Category: zerohedge

Authored by Jim Bovard via The Libertarian Institute,

On the day that Joe Biden was inaugurated as president, former CIA chief John Brennan announced on television that federal intelligence agencies “are moving in laser-like fashion to try to uncover as much as they can about” various suspect groups, specifically mentioning libertarians.

Libertarians are in the federal crosshairs. Six or seven years ago, there was a lot of prattle about how “the libertarian moment has arrived.” I always knew that was hokum. Since then, there has been a huge increase in hostility to libertarians in Washington DC and elsewhere around the country.

Many libertarians assume they have nothing to fear because they are not engaged in seeking to violently overthrow the government. But the feds will be able to find many other pretexts to target peaceful citizens with supposedly subversive ideas. Federal law already defines “domestic terrorism” far more broadly than most people realize. As the Oregonian recently noted, “Cases categorized as domestic terrorism include allegations of…knowingly entering or remaining in any restricted [government] building or grounds…civil disorders and making threatening communications.” FBI chief Christopher Wray told a Senate Committee that the FBI has 2,000 ongoing domestic terrorism investigations. Wray recognizes the terrorist peril as the ticket to a bigger budget: “We need more agents; we need more analysts.”

The Biden administration is itching for a broad new domestic terrorism law to enable even more crackdowns. Libertarians need to recognize how that definition of terrorism has already mushroomed. Capitol Police acting chief Yogananda Pittman, testifying to Congress, described the January 6 clash at the Capitol as “a terrorist attack by tens of thousands of insurrectionists.” Apparently, anyone who tromped from Trump’s raging speech to the Capitol that day was a terrorist, or at least an “insurrectionist” (“terrorist” spelled with more letters?).

After the clash at the Capitol on January 6, the de facto definition of terrorism seems to be “anything that frightens politicians.” Will we find out too late that the new de facto definition of “domestic terrorist” is “individuals who distrust the feds and own two guns and more than 100 bullets”?

Another codeword for who the feds will target is “extremists.” The Washington Post in January portrayed “domestic extremists” as “a disease that seems to have taken hold in the nation’s nervous system.” Last fall, FBI boss Wray told Congress that among the “underlying drivers for domestic violent extremism” are “perceptions of government or law enforcement overreach.” Libertarians are practically defined by their perception of government as overreaching. After the January 6 clash, Wray portrayed more busts as proof of FBI triumphs: “The more of the arrests that you see, well, that’s obviously good news for everybody that we’re arresting people who need to be arrested.”

Here we see the former CIA chief, John Brennan, saying that libertarians are no different than “white supremacists and domestic terrorists,” as he calls for the need to bring foreign terror war tactics onto US soil to squash them all. pic.twitter.com/M02Bw7Be9J

— Being Libertarian (@beinlibertarian) January 21, 2021

In the coming years, the feds may treat libertarians like Muslims were treated after 9/11. Any new crackdown on terrorism will turn into a numbers game in which justice and fair play don’t have a snowball’s chance in hell. Between 2001 and 2006, federal prosecutors charged 10 times as many people in terrorism investigations as they convicted on terrorism-related charges. President Bush declared in 2005 that “federal terrorism investigations have resulted in charges against more than 400 suspects, and more than half of those charged have been convicted.” But only 39 people were convicted on crimes tied to terrorism or national security, a Washington Post analysis found.

Entrapment opened the floodgates to federal terrorism indictments. Trevor Aaronson, author of The Terror Factory: Inside the FBI’s Manufactured War on Terrorism, estimated that only about 1 percent of the 500 people charged with international terrorism offenses in the decade after 9/11 were bona fide threats. Thirty times as many were induced by the FBI to behave in ways that prompted their arrest. In 2006, the FBI fabricated a terror scheme by the Liberty City Seven, where an informant encouraged a bunch of dimwits in Florida to babble about blowing up government buildings. That group was so knuckle-headed that they asked the FBI informant for military uniforms and wanted to conduct a parade.

Few Americans recognize how badly the legal playing field is tilted against them. When FBI agents knock on their doors, many Americans won’t hesitate to open up because they assume “those who have nothing to hide have nothing to fear.” But the FBI is exploiting a sweeping law that criminalizes casual comments. Federal agents have the right to lie to you and to put you in prison if you lie to them. Any citizen who makes even a single-word (“no” or “yes”) false utterance to a federal agent faces up to five years in prison and a $250,000 fine.

It gets worse. You don’t have to actually lie. FBI agents can fabricate the sentences they use to hang you. Unlike most law enforcement agencies, the FBI rarely videotapes interviews, thereby permitting agents to create the narrative or “facts” which then can be used to charge individuals with false statements. Instead of a transcript, an FBI agent writes up a memo a day or two later asserting what you said. FBI agents have been taught that subjects of FBI investigations “have forfeited their right to the truth,” which helps explain the vast increase in federal entrapment operations.

If the FBI shows up at your door, they might have already accessed every email and text message you sent in recent years. They may have vacuumed all your social media activity—those private Facebook messages you sent—HA! They may have also accessed all your credit card and other financial data. And the FBI may have already interrogated other people to squeeze out accusations against you that they can throw in your face. Then they launch into a game of 20 questions—with a federal indictment awaiting if they claim you answered untruthfully.

Politicians in Washington don’t see such abuses as a problem; instead, they are a grand opportunity to smite people who don’t kowtow. It wasn’t that long ago—in the final 15 years of J. Edgar Hoover’s reign—that the FBI became America’s thought police. The FBI’s COINTELPRO program conducted thousands of covert operations to incite street warfare between violent groups, to get people fired, to portray innocent people as government informants, to destroy marriages with poison pen letters, and to cripple or destroy leftist, black, white racist, and anti-war organizations. A 1976 Senate report warned, “The American people need to be assured that never again will a federal agency be permitted to conduct a secret war against those citizens it considers threats to the established order.” But legal and administrative restrictions on the FBI evaporated in the post 9/11 panic, resulting in pervasive abuses of Americans’ rights.

The FBI now operates with near-total impunity. The same is true of many state and local police departments who may be hungering for new federal subsidies to crackdown on the extremist peril.

