying foreign currency in unlimited quantities.

The Fiat money standard’s race to perdition via competitive devaluation seems to be accelerating.

All these for saving the banking system. As I recently wrote,

Late last week, the US Federal Reserve has extended a $200 million loan facility via currency swap lines to the Swiss National Bank (SNB), as an unidentified European bank reportedly secured a $500 million emergency loan. This essentially validates my suspicion that the so-called currency intervention by the SNB camouflaged its true purpose, i.e. the extension of liquidity to distressed banks, whose woes have been ventilated on the equity markets.

Creative Destruction: The Growing Obsolescence of Postal Service

The US Postal Service is a great example of how vertical hierarchical organizations or political institutions are headed the way of the dinosaurs.

From the New York Times, (bold emphasis mine)

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.

The post office’s problems stem from one hard reality: it is being squeezed on both revenue and costs.

As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail.

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

The postal office model represents an artifact of the industrial age. The deepening of the information age or the internet revolution has been rendering such model obsolete. This is creative destruction at work.

This is also a magnificent example of how the internet has been reconfiguring social activities.

Because the postal office is a political institution, organizational inefficiencies have exacerbated its financial woes. This can be seen by the labor heavy share of the agency’s expenses relative to the private sector counterparts. Its existence has palpably been designed to generate votes than to serve the public.

Under current conditions, the agency’s survival entirely depends on taxpayer funding. With the welfare state apparently crumbling from the self-inflicted borrow-tax-spend ways, any imperative to balance the fiscal budget extrapolates to the agency’s prospective extinction or privatization.

The fate of the US postal service and its growing obsolescence will apply around the world.

Joseph Stiglitz: The US Federal Reserve is ‘Corrupt’

From the Huffington Post,

One of the world's leading economists said Wednesday that the very structure of the Federal Reserve system is so fraught with conflicts that it's "corrupt."

Nobel laureate Joseph Stiglitz, a former chief economist at the World Bank, said that if a country had applied for World Bank aid during his tenure, with a financial regulatory system similar to the Federal Reserve's -- in which regional Feds are partly governed by the very banks they're supposed to police -- it would have raised alarms.

"If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure," Stiglitz said during a conference on financial reform in New York. "It's time for us to reflect on our own structure today, and to say there are parts that can be improved."

Stiglitz made the remarks at a conference held by the Roosevelt Institute. He and other speakers, including Harvard Law Professor and federal bailout watchdog Elizabeth Warren and legendary investor George Soros, had bold ideas about reforming the nation's financial system.

After the conference, Stiglitz said that his remarks on the Fed were "maybe a little hyperbole," but then again made the case that if another country had presented a plan to reform its financial system, and included a regulatory regime that copied the makeup of the Federal Reserve system, "it would have been a big signal that something is wrong."

To Stiglitz, the core issue is that regional Fed banks, such as the New York Fed, have clear conflicts of interest -- a result of the banks being partly governed by a board of directors that includes officers of the very banks they're supposed to be overseeing.

Corruption is a product of arbitrary edicts, fiats or laws which benefits vested interest groups.

Central banking has been institutionalized to safeguard the interests of the welfare-warfare state through the funding mechanism of the banking system. So obviously ‘conflicts of interests’ that leads to corruption has been the institution's conventional trait.

Gold Reclaims $1,900 level

As Europe equities endures another bout of paroxysm today, gold prices race back to reclaim the $ 1,900 level.

Why Capital Standard Regulations Will Fail (Part 2)

In my earlier post, I presented one of the three major arguments on why capital regulation standards won’t live up on its expected role to curb systemic failures.

regulators think that the action of bankers can be restrained by virtue of fiat. They are delusional. They forget that as humans, regulator-banker relationship will be subject to various conflict of interests relationships such as the agency problems, time consistency dilemma, regulatory arbitrage and regulatory capture aspects.

In reality, more politicization of the banking-central banking amplifies systemic fragility.

In a recent paper Cato’s Kevin Dowd, Martin Hutchinson, Simon Ashby, and Jimi M. Hinchliffe writes, (bold emphasis mine)

In this paper, we provide a reassessment of the Basel regime and focus on its most ambitious feature: the principle of “risk-based regulation.” The Basel system suffers from three fundamental weaknesses: first, financial risk modeling provides the flimsiest basis for any system of regulatory capital requirements. The second weakness consists of the incentives it creates for regulatory arbitrage. The third weakness is regulatory capture.

