Friday, March 1, 2024
The G7 will rebuild Ukraine and make Russia pay for it?
The G7 leaders are making a similar boast about the war in Ukraine. In a statement issued in late February, the G7 reaffirmed the West's unwavering commitment to supporting Ukraine in its struggle to defeat the Russians.
As video images show, the war has wrecked many of Ukraine's cities and infrastructure. The G7 estimates the cost of rebuilding Ukraine to be about half a trillion dollars.
Who will pay for the damages? The G7 says Russia will pay. "It is not right." The G7 said, "for Russia to decide if or when it will pay for the damages it has caused in Ukraine . . . Russia should not be able to indefinitely delay payment it owes."
That's just bullshit. No one believes the Western powers can shake down Russia for half a trillion dollars. Even if it were possible, forcing Russia to pay a bill of that size would destroy the Russian economy. Who wants that?
Apparently, the G7 leaders don't know what happened when the Western allies forced Germany to pay war reparations at the end of the First World War. Germany tried to pay what the Allies said it owed, but its efforts helped trigger hyperinflation that wiped out Germany's middle class. German bitterness about the Allies' reparation demands helped set the stage for Hitler's rise and World War II.
Ukraine's war with Russia is a needless catastrophe. Americans are being lied to about the conflict. Neither the Russians nor the Ukrainians are telling the truth about their casualties, which are likely much higher than the figure of half a million that the press reported last August.
Americans are also being lied to about how the war is going. Ukraine is losing this war, and President Zelenskiy's vow to take back Crimea is almost clinically delusional.
This war needs to end now while Ukraine can still get reasonable terms. The United States needs to stop pouring money down the rat hole of Ukraine's corrupt government. Suppose this war goes on for another year or two. In that case, it will seriously damage the American economy--not to mention the possibility that the Ukraine debacle plunges the U.S. into war with Russia.
Friday, January 1, 2021
Post-Modern America is as vicious and dysfunctional as Victorian England, the Weimar Republic, and 17th century France
If you get your news from network television, you are being bombarded by commercials about prescription medicines and financial services.
These ads typically show prosperous older Americans who look remarkably fit, live in lovely homes, and spend their days cooking gourmet meals, wind-surfing, and flyfishing with their adorable grandchildren.
These advertisements purport to show life in 21st century America--the best of all possible worlds where everyone is healthy, happy, and financially secure.
But I don't live in that America, and you don't either. Instead, most of us live in a society that is remarkably similar to dysfunctional regimes of bygone centuries.
Our government is printing money at a frightening pace to prop up the financial markets, much like the Weimar Republic did in the 1920s. And we know how that turned out. Germany experienced runaway inflation that set the stage for Adolph Hitler.
We may celebrate the fact that the United States abolished debtors' prisons, but 21st century America treats debtors much the way England treated them in the Victorian age.
We don't deport debtors to Australia or put them in jail as England did in Charles Dickens' time, but we've created a virtual prison for student-loan borrowers, millions of whom are trapped in income-based repayment plans that last 25 years. Compounding student-debtors' misery, our supposedly benevolent Congress has made it almost impossible for insolvent student-loan debtors to get relief in the bankruptcy courts.
And the American tax system is remarkably like the tax regime in Louis XIV's France. W.H. Lewis, who wrote a masterful social history of seventeenth-century France, described the French tax structure this way;
[T]he whole fiscal system was in itself radically and incurably vicious; as a contemporary remarks, if he Devil himself had been given a free hand to plan the ruin of France, he could not have invented any scheme more likely to achieve that object than the system of taxation in vogue, a system which would seem to have been designed with the sole object of ensuring a minimum return to the King at a maximum price to his subjects, with the heaviest share falling on the poorest section of the population.
Doesn't that sound like the American tax system? Sure it does. As financial tycoon Warren Buffett has repeatedly observed, he pays federal taxes at a lower rate than his secretary.
And the COVID pandemic didn't change the system at all. Indeed, the latest coronavirus relief package includes 100 percent deductibility for the so-called "three-martini lunch." Think about it: wealthy Americans can write off extravagant meals that can cost more than $1,000, while the working stiff gets a $600 coronavirus-relief check.
In short, although Americans may deceive themselves into believing that our society is evolving into a paradise based on the principles of equity, diversity, and inclusion, in fact, we live in a world not so very different from Victorian England, Weimar Germany, and 17th century France.
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Louis XIV: Is everybody happy? |
Monday, November 23, 2020
Toilet-paper college degrees paid for with toilet-paper money: DOE's expert says taxpayers on hook for $400 million in student loans
Our old friend, the U.S. Department of Education, released an internal report showing that the U.S. government will probably lose about $435 billion in unpaid student loans.
As Josh Mitchell pointed out in a Wall Street Journal article, this amount approaches the amount of money private lenders lost during the 2008 home-mortgage fiasco. Unlike 2008, however, the student-loan crisis will probably not trigger a financial meltdown. The feds will simply borrow billions of new dollars to absorb the loss. The taxpayers won't even notice.