How might this play out in the daily lives of people guilty of entertaining libertarian ideas? Consider Duncan Lemp, a 21-year-old Maryland man who was shot to death in a predawn raid in March 2021 after police smashed in his bedroom window and tossed flash bang grenades into his bedroom. Lemp was active on Twitter and liked several tweets by Libertarian presidential candidate John McAfee. Lemp’s last tweet declared, “The Constitution is dead.” Two months later, so was Lemp.

The Montgomery County, Maryland government later admitted that Lemp was targeted in part because was “anti-government” and “anti-police”. Plus, Lemp was outspoken about his support of the Second Amendment and posted photos of himself with guns on Instagram. Police saw one such photo and concluded that Lemp possessed a semi-automatic rifle that was illegal to own in Maryland. After they killed him and searched the Lemp home, they realized they had mis-identified the firearm—it was legal. But police, prosecutors, and local politicians treated that like a harmless paperwork error: nobody cared about the wrongful killing of Duncan Lemp.

The police case against Lemp also came from accusations from one or more confidential informants. Lemp trusted people who betrayed him to the police, allegedly with false accusations according to Lemp family lawyer, Rene Sandler. A month after Lemp was killed, activists held a protest at Montgomery County Police headquarters. I attended that event as a journalist (the ol’ press pass flopping around my neck) and was chagrined to see how the event went down. Guys in Hawaii-style “Boogaloo” shirts were using bullhorns to scream profanities at cops and were pointlessly blocking a road. One of the most prominent organizers told attendees to bring firearms to the event, despite Maryland law prohibiting firearms at protests. He told people on Facebook to show up with their guns anyhow and just walk around, pretending not to be part of the demonstration. That guy was full of bluster but never showed up for the protest himself. Almost 10% of the 30 protesters were arrested for firearms or other offenses. I later heard that one of the guys suspected of being a police informant against Lemp was at that rally pretending to demand justice for Lemp.

In the coming months and years, many libertarians could be indicted not for violent acts against the government but for unwise or reckless words uttered in proximity to government informants. If you don’t know someone like the back of your hand, then you better be damn careful what you say around them. And even if you know a person well, that doesn’t oblige you to join them in a leap off a legal cliff. Simply because someone spouts anti-government zeal doesn’t make them more trustworthy than a congressman. Claire Wolfe, the author of 101 Things to Do Until the Revolution, wrote an excellent guide to recognizing government informants which she made available for free online.

Simple prudence can suffice to avoid many tripwires. If some new acquaintance wants to provide you a pipe bomb to help “make a statement,” he probably isn’t a real friend. There was a saying among antiwar activists in the 1960s and 1970s that the person who most fervently advocates violence is likely the undercover government agent. Activists should also recognize the likelihood that they could be surveilled online or in person. Parler was supposed to be a secure alternative to other online venues but millions of its messages were leaked earlier this year.

The answer is not to shut up and sure as hell not to cease fighting for your rights and liberties. Friends of freedom need to continue valiantly and peacefully championing their ideas. At some point, more Americans will finally recognize the folly of permitting politicians and government agents to capture vast unchecked power over everyone else. In the meantime, prudent libertarians will avoid writing anything in an email that they don’t want to hear read out loud in federal court.

Tens of thousands of travelers have flooded Hawaii this month. The state relaxed the mandatory ten-day quarantine policy, allowing travelers to present a negative COVID-19 test to bypass quarantine instead. A simple, rapid test (which only takes about 20 minutes) is required to visit Hawaii’s beaches and resorts. The influx of travelers has strained the supply of rental cars as some tourists resort to renting U-Haul moving vans and trucks. 

HawaiiNewsNow first reported the shortage of rental cars on Wednesday. The local newspaper said it’s not uncommon to see tourists driving U-Haul vehicles around the islands. Last month, it was reported that rental car rates for a standard Toyota Camry jumped to $722 per day, from around the average of $100 due to shortage.

Hertz Vehicles Cuurently Soldout At Kahului Airport

U-Haul Marketing President Kaleo Alau told HawaiiNewsNow that an “uptick from tourism, the uptick from companies opening back up, from the economy restarting — everybody seems to need a vehicle.” He said U-Haul facilities in the state are the busiest in years. 

“Most of the time, they’re saying that they can’t get a vehicle from any of the rental spots. They’re all sold out,” Alau said.

Maui resident Dave Morrell said the rental car supply in Maui has been depleted. 

“We had relatives from out of town come in and one couldn’t even find anything,” Morrell said. 

The pandemic might have skewed the supply of rental cars over the last year. Hertz, one of the largest rental car providers, filed for bankruptcy early last year and has been in an ongoing restructuring phase. Since then, the company has liquidated fleets of vehicles. Now there are not enough rental cars. 

Daily rental price spikes have been so concerning that the issue has caught the attention of state authorities:

“I don’t want to prejudge anyone or any company but I think it certainly deserves our attention. We are going to be investigating the underlying basis for charging such great amounts to rent a vehicle,” said Department of Commerce and Consumer Affairs executive director Stephen Levins.

When U-Haul rental vehicle inventories are exhausted across the islands, tourists can also explore rental vehicles at The Home Depots and Lowe’s. But that’s old school, internet searches for “turo car rental hawaii” are surging to record high. 

Turo is a peer-to-peer carsharing platform where anyone can rent out their vehicle. Only millennials would know this . 

Turkish authorities have detained 62 people over alleged links to the Istanbul-based cryptocurrency exchange Thodex after its founder fled with a reported $2 billion in investors’ assets, Turkish media reported. The suspects were apprehended in raids carried out in eight cities including Istanbul, Anadolu Agency reported on Friday. Police issued arrest warrants for 16 other people.

The arrests come after nearly 400,000 users of a Turkish cryptocurrency exchange were left out of their accounts without being able to withdraw their funds. The platform’s website has been down for several days, while reports suggest its CEO has already fled the country with up to $2 billion.

Bloomberg reported that Thodex, a Turkey-based crypto exchange, has ceased trading, citing an “unspecified partnership transaction.” The trading platform, founded in 2017, issued a statement explaining that all services will remain shut down for about five working days. However, the message reassured customers that they shouldn’t worry about their funds. In retrospect, they should.