The Basel regime is powerless against the endemic incentives to excessive risk taking that permeate the modern financial system, particularly those associated with government-subsidized risk taking. The financial system can be fixed, but it requires radical reform, including the abolition of central banking and deposit insurance, the repudiation of “too big to fail,” and reforms to extend the personal liability of key decision makers—in effect, reverting back to
a system similar to that which existed a century ago.

The Basel system provides a textbook example of the dangers of regulatory empire building and regulatory capture, and the underlying problem it addresses—how to strengthen the banking system—can only be solved by restoring appropriate incentives for those involved.

So the Cato study essentially echoes my insights.

For me, ‘regulatory empire building’ signifies as the conventional political process that has been designed to promote and sustain a welfare-warfare state. The welfare-warfare state depends on the de facto fiat paper money platform that basically operates on a central banking-banking industry cartel, which funnels much of the funds from the private sector to the political class (financial repression).

The Basel system essentially institutionalizes such operating framework. Capital standard regulations applied to the global banking system which assigns government bonds as ‘risk free’, which requires banks to finance government spending by holding sovereign liabilities into their balance sheets, has been backfiring on the back of unsustainable economics of the welfare-warfare state. Economics cannot be dictated by fiat or by legislation.

The financial system can indeed be fixed, but I think, it will take a a major systemic collapse for the political incentives to change.

In the meantime, politicians around the world will invariably resort to various band-aid, kool aid and ‘extend and pretend’ measures in response to any emergent problems. This will continue to accrue strains into the fragile incumbent operating system.

Let me repeat, politicization of the banking and financial industry will amplify, and not reduce, systemic fragility.

Genuine reforms must be directed towards empowering the markets over politics.

Hot: Wikileaks Exposes Gold Price Suppression

Writes Chris Powell, Secretary/Treasurer of Gold Anti-Trust Action Committee Inc. (GATA), published at the goldseek.com (bold emphasis mine)

China knows that the U.S. government and its allies in Western Europe strive to suppress the price of gold, and the U.S. government knows that China knows, according to a 2009 cable from the U.S. Embassy in Beijing to the State Department in Washington.

The cable, published in the latest batch of U.S. State Department cables obtained by Wikileaks, summarizes several commentaries in Chinese news media on April 28, 2009. One of those commentaries is attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:

"According to China's National Foreign Exchanges Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."

It's hard to believe that, two years later, China is still leaving so much of its gold with the Federal Reserve Bank of New York and the Bank of England when even little Venezuela has publicly figured out the gold price suppression component of the Western fractional reserve banking system and is attempting to repatriate its gold from the Bank of England and various Western bullion banks:

http://www.gata.org/node/10281

http://www.gata.org/node/10286

It is already a matter of record that China dissembled about its gold reserves for the six years prior to the public recalculation of its gold reserves in April 2009 that prompted the commentary in Shijie Xinwenbao. At that time China announced that its gold reserves were not the 600 tonnes it had been reporting each year for the previous six years but rather 76 percent more, 1,054 tonnes:

http://www.gata.org/node/9545

ZeroHedge, which seems to have broken the story of the Beijing embassy cable this evening, comments:

"Wondering why gold at $1,850 is cheap, or why gold at double that price will also be cheap, or, frankly, at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best and illogical at worst. We have a suspicion that the following cable from the U.S. embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24-karat pool."

The ZeroHedge commentary can be found here:

http://www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-...

In addition to fund managers throughout the world, this cable may be of special interest to the gold bears CPM Group Managing Director Jeff Christian, who says he consults with most central banks and that they hardly ever think about gold, and Kitco senior analyst Jon Nadler, who insists that central banks have no interest whatsover in manipulating the gold price.

In fact, of course, gold remains the secret knowledge of the financial universe, and its price is actually the determinant of every other price and value in the world.

The Beijing embassy cable can be found here:

http://cables.mrkva.eu/cable.php?id=204405

And, just in case, at GATA's Internet site here:

http://www.gata.org/files/USEmbassyBeijingCable-04-28-2011.txt

This only exhibits how the welfare-warfare state-central banking-banking cartel have been deeply averse to reinstate a sound money regime which extrapolates to a dilution of their political power, and thus the continuing saga of the war on gold (sound money) and on free markets.

Graphic: Interpreting Reality

I am still working on normalizing my computer, so my weekly stock market posting will hopefully resume by next weekend.

For the meantime, enjoy this great graphic from David Shrigley at ilovecharts.tumblr.com, which I labeled as 'interpreting reality'.

Does Rising Global Middle Class Presage Growing Demand for Classical Liberalism?