But I think the student-loan debacle is worse than DOE's internal report admits. Nine million people are in long-term, income-based repayment plans (IBRPs), and almost all of them are not making monthly loan payments that are large enough to cover accruing interest on their underlying loans. DOE's report estimates that IBRP borrowers will only pay off about half the amount of their loan balances. But the loss must be larger than that if the vast majority of people in these plans aren't paying down their loans.
Millions of people are taking out student loans to finance their college degrees--betting that their education will land them a good job. Too often, they lose the bet.
Meanwhile, people who skip college for a vocational school or an apprenticeship in the trades are making more money than college grads and aren't mired in student-loan debt. As Zero Hedge Fund put it, "there are plenty of hard working plumbers earning six-figures, who didn't take on a mountain of debt for a toilet-paper degree."
As conservative economists keep warning us, the Unites States will soon experience a spike in inflation unless the government stops printing money and running deficit budgets. When that occurs, students will have the bitter satisfaction of paying off their loans for toilet paper degrees with toilet-paper money.
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This is what hyperinflation looks like. |
Wednesday, May 20, 2020
A JP Morgan economist says U.S. is heading toward a "Weimar Republic Inflation Setup": What in the hell does that mean?
According to this anonymous commentator, money in circulation is multiplying through various types of government handouts while "asset prices . . . [are] being propped up by central banks." Thus, he reasons, it is just a matter of time "until inflation goes from 'subdued' to 'out of hand.'" Indeed, the economist predicts, "If central banks have no or a soft-washed inflation mandate we are headed toward a Weimar Republic style inflation setup."
That prediction sounds scary, but what in the hell does it mean?
I had only a hazy notion of the Weimar Republic in the 1920s when inflation in Germany got crazy out of control. I recall seeing photographs of people carrying German currency around in wheelbarrows. But what does the Weimar experience have to do with our national economy? I was clueless.
So I read some books on the German economy in the 1920s. The Weimar Republic, I learned, was created in 1919 after Germany lost the First World War. The German monarchy collapsed in November 1918, Kaiser Wilhelm fled to Holland, and a constitution was drafted in the Germany city of Weimar.
When World War I began, the German mark was valued at around 4.2 marks to the dollar. When the war ended, the allies (France, Great Britain, and the United States) imposed harsh reparations on Germany, and the mark's value dropped to 7.4 to the dollar.
From November 1918 until the mark was finally abandoned in 1923, Germany was caught in a vicious inflationary spiral until the mark ultimately fell to 4.2 trillion marks to the dollar. In other words, it was worthless.
How did that happen? A multitude of factors were at work, but it seems that Germany's inflation during the early 1920s was mostly a result of carelessness, government subsidies to industry and state-owned railroads, and the government's effort to keep German workers employed and support a half-million war widows and 1.5 million disabled former soldiers.
In the end, German printing presses were running around the clock in a vain effort to supply paper currency that was deflating in value almost by the hour. Salaried workers and people living on pensions were driven into poverty, and hunger became widespread.
All this suffering and despair fueled radical political parties--Bolshevik-style communism, right-wing paramilitaries, and ultimately--the Nazis. Hitler himself pointed out that Germans with billions of marks were starving.
Is the United States headed in that direction, as the unnamed JP Morgan economist predicts? Maybe.
Our accumulated national debt is now $25 trillion, and dozens of states and cities are running deficit budgets. A bill is currently working its way through Congress that would spew out $3 trillion, with part of this money going to prop up state and local governments. At the rate we are moving, the U.S. will see its national debt grow to $30 trillion within the next couple of years.
The federal government is also propping up the higher-education industry with student-loan money that has enabled colleges and universities to increase their tuition at twice the annual rate of inflation. More than 45 million Americans are burdened by student loans that total $1.6 trillion.
Our spendthrift economy has enabled the U.S. to drop its unemployment rate to a historic low--last year it was only about 3 percent. If our government restores some fiscal discipline, that rate will inevitably rise. In the summer of 1923, when inflation was utterly out of control, the German unemployment rate was only 3.5 percent. Two months later, after the Reich restored fiscal discipline, unemployment rose to 23.4 percent.
Germany's inflation during the Weimar years destroyed the nation's middle class. The American middle class has been shrinking for the last 20 years, and many middle-income workers are losing ground.
I do not believe the United States can continue propping up more than 4,0000 colleges, universities, and trade schools with federal student-aid money. When all this comes crashing down, thousands of people with good jobs in the groves of academe will be out of work.
Small, liberal arts colleges are already closing at an accelerating rate, and regional public colleges are laying off staff and faculty.
When inflation breaks out in the U.S. economy, the wealthy and the financial speculators will do just fine. It is the middle class that will suffer, including a lot of people working in colleges and universities who now think they have bullet-proof job security.
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The Weimar years: When German money was worthless |
References
Ferguson, Adam. When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. New York: Public Affairs Publishing (2010) (originally published in 1975).
Friedrich, Otto. Before the Deluge: A Portrait of Berlin in the 1920s. Harper Perennial (1995) (originally published in 1972).
Taylor, Frederick. The Downfall of Money: Germany's Hyperinflation and the Destruction of the Middle Class. New York: Bloomsbury Press (2013).