Approximately at the same time, though, users started to complain about their inability to access their own assets. As Crypto Potato notes, some took it to Twitter to complain about losing much of their net worth.

A local #Crypto exchange where I’d ~20% of my entire trading capital got rug pulled

-20 days no withdrawal (fiat & crypto)
-Then the website went offline
-Then the CEO run abroad

I’m not broke, but it hurts… Alot

It sucks, Even when u deal with regulated exchanges#Thodex

— Feras_Crypto (will Never DM you First) (@FeraSY1) April 21, 2021

He wasn’t alone: on Thursday, hundreds of thousands of users were unable to get access to their digital wallets.

“We have started the legal procedures and lodged a complaint at the prosecutor’s office,” a lawyer for some investors said. Prosecutors were investigating the businessman on charges of “aggravated fraud and founding a criminal organisation”.

ÖNEMLİ DUYURU pic.twitter.com/3aBeJjFSYQ

— THODEX (@thodexofficial) April 22, 2021

According to subsequent coverage the exchange’s chief executive officer and founder, Faruk Fatih Ozer had fled the country.

Following news of Ozer’s alleged escape from Turkey, users of the local exchange hired a law firm to file a complaint against Thodex. Oguz Evren Kilic, representing an unspecified number of Thodex customers, confirmed the development, saying, “we have filed a legal complaint on Wednesday.”

He speculated that the funds on the Turkish exchange could be worth “hundreds of millions of dollars,” as the exchange had 391,000  users. According to another report, Thodex’s CEO and founder has run away in Thailand with an estimated amount of roughly $2 billion.

Overnight, Turkish security officials released a photo of Thodex founder Faruk Fatih Ozer going through passport control at Istanbul Airport on his way to Albania.

On Friday, Interior Minister Suleyman Soylu made a phone call to his Albanian counterpart to request Ozer be captured and repatriated.

At the same time, Turkish police raided the company’s headquarters on the Asian side of Istanbul and seized computers and digital materials, press reports revealed. Turkish authorities also started procedures to issue an international warrant to arrest and extradite the missing founder of a cryptocurrency exchange, Anadolu Agency reported.

In a message on the company’s Twitter account, Ozer said he was abroad for meetings with foreign investors and would return home “in a few days and cooperate with judicial authorities so that the truth can come out”. Subsequent updates indicated that this was a lie.

In recent months, a growing numbers of Turks turned to cryptocurrency in a bid to shield their savings in the face of a sharp decline in the value of the Turkish lira and high inflation. The Turkish crypto market remains unregulated despite growing scepticism from President Recep Tayyip Erdogan’s government about its safety.

Last week, Turkish authorities took a step to regulating  the cryptocurrency industry, and as we reported last week, Turkey officially banned users from using cryptos as payment instruments starting April 30th.

The government spent a massive $165 billion in foreign-exchange reserves over the past two years, effectively leaving its central bank without reserves Erdogan revealed on Wednesday, part of a futile effort to prop up the national currency. Concern about the country’s dwindling foreign-exchange reserves, which are negative when money borrowed by the government from private banks via swap agreements are factored in, has fueled concern about both lira and dollar deposits — and pushed savers into alternative investment vehicles.

Last Friday, the volume of trade in Turkish crypto markets tripled to over $1.2 billion from a week earlier, according to data published by coingecko.com, which tracks data on price, volume and market value on crypto markets. That compares with an average daily trading volume in the Turkish stock market’s benchmark index of about $3.1 billion.

“One can establish a crypto exchange with just 50,000 liras (about $6,000) in capital,” Oguz Evren Kilic, a lawyer representing Thodex users, said by phone. “There’s a huge regulatory gap in this field.”

Meanwhile, as Bloomberg reports, last month Thodex initiated a campaign to boost membership by offering millions of free Dogecoins to new registrants. Its website says 4 million of the coins were distributed, though many people have taken to social media to complain they never received them.

In the latest development in this bizarre saga, in a statement published from an unknown location, Thodex CEO Faruk Fatih Ozer promised to repay investors and to return to Turkey to face justice after he did.

“I was born as one of the three siblings of a civil servant,” Ozer said in his statement, adding that he’s a high-school dropout. As the company ran into financial trouble, he said he thought about either committing suicide or giving himself up to authorities, but both of those options meant clients’ assets would never be retrieved.

“So I decided to stay alive and fight, work and repay my debts to you,” he said. “The day I repay all my debt, I will return to my country and give myself in to justice.”

Narrator:  “he won’t return.“

Earlier this month, Joe Biden unveiled his Made in America Tax Plan, which proposes an increase in the US corporate tax rate to 28% from 21% which was followed by a Bloomberg report that the capital gains tax would be hiked to 39%. And while the tax plan and all of its details are unlikely to pass through Congress in its current form, the prospect of higher corporate taxes has immediately translated into angst among investors based on numerous client conversations (such as those of Goldman), despite historical market data indicating that changes to the corporate tax code should not be feared. In fact, a recent report from BMO’s Brian Belski shows that calendar years in which tax hikes went into effect have historically coincided with double-digit S&P 500 price returns and stronger US GDP growth, on average.

Belski also we found that the level of corporate tax rates does not seem to have a meaningful long-term impact on broader market performance as companies have been able to generate solid price returns and healthy earnings growth under various tax regimes throughout history.

And while an increase in corporate taxes will inevitably lead to a reduction in 2022 S&P 500 bottom-up EPS, with Goldman estimating that the Biden tax plan will cut 2022 EPS by 9%, all things equal…

… Belski argues that other factors are also at play that could potentially offset some of this earnings hit such as economic stimulus, infrastructure spending, and improving overall fundamentals for US stocks.