Globalization seems to have brought about a significant surge in the number of middle class.

Chart from the Economist

As a political force, the role of the middle class has been transitioning from one of passivism into activism.

The Economist notes, (bold highlights mine)

In rich countries the humbling of governments has been largely a result of economic slowdown, combined with problems in controlling public finances. Emerging markets, in contrast, have kept growth going, while public spending is (mostly) under control. The explanation for their political woes must lie elsewhere. The most plausible one is that India and China—and possibly other emerging markets, too—are experiencing the early stirrings of political demands by the growing ranks of their middle classes…

Polling evidence says middle-class values are distinctive. In a survey of 13 emerging markets by the Pew Global Attitudes Project in Washington, DC, the middle classes consistently give more weight to free speech and fair elections than do the poor, who are more concerned than the middle class about freedom from poverty. These differences hardly come as a shock. But they still matter because they mean that as the middle class grows, abstract ideas about governance come to play a bigger role in politics.

For now their focus has mostly been in the politics of corruption (bold emphasis mine)

There is no single explanation for the new middle-class activism. Given the rise in their numbers, it was probably bound to happen at some point. The spread of micro-blogging services has surely made some difference. Sina Weibo claims 140m users, mostly from China’s urban middle class. They posted 10m messages about the rail crash within days. The emerging giants have lost some of their economic sizzle lately, which might have had an effect—not (as in the West) by cutting jobs and government services, but by casting doubts on the cult of growth. Some observers (including, it seems, the Chinese Communist Party) have even worried that demonstrators might be emboldened to copy the Arab spring, though that seems far-fetched.

In contrast to the unrest in Middle Eastern countries, the middle-class activism of India and China is not aimed at bringing governments down. Rather, a narrower concern animates them: corruption…

This focus on corruption suggests that, at the moment, middle-class activism is a protest movement rather than a political force in the broader sense. It is an attempt to reform the government, not replace it. But that could change. In most middle-income countries, corruption is more than just a matter of criminality; it is also the product of an old way of doing politics, one that is unaccountable, untransparent and undemocratic. Ashutosh Varshney, at the Institute of Social and Economic Change in Bangalore, also argues that richer Indians resent corruption less because of the money wasted—which they can afford—than because they want clean government for its own sake: “the middle class is asserting its citizenship right to get government services without a bribe.”

As wealth from globalization expands and diffuses, it is likely that the desire for political freedom would follow. Such dynamic appears to be epitomized by the seminal focus on free speech, ‘fair’ elections and corruption free governance.

Yet again, the internet (via the blogsphere) has been proving to be a potent force in influencing such changes.

As the great Ludwig von Mises wrote (Planning for Freedom p.38),

The idea that political freedom can be preserved in the absence of economic freedom, and vice versa, is an illusion. Political freedom is the corollary of economic freedom. It is no accident that the age of capitalism became also the age of government by the people. If individuals are not free to buy and to sell on the market, they turn into virtual slaves dependent on the good graces of the omnipotent government, whatever the wording of the constitution may be.

In my view, the trend towards Classical liberalism seem to be seguing from the fringes towards the mainstream.

Quote of the Day: Nassim Taleb on Bankers Ethics

Celebrated author of the Black Swan theory fame Nassim Nicholas Taleb and Mark Spitznagel questions the propriety of nearly $5 trillion paid to bankers, who continues to operate on the model of privatizing profits and socializing losses.

They write, (bold emphasis mine)

One may wonder: If investment managers and their clients don’t receive high returns on bank stocks, as they would if they were profiting from bankers’ externalization of risk onto taxpayers, why do they hold them at all? The answer is the so-called “beta”: banks represent a large share of the S&P 500, and managers need to be invested in them.

We don’t believe that regulation is a panacea for this state of affairs. The largest, most sophisticated banks have become expert at remaining one step ahead of regulators – constantly creating complex financial products and derivatives that skirt the letter of the rules. In these circumstances, more complicated regulations merely mean more billable hours for lawyers, more income for regulators switching sides, and more profits for derivatives traders.

Investment managers have a moral and professional responsibility to play their role in bringing some discipline into the banking system.

So ad hoc conventionalism or peer pressures have been one of the key influences for the financial industry to shore up bank equities, which apparently has resulted to the unethical banking practices brought about by the sense of entitlement and moral hazard from continued government support.

Obviously this has been part of the comprehensive framework to buttress the decadent welfare state-central banking-banking system architecture.