Below we summarize the main points from the BMO report:

Tax Increases Have Been Far From Detrimental to US Stock Market Performance

• According to BMO, during the five prior corporate tax rate increases, the S&P 500 posted an average calendar year gain of 12.9% with positive price returns in each instance

Companies Can Generate Solid Price Returns and Earnings Growth Under Various Tax Regimes

• Over past decades, tax environments appeared to have little long-term effect on broader market price returns and corporate profit growth

Investing Solely Based on Tax Rate Levels Is Not a Worthwhile Strategy

• Changes in tax policy can impact short-term performance trends in companies with the highest and lowest tax-rates, but these effects tend not to persist over time

Estimating the Impact of a 28% Corporate Tax Rate on S&P 500 EPS

• BMO’s analysis shows that a corporate tax rate hike to 28% could shave 6.1% off 2022 S&P 500 bottom-up EPS – slightly below the 9% Goldman estimate, while an increase to 25% could reduce earnings by 3.5%

Some more details:

Biden’s proposal to raise the US corporate tax rate to 28%, from 21%, would mark the first increase since 1993 and sixth tax hike since 1945.

There is still a ways to go before the proposed tax hike by the Biden administration gets enacted and the finalized details of the legislation emerge. Nonetheless, the prospect of higher taxes tends to immediately translate into angst among investors – especially when coupled with fears about an imminent capital gains tax hike – despite historical market performance data indicating that changes to the corporate tax code should not be feared.

During the five prior corporate tax rate increases in 1950, 1951, 1952, 1968, and 1993, the S&P 500 index posted an average calendar year gain of 12.9% with positive price returns in each instance. This gain was well above the 4.6% average return registered during the nine annual periods when the tax rate was reduced and also higher than 9% price return for all calendar years going back to 1945. The standard deviation of price returns has also been substantially lower during these tax hike periods.

Increases in corporate tax rates have also coincided with stronger US economic growth as real GDP grew at a 5.7% average clip during annual tax hike periods vs. a 3.7% rate during tax cut periods and a 3.1% average growth clip in all years since 1945.

As BMO notes, from its perspective “this is not a matter of tax policy helping or hindering US equity gains, but instead more likely to do with the level of economic growth during these periods.”

* * *

Along with looking at S&P 500 performance during years in which tax policy changes occurred, BMO also examined annual price returns based on the general level of corporate tax rates. Despite common perceptions to the contrary, the bank’s work shows that there is little evidence to suggest that corporate tax rates have any type of  meaningful impact on US equity market returns.

For instance, going back to 1945, the S&P 500 has averaged a 10% gain during years in which the US corporate tax rate was below 35% compared to the 10.3% gain posted during years when the tax rate was 50% or higher. Keep in mind that the proposed 28% corporate tax rate would still rank among the lowest in US history after those seen in 2018-20.

Over the decades, US stocks have predominantly performed well regardless of the underlying tax regime in place.

The S&P 500 logged some of its best gains in the 1950s despite tax rates rising to >50%, and then posted subpar annualized returns in the 1970s even as tax rates decreased. During the 1980s and 1990s, US stocks did see solid gains while tax rates were lower, but then registered losses in the 2000s while taxes remained at 35% as the tech-bubble and financial crisis drove down stock prices. Simply stated, there are many other factors at play. According to BMO’s Belski, “it is not corporate tax rates that are dictating market performance.”

A similar story exists on the earnings front. Over past decades, US companies have been able to generate substantial earnings growth in different tax environments, including periods of high corporate tax rates.

To further evaluate the impact of corporate tax reform on US stock returns, BMO grouped S&P 500 companies into quintiles based on their year-end effective tax rates (Q1= highest tax rates; Q5= lowest tax rates), and examined performance during the two previous major tax legislation changes in 2018 (tax cut) and 1993 (tax hike).

Leading up to the Trump tax cut in December 2017, the S&P 500 companies with the highest tax rates (considered tax reform beneficiaries), largely lagged their lowest tax rate counterparts until a short spell of outperformance occurred three months prior to the legislation being signed into law through two months after, which then eventually faded. Looking at calendar year price returns, companies in quintile 1 indeed outpaced those in quintile 5 in both 2017 and 2018.

However, the highest tax rate group was not the best performing quintile in either year as quintile 3 topped returns in 2017 while quintile 2 led the way in 2018.

The highest tax rate stocks also largely trailed the lowest tax rate stocks leading up to the Clinton tax hike in August 1993, which was then followed by bouts of outperformance and underperformance for quintile 1 vs. quintile 5. On a calendar year basis, the lowest tax rate group was the second best performer (13.1%) after quintile 1 (18.9%) in 1993, despite the tax increase, while quintile 2 (11.7%) was the biggest laggard. In 1992, the lowest tax rate names topped performance, outpacing quintile 1 by almost seven pct. pts with quintiles 2 & 3 the biggest laggards.

What is the takeaway here?

While changes in tax policy may very well impact short-term performance trends in certain areas of the market, the direction and magnitude of these impacts are not necessarily consistent, and tend to dissipate as time goes on. As such, BMO is not advise its clients and investor in general to use tax rates as a standalone factor in predicting longer-term forward returns, and instead should focus on fundamentals and the economy.

* * *

Finally, looking specifically at the potential impact of the Biden corporate tax proposal, which would raise the corporate income tax rate to 28% from 21%, impose a new minimum tax on US companies, and increase taxes on foreign income of many US-based multinationals, BMO’s analysis on the impact on S&P 500 earnings focuses on the headline corporate tax rate and the estimated reduction to bottom-up EPS given a 28% rate and a potential compromised rate of 25%.

• Looking at 2022 EPS forecasts for S&P 500 companies, bottom-up EPS for the index currently stands at $203. An increase in the tax rate to 25% could shave 3.5% off earnings, based on BMO’s work, lowering 2022 bottom-up EPS for the S&P 500 to $196.
• A corporate tax hike to the proposed 28% rate could reduce earnings by 6.1%, slashing 2022 bottom-up EPS for the S&P 500 down to $191.

If the proposed 28% corporate tax rate were to get enacted, it would reverse half of the tax cuts imposed by Trump back in 2017-18, with the effects not necessarily being felt evenly across sectors.

S&P 500 sectors that were the biggest beneficiaries of the tax reform bill put forth by Trump and exhibited significant reductions to their overall tax rates, such as Health Care, Consumer Discretionary, and Technology, could be hurt the most. These sectors were identified by examining the change in the aggregate effective tax rates for all 11 S&P 500 groups for the end of 2017 (pre Tax Cuts and Jobs Act of 2017) vs. the end of 2019 (post Tax Cuts and Jobs Act of 2017).