Read the rest of their excellent piece here

More Signs of Decentralization: Europe Eyes Liberalization of Professions

Speaking of centralized forces giving way to decentralization, here is another very important development—parts of Europe now plans to liberalize professions

This from Bloomberg,

While Greece started lifting the legal shield for more than 150 jobs two months ago, Italy retains restrictions on who can enter professions. Prime Minister Silvio Berlusconi plans to strip away the protection as he tries to avert a debt crisis by revitalizing an economy that’s trailed the average growth rate for the euro region since its formation.

Fostering competition across the economy would boost growth by as much as 1.8 percentage points a year, according to Antonio Catricala, head of the country’s Antitrust Authority. That includes protected groups such as pharmacists, notaries, accountants and taxi drivers.

“A liberalization of professions and more in general of the whole economy may lead to additional growth,” Catricala said in a telephone interview. More competition would “have a positive impact on employment,” as joblessness among young people is about 30 percent, he said...

The parliament in Rome will vote as early as next week on a plan passed by Berlusconi’s cabinet on Aug. 12 that commits lawmakers to liberalizing the professions within a year. Some barriers, such as compulsory membership of professional groups and tests to join, would require changes to the constitution.

Important changes have been happening at the margins. Such transition would not be smooth though, as many entrenched forces will fight to preserve the status quo.

How the Information Age Affects Asian Banking

The McKinsey Quarterly writes, (bold emphasis mine)

Banks doing business in Asia face rapidly changing consumer behavior, with big consequences for both local and multinational institutions. Consumers increasingly prefer local banks over multinationals, are less loyal to existing banking relationships, are much more cautious about borrowing, and are more open to Internet and mobile banking. These shifts in the nature of banking relationships, product and service needs, and channels are reflected in a 2011 McKinsey survey of 20,000 consumers in 13 Asian markets...

Asian consumers are being weaned from brick-and-mortar branches: for the first time since McKinsey began conducting the survey, 13 years ago, bank branch usage has dropped, plunging by 27 percent on average across Asia between 2007 and 2011.

This drop has been matched by an uptick in Internet and mobile banking, a trend particularly pronounced in developed Asian markets, such as Hong Kong, South Korea, and Taiwan. There, consumers now use new channels, such as the Internet and mobile devices, for their banking more often than traditional ones, such as telephones and branches: the use of new channels rose to 3.2 times a month in 2011, from 2.35 in 2007, while that of traditional channels dropped to 2.57 times a month, from 3.5. In China, about 18 percent of all people who patronize banks now use Internet banking, compared with only 3 percent in 2007.

That shift arises largely from the increased penetration of remote channels. A growing number of customers across income segments are getting accustomed to and comfortable with them for both sales and service. The multichannel environment has thus become a reality: our research highlights the fact that, on average, Asian consumers are using as many as 5 channels for research and 1.8 channels for maintenance.

Some comments

The rapid shift in the preferences of Asian consumers reveals of the increasing personalization or specialization of markets. This extrapolates to an intensifying trend of de-massification of financial services towards niche markets or a transition from products and services designed for the masses towards decentralization or localization. Providers who cannot cope will this seismic development will perish. This is the forces of creative destruction at work.

And this paradigm shift is being enabled and facilitated by the internet which again exhibits how the web revolution has immensely been affecting people’s lifestyle.

In addition, this is another proof that people are getting to be more sophisticated with an extended reach or access to information.

This also means more value added services for the increasingly discriminate consumers.

The forces of centralization seems to be paving way for reign of the forces of decentralization.

The great F. A. Hayek’s knowledge revolution is underway.

P.S. My computer hasn't normalized yet so my post will remain limited

Asian Capital Markets Likely a Beneficiary of Europe’s High Taxes and Regulatory Maze

“If you tax something, you get less of it”, that’s Professor Mark Perry’s Economics 101

The following should be a great example, from Bloomberg, (bold highlights mine)

Banks in Europe are exploring ways to cut costs by routing more of their trades and other business through overseas subsidiaries, a plan that may shift tax revenue away from London and loosen European regulators’ influence over the lenders.

Nomura Holdings Inc., HSBC Holdings Plc (HSBA) and UBS AG (UBSN) are among lenders preparing plans to book as much business as possible through legal entities in jurisdictions where tax rates are lower and rules on capital and liquidity are less onerous, the banks and lawyers and accountants working with them say.

“Every bank is trying to work out the best way to be structured under the new rules,” Chris Matten, a partner at PricewaterhouseCoopers LLP in Singapore, said in a telephone interview. “It’s not just a question of what activities banks are in. It’s about which entities they put that business through and in which jurisdictions.”