It is important to keep in mind that any increase in taxes and reduction to EPS for US companies could also be offset to some degree by resulting positive factors of higher taxes, such as infrastructure spending and economic stimulus.

Authored by Matt Taibbi via TK News substack,

A handful of Democrats want to hold up a $2 trillion infrastructure bill to save a choice tax deduction for the wealthy, not that you’ll hear it described that way…

Josh Gottheimer, Democrat of New Jersey, made an inspired plea recently. The Harvard man and Alpha Epsilon Pi brother is a member of the so-called “SALT caucus,” a group of congressfolk threatening to hold up Joe Biden’s infrastructure bill if it doesn’t include a full repeal of a Donald Trump-imposed $10,000 cap on deductions of state and local taxes.

“It is high time that Congress reinstates the state and local tax deduction, so we can get more dollars back into the pockets of so many struggling families,” intoned Gottheimer, one of 32 members of the SALT caucus, which includes 8 Republicans.

Pressure on Biden to repeal the SALT cap has been amping up, mainly from tri-state Democrats like Gottheimer, fellow New Jerseyan Bill Pascrell, and Tom Suozzi of New York. “No SALT, no deal!” the trio power-tweeted a few weeks back. Just a few days ago, Gottheimer even came up with a new way to argue the plan, offering to pay for the repeal of the SALT cap by increasing audits.

“There is a way to do this by going after what people owe already,” he said.

The effort by the “SALT caucus” to hold a $2 trillion relief bill hostage in order to help what they’re calling “struggling families” in the “middle class” is just the latest development in a years-long saga revealing Congress at its phoniest and most shameless.

This issue that “means so much to the American people,” according to House Speaker Nancy Pelosi, is really a niche matter concerning a sliver of the most well-off Americans in a handful of blue states, who were made the target of a political prank of sorts by the Trump administration in 2017.

There are a lot of people who own homes in blue states, could use the deduction, probably don’t think of themselves as rich, and would balk at the idea that repealing the cap would be a luxury giveaway. The story has been framed in the press as more of an everyman issue, and the fact that most of the money at stake involves people at the very top of the curve has been obscured.

The start of this story was classic Trump. Looking for ways to help pay for his own monster tax break at the end of 2017, the Donald decided to poke Democrats with a long stick, via the cap on the unlimited state and local tax deduction.

“He did it for all the wrong reasons,” says David Sirota of The Daily Poster, “but it was the one progressive thing he ever did.”

Economist Stephen Moore, who advised Trump, called the cap “Death to Democrats.” On October 11th, 2017, Trump explained to an approving Sean Hannity that he, Trump, was just trying to help states with fiscal problems help themselves. Note the loving repetition here of the word, “borrowing”:

You know, you have some really well-run states that have very little borrowing. Some have no borrowing, very little borrowing. And it’s unfair that a state that is well-run is really subsidizing states that have been horribly mismanaged. I won’t use names, but we understand the names. But there are some states that have hundreds of millions and billions of dollars in borrowing.

However, the SALT cap didn’t so much go after “Democrats” as “affluent Democrats.” It only applied to people who itemize their taxes, which meant the 90% of Americans who take the standard deduction were unaffected. The deduction raised over $70 billion in just the first year, and roughly 56% of that money came just from the top 1% of taxpayers, living in a few states in particular.

The tax nastygram seemed directed at Trump’s hometown delegation. Congresswoman Carolyn Maloney in April of 2017 complained about the cost of protecting “Trump and his family here in NYC”; the SALT cap affected 19% of Maloney’s constituents in Brooklyn and on the Upper East Side, and taxpayers in that 19% each lost an average of $100,405 in breaks. Chuck Schumer, one of Trump’s fiercest critics, personally took over $58,000 in SALT deductions just in 2016.

Overall, 39 of the 40 districts most affected by the SALT cap were represented by Democrats. Of those, 28 came from New York, New Jersey, and Connecticut. Also affected: Nancy Pelosi’s San Francisco district, where residents lost an average of $53,471 of write-offs. Trump’s campaign promises to take on “elites” proved phony, except when he was able to effect this targeted partisan strike at the people he knew and hated the most: rich, socially liberal Democrats, especially ones from the tri-state area.

The joke ended up being on them, but at the time, the gloat factor in the Trump White House was enormous. The administration’s vermian Treasury Secretary, former Goldman Sachs banker Steve Mnuchin, boasted that he was using the SALT caps to hoist blue states on their own fiscal petard. “I do hope this sends a message that, perhaps, they should try to get their budgets in line,” he said.

Politically, the SALT cap was like a kids’ prank, putting a dogpile in a paper bag and setting it on fire on a neighbor’s stoop: you can’t let it burn, but you don’t want to step in it, either. For Democrats, letting it go would draw hell from top donors, while fighting back would surely invite accusations of prostituting for the wealthy. What choice would they make?

Almost universally, Democrats united behind a repeal, arguing with a straight face the SALT cap did not benefit the affluent, but “families,” the “middle class,” and “working people.”

A common theme was that even if the tax break didn’t directly affect most, it indirectly hurt everyone, since ordinary people would be denied “essential services” as a result of overall decreased tax revenue (a “backdoor hit to every taxpayer around the country” was how Chicago congressman Danny Davis put it). Beyond that, Democrats cried, the plan was unfair. Pelosi’s formulation was that the SALT cap was not just “devastating” (!), but “mean-spirited” and “politically motivated.”

Within a year after the cap was imposed, a quartet of states led by New York filed a 52-page federal lawsuit — State of New York, State of Connecticut, State of Maryland, and State of New Jersey v. Steven Mnuchin — challenging the cap’s constitutionality. New York Governor Andrew Cuomo led the fire-and-brimstone brigade.

“The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it,” Cuomo said, adding that he was “proud to announce that New York is the first state in the nation to take legal action against Trump’s tax plan that benefits the 1 percent at the expense of middle-class families.”