Banks could record as much as 30 percent of the value of their trades through Hong Kong, Singapore and other jurisdictions instead of hubs such as London and New York without running into trouble with regulators, Matten said. Such a move would hurt traditional hubs such as London because assets are treated for tax and regulatory purposes in the country where they are booked. It would also allow banks to sidestep the U.K. bank levy, introduced last year to raise 2.5 billion pounds ($4.1 billion) from lenders operating in Britain, as well as any financial transaction tax imposed by the European Union.

This is one major lesson politicians and their followers can’t seem to digest, absorb or learn.

Nevertheless, this is also one major factor that could drive funds and the banking business to Asia.

Their loss could be our gain, that’s if we heed of the fundamental truism shown above.

Quote of the Day: Ludwig von Mises on Fascism

Fascism, as defined by dictionary.com, is a government system led by a dictator having complete power, forcibly suppressing opposition and criticism, regimenting all industry, commerce, etc…, and emphasizing on aggressive nationalism and often racism

In today’s political environment, here and abroad, almost all aspects of civil and economic liberties have been under assault from the gradualist expansion of implicit fascism; think bailouts, QEs, manipulated interest rates, war on commodities, bans on short sales, smoking, anti-smoke belching and etc…

Nevertheless, this prescient block quote from the great Ludwig von Mises written in 1927 runs valid today [Liberalism, The Argument of Fascism, Chapter 1 Section 10]

What distinguishes liberal from Fascist political tactics is not a difference of opinion in regard to the necessity of using armed force to resist armed attackers, but a difference in the fundamental estimation of the role of violence in a struggle for power. The great danger threatening domestic policy from the side of Fascism lies in its complete faith in the decisive power of violence. In order to assure success, one must be imbued with the will to victory and always proceed violently. This is its highest principle. What happens, however, when one's opponent, similarly animated by the will to be victorious, acts just as violently? The result must be a battle, a civil war. The ultimate victor to emerge from such conflicts will be the faction strongest in number. In the long run, a minority -- even if it is composed of the most capable and energetic -- cannot succeed in resisting the majority. The decisive question, therefore, always remains: How does one obtain a majority for one's own party? This, however, is a purely intellectual matter. It is a victory that can be won only with the weapons of the intellect, never by force. The suppression of all opposition by sheer violence is a most unsuitable way to win adherents to one's cause. Resort to naked force -- that is, without justification in terms of intellectual arguments accepted by public opinion -- merely gains new friends for those whom one is thereby trying to combat. In a battle between force and an idea, the latter always prevails.

Fascism can triumph today because universal indignation at the infamies committed by the socialists and communists has obtained for it the sympathies of wide circles. But when the fresh impression of the crimes of the Bolsheviks has paled, the socialist program will once again exercise its power of attraction on the masses. For Fascism does nothing to combat it except to suppress socialist ideas and to persecute the people who spread them. If it wanted really to combat socialism, it would have to oppose it with ideas. There is, however, only one idea that can be effectively opposed to socialism, viz., that of liberalism.

It has often been said that nothing furthers a cause more than creating, martyrs for it. This is only approximately correct. What strengthens the cause of the persecuted faction is not the martyrdom of its adherents, but the fact that they are being attacked by force, and not by intellectual weapons. Repression by brute force is always a confession of the inability to make use of the better weapons of the intellect -- better because they alone give promise of final success. This is the fundamental error from which Fascism suffers and which will ultimately cause its downfall. The victory of Fascism in a number of countries is only an episode in the long series of struggles over the problem of property. The next episode will be the victory of Communism. The ultimate outcome of the struggle, however, will not be decided by arms, but by ideas. It is ideas that group men into fighting factions, that press the weapons into their hands, and that determine against whom and for whom the weapons shall be used. It is they alone, and not arms, that, in the last analysis, turn the scales.

So much for the domestic policy of Fascism. That its foreign policy, based as it is on the avowed principle of force in international relations, cannot fail to give rise to an endless series of wars that must destroy all of modern civilization requires no further discussion. To maintain and further raise our present level of economic development, peace among nations must be assured. But they cannot live together in peace if the basic tenet of the ideology by which they are governed is the belief that one's own nation can secure its place in the community of nations by force alone.

It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.

Intellect versus force, that’s the essence of classical liberalism.

"Tu ne cede malis sed contra audentior ito", this favorite quote of Prof von Mises comes from Vigil which means "do not give into evil but proceed ever more boldly against it".

Hat tip: Cato’s Jason Kuznicki