That was an odd way to put it, since the SALT cap overwhelmingly affected the 1%. As the Brookings Institute pointed out, the SALT cap in its distribution of benefits was actually more regressive even than Trump’s infamous Tax Cuts and Jobs Act (TCJA), which Democrats denounced as a handout to the rich:

After the midterm elections of 2018, members on the Hill whispered to any reporter who would listen that the Democrats’ success had been driven by popular outrage over the SALT fiasco. The cap was “one of the major reasons the House flipped from Republicans to Democrats,” said Chuck Schumer, and the data bore him out: Democrats picked up 15 seats in the 50 districts that had the highest rate of voters claiming the deduction, while picking up just two in the bottom 50 such districts.

But what did that mean? Was there widespread popular anger about the SALT cap, or was this just another demonstration that “Democratic support has been increasing for years in higher-income, highly-educated areas,” as the Tax Policy Center noted?

It’s not outlandish to think the SALT episode played a role in speeding what’s been a long-developing transformation of voter bases, with Democrats more and more rapidly taking over the Bill Buckley bedroom communities that Republicans used to dominate. At minimum, the SALT issue inspired mindfreak rheotrical spectacles like Mitch McConnell arguing against a tax on “wealthy people,” and Ted Cruz defending the caps by saying, “The only people whose taxes are going up are the really rich.”

The new Democrats elected in 2018 ended up providing the core of the “SALT caucus” with California’s Katie Porter and Mike Levin, New Jersey’s Mike Sherrill, Andy Kim, and Tom Malinowski, and Lauren Underwood from Illinois among the members. Since Biden’s win, the SALT warriors redoubled efforts for repeal, with the impressively shameless Suozzi denouncing the cap as an “existential” problem and a “body blow to New York and middle-class families throughout the country.” Other caucus members similarly went all-out in describing a repeal of the SALT cap as something like the second coming of the Tennessee Valley Authority.

“The SALT cap penalizes working-class Long Islanders,” said New York’s Andrew Garbarino. “From firefighters to police officers, to teachers, to nurses, and small business owners, I hear from people every day about what a crushing blow the SALT cap has delivered them.”

“SALT does in fact make a critical difference in helping make ends meet for our middle-class residents like teachers and law enforcement officers,” said Sherrill.

“The cap on the state and local tax deduction hurts middle-class California families,” said Porter.

All this propaganda put the national press in a bind. According to Trump-era custom, mainstream publications rarely use words like “lie” in conjunction with Democrats, and never phrases like “open political whoring.” The bulk of coverage of the SALT debate therefore relied on euphemisms and weasel words, with one outlet after another reaching for headlines that didn’t describe a transparent effort to lower taxes at the top of the top income bracket.

A popular take was to depict the SALT dilemma as a “challenge” or “risk” for Democrats. “California Democrats should make gutsy move on taxes,” wrote a columnist for the San Jose Mercury-News. “Democrats Get Clout Needed for Risky Bid to End Trump’s SALT Cap,” added Bloomberg. “California Democrats have a chance to flex some muscle and work to restore deductions for taxpayers,” wrote the Los Angeles Times.

The New York Times was most creative. “SALT Tax Increase That Burned Blue States is Targeted by Democrats,” read an effort from 2019, noting the party’s effort to restore a “popular tax break.” The Times later went with “Pelosi Floats New Stimulus Plan: Rolling Back SALT Cap.”

They were also one of many outlets to describe the Democrats’ position on SALT as “uncomfortable” or “awkward,” as in, “The state and local tax issue is in some ways an awkward one for Democrats, because they are trying to restore a tax break that primarily benefited relatively high earners.”

My personal favorite came from Wall Street’s Old Faithful, Andrew Ross Sorkin, who hosted a debate on Squawk Box between Suozzi and onetime antitax crusader Mick Mulvaney. Reading off a question to Mulvaney from what Sorkin called an “astute” viewer, he suggested paying state tax was like paying tax to a foreign country:

If a U.S. citizen pays income tax today to a foreign state, to a foreign country, they get an uncapped foreign tax credit… to their federal tax liability. However, if they pay to a domestic state, right, like New York, they get capped. Does that make any sense to you in the world?

Missing most from coverage has been any indication of the sheer size of the amounts at stake. Even in light of the news that the Biden administration is “eyeing” a capital gains increase that could generate $370 billion over ten years, that’s still way short of the $600 billion in revenue over ten years that would be sacrificed if the SALT cap is repealed.

The Biden administration, incidentally, has yet to line up behind Pelosi and Schumer and back a repeal of the cap, and a lot depends on their decision. Among New York’s congressional delegation, just a few members have not backed the SALT cap repeal, including Alexandria Ocasio-Cortez (who called a potential repeal a “gift to billionaires”).

In yet another example of the upside-downness around this issue, some of the only attempts to speak in plain language about SALT have come from the financial press, where Forbes wondered if Democrats would cut taxes “for the rich” and Yahoo! Finance said this was one tax break the Democrats should “grant the wealthy.”

Beyond that, only a handful of voices like Richard Reeves at Brookings and Sirota from the Daily Poster have evinced much interest. Democrats have mostly succeeded in painting the matter as an assault on partisan dignity.

Sirota, who worked for the Bernie Sanders campaign in 2020, tells a story about getting an email from a Long Island-based finance professional who was furious about the SALT cap, adding, “I have the courage to wear my Bernie hat on the floor of the New York Stock Exchange.” Sirota tweeted: “We are in hell.”

In one Poster piece, Sirota talked about how the SALT debate arose in the context of messaging that appears with increasing frequency in pop culture and the press, about how hard life is in the top tax bracket. The classic of the genre was a Times piece from 2009 entitled, “You Try to Live on 500K in This Town,” but, he notes, it started earlier:

In the lead-up to the financial crisis the Washington Post insisted that a family making $300,000 is just “squeaking by.” Fast Company has told readers about a family supposedly living “paycheck to paycheck” on $325,000 a year. CNBC insists that it costs $350,000 to be middle class in a big city. And the New York Times has insisted that earning only $500,000 a year makes it difficult to live in a Big Apple where the median annual household income is $60,000. 

There are legitimate reasons to be in favor of restoring the full deduction, but instead of talking about them, Democratic leaders and pundits have mostly been trying to sell the public on an absurd lie: that a tax break for which only 1 in 10 Americans even qualifies, and overwhelmingly benefits those in the highest-earning percentile, is a “middle-class” benefit. No one seems to mind that this is the same take Democrats blasted when used by Republicans to argue for the Bush tax cuts or the repeal of the estate tax.

After the midterms in 2018, former CNN Senior Political Analyst Bill Schneider said the Democrats were “becoming a party dominated by educated, upper-middle-class, liberal whites,” analysis that was borne out in 2020, when gains among that exact demographic helped Democrats win back the White House from Trump. It would be surprising if they didn’t develop economic policies to match, and the “SALT caucus” is a big step in that direction.

Just days ago, we highlighted when fund manager David Einhorn pointed out a small New Jersey deli that was trading with an insane market cap of over $100 million as one of the hallmarks of the bubble the market is in. Einhorn wrote:

“Strange things happen to all kinds of stocks. Last year, on one day in June, the stocks of about a dozen bankrupt companies roughly doubled on enormous volume. Recently, the Wall Street Journal reported a boom in penny stocks.

Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due to COVID from March to September. HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing. Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious.”

After Einhorn’s comments went viral, people began digging into the “unusual” story of Hometown Deli and voila, we were granted even more strings to pull on. For example, CNBC reported yesterday that the deli is liked to another company whose stock has skyrocketed over the last year, E-Waste.

E-Waste is a self-admitted shell company and had total assets of about $183,000 and liabilities of $412,400 as of its most recent SEC filings. It posted a net loss of $58,000 for the 9 months ended November 30. The company’s own filings state it was created in 2012 “to develop an e-waste recycling business” but “was not successful in its efforts and discontinued that line of business.”

It has been a shell company since then and has been looking to “engage in a business combination with a private entity whose business presents an opportunity for its shareholders.”

But E-Waste’s stock, like Hometown’s, has recently rocketed to a high of $10.25 per share. It put the company’s market cap at over $100 million. 

Not unlike Hometown Deli, E-Waste also has little ongoing business. Yet this didn’t stop Hometown Deli from lending E-Waste $150,000 late last year – even while the deli was closed due to the pandemic. E-Waste CEO John Rollo also had an interesting former gig for someone in the waste business: he worked another job as a patient transporter at a northern New Jersey hospital, at a healthcare system CNBC says he’s still employed at. Hometown International’s CEO is a New Jersey high school principle and a wrestling coach.

Rollo had also won two Grammy awards, the report notes, as “a recording engineer and producer on albums by artists such as The Kinks, Joe Cocker, Whitney Houston, Kool & the Gang and Quiet Riot”. 

And there’s yet another interesting connection between the two companies: they each have the same Hong Kong entity as their largest shareholder and “similar consulting contracts” with companies controlled by investors. Additionally, both companies employ the same New York law firm.

Like Hometown, E-Waste also was involved with a lawyer who was sued by the SEC for alleged involvement in fraudulent schemes. Hometown’s lawyer was also charged with federal crimes, while E-Waste’s lawyer was not. 

Involved in both companies is a man named Peter Coker, Sr., whose son Peter Coker Jr. is Chairman of Hometown International. He is also “executive chairman of South Shore Holdings Ltd., a Hong Kong company that owns a financially troubled hotel in Macau, China,” CNBC notes. The report details what appears to be numerous related party transactions between the Cokers, entities they control, Hometown and E-Waste.

Meanwhile, as the Fed sees no signs of excess, we pointed out this morning…

A New Jersey deli has a bigger market cap than Credit Suisse

— zerohedge (@zerohedge) April 22, 2021

 

Authored by Professor Scott Galloway via ‘No Mercy/No Malice’ blog,

In February 1946, President Truman directed his intelligence apparatus to prepare a daily summary of critical national security issues. The President’s Daily Brief (“PDB”) has been produced ever since, and those that have been made public illustrate the breadth and complexity of the threats facing our nation. For example, in 1962, while President Kennedy dealt with the risk of Soviet nuclear weapons being stationed 200 miles off Miami, his PDB also alerted him to chaos in the Saudi and Congolese governments, Khrushchev’s plans for a “major reorganization” in the USSR, worsening tensions between Laos and North Vietnam, and a destabilizing student protest in South Korea.

The U.S. has survived for 250 years in part because its leaders have worried about, fortified against, and repelled a wide range of emerging threats. Many threats are obvious and popularly understood; however, many others are self-inflicted, uncomfortable to acknowledge, or come hidden under the guise of opportunity. These threats can register the greatest damage, as fewer defensive measures have been taken against them. In sum, it’s productive to worry about things that others (e.g., the media, colleagues) do not.

Below are the threats that I believe to be most present and not clear.

1. The Virgin Homicides

Young men are less likely than young women to graduate from high school (45,000 fewer U.S. boys than girls do so every year) and college, they are twice as likely to overdose, and three times more likely to be arrested. Men die from suicide at a far greater rate than do women — and these disparities are increasing.

It is increasingly difficult for young people to become a viable, consistent provider. Real wage growth has been sluggish for decades, and the boom in asset prices makes it harder to buy a house or build wealth.

Self-perception of success/failure is a function of relativity and proximity. Twenty-somethings today spend three hours a day on social networking apps, and, for the first time in history, a majority of them live with their parents. Young people do not benchmark themselves against peers from other eras or geographies, but against their Instagram feeds and roommates (i.e., parents). These examples set unattainable standards and remind them of their shortcomings, respectively.

Worsening economic prospects affect men and women, but not equally. Despite generations of effort and real improvement in gender equality, men are still expected to be providers and are told from an early age that financial success is a critical measure of manhood. Seventy-one percent of American women say it is very important for a man to support his family financially. Only 25 percent of men say the same about women.

For better or worse, men who are perceived as unviable providers do especially poorly when seeking mates. Online dating apps are now the most popular way for people to meet, and they provide unprecedented data on mating preferences. Of course, for both men and women, a small group receives most of the attention. In fact, the inequality of attention is greater than the inequality of income.

But, the concentration is far greater for men. On Hinge, the top 10 percent of men receive nearly 60 percent of the “likes” — the comparable figure for women is 45 percent. If Hinge constituted a sovereign, it would reflect an average wealth (measured in “likes”) for women, but for men, it would be the eighth most unequal country on Earth.

One outcome: a radical decline in sexual activity among young men. In 2018, 28 percent of men under 30 reported having no sex in the past year — double historical rates.

This isn’t about sex, but about a wider range of (non-)attachments (marriage rates hit an all-time low in 2018 as well). As a species, we need physical and social contact, and we crave deep, meaningful bonds. Men who fail to attach to partners, careers, or communities grow bitter, and seek volatility and unrest. They are more susceptible to fringe theories, and over-index on online forums filled with misogynist content and misinformation. Economic inequality and elasticity are correlated with violence and instability, and studies of gun violence in the U.S. find a strong association with decreased social mobility. Marriage, on the other hand, correlates with reductions in crime, and may even have a causal effect on reducing it.

The reduction of economic pathways for young people is no less serious for women, but it appears to be less dangerous. When young women feel shame and rage, they don’t turn to AR-15s. The most dangerous person on the planet is a bored, broke, lonely young male. The U.S. is producing too many of them. Unless we dramatically increase the economic opportunities for young people, we increase the volatility of our commonwealth and add accelerant to crises.

2. Crypto’s Assault on the USD

The United States government plays a vital role in world security and economic prosperity. Large-scale criminal enterprises, extremist terror organizations, rogue nations such as North Korea, and authoritarian powers like China and Russia seek to undermine the American way of life. The bulwark to these threats is our nation’s ability to deploy unrivaled economic and military force in pursuit of U.S. interests and defense of our citizens.

A pillar of this strength is the primacy of the United States Dollar. The dollar is the world’s default currency, preferred store of value, and medium of exchange. Because global investors are eager to hold dollars, we have tremendous latitude regarding our own liquidity and influence over organizations and sovereigns that trade in the dollar. Because global commerce is settled in dollars, U.S. law enforcement maintains visibility into — and authority over — flows of capital and influence. The dollar is a ubiquitous countermeasure to adversaries that does not present the risk(s) of escalation of military force.

The dollar is already structurally challenged: It accounts for 59 percent of global foreign exchange reserves but only an estimated 16 percent of global GDP. That would be hard to sustain under any circumstances, but now, the U.S. is accelerating its long-running debasement of the once “all-mighty dollar” in a misguided attempt to prop up the shareholder class during the pandemic.

As John Connally Jr., Richard Nixon’s treasury secretary, put it in 1971, “the dollar is our currency, but it is your [every other nation’s] problem.” Today, apparently infinite quantitative easing (printing money) is our problem … and it is bitcoin’s opportunity. Cryptocurrency, sitting at a $2T market capitalization, is no threat to the dollar today, but the trends are not favorable.

Should bitcoin and other cryptocurrencies usurp the scarcity credibility of major currencies and emerge as the dominant form of money, the dollar — and the role it plays in world stability — would be drastically undermined. Widespread use of currencies that evade the existing financial system could blind U.S. authorities to tax fraud, sanctions evasion, and other criminal conduct. Indeed, it would degrade the ability of governments across all democracies to collect taxes and enforce financial laws. Less investor interest in the dollar would increase U.S. government borrowing rates, and reduce discretionary spending as interest on debt increases.

Delta of Domain

Big tech has created enormous value. However, its net value (benefits minus externalities) is diminished as regulators and lawmakers lack the domain expertise to regulate the externalities.  So, while cryptocurrencies offer potential for creative destruction — and significant value creation — ignorance among regulators and lawmakers regarding cryptocurrencies is unacceptable and dangerous.

It is fashionable in crypto communities to celebrate the potential impact on USD hegemony. This is a short-sighted, liberterian-esque screed whose loudest barkers are often the greatest beneficiaries of our economy, and who are using their influence to drive history’s greatest pump-and-dump. Crypto offers great possibility, but not all of those possibilities are good for the commonwealth.

Democracies lose when the wealthy evade taxes, or when organized crime can easily move and store capital. A decentralized financial system runs the risk of neutering enforcement. U.S. adversaries have a vested interest in the success of any technology whose success may come at the cost of the USD. China has announced a state-sponsored cryptocurrency (AKA Big Brother Coin) and India may be the swing vote to determine whether cryptocurrencies or the Yuan will reign supreme on the global stage.

The velvet glove of U.S. values surrounding our unrivaled ability to deliver force (globally) is our nation’s most fearsome legionnaire. USD primacy is a close second. Indeed, they are codependent — anything that threatens both must be better understood.

3. Obesity

Before we all had mask collections and Zoom accounts, obesity was the defining public health crises of our time. Now, though it has been (temporarily) superseded by a pandemic that has killed half a million Americans, it is the leading aggravating factor in that new scourge.

Obesity is associated with many of the leading causes of death in the U.S. (diabetes, heart disease, and stroke). If that doesn’t scare you, let’s put it in the language of America: money. In 2016, the U.S. spent an estimated $480 billion on obesity-related costs and $1.24 trillion in indirect work loss costs. Or roughly … all the bitcoin.

It’s only getting worse: Today, 42 percent of Americans are classified as obese, up from 34 percent in 2007-2008. While obesity is a direct result of behaviors like overconsumption and inactivity, its prevalence is a symptom of structural inequality and just bad structures — namely, the food industrial complex, which profits greatly off the sales of cheap, unhealthy foods and that disproportionately targets low income people and people of color.

While obesity is not a new concern, it has gained new urgency, even as we are increasingly reluctant to address it. Just as masking has been politicized by the right, open conversation about the dangers of obesity has been politicized by the left. Media has moved from fat-shaming (reprehensible) to willful blindness towards the dangers of excess weight (inexcusable). Even as obesity rates increase, fewer people are trying to lose their dangerous excess weight.

But we cannot ignore the underlying data: Covid-19 is especially dangerous for the severely overweight. In fact, the CDC estimates that being obese triples the odds of being hospitalized for Covid. Seventy-eight percent of people hospitalized for Covid-19 were either overweight (28 percent) or obese (50 percent). Eighty-eight percent of Covid deaths in the first year of the pandemic occurred in countries where over half the population is overweight — led by the U.S.

In a dark twist, the pandemic has also made obesity more widespread. In February, nearly half of American adults reported gaining a median of 15 pounds during the pandemic, and 10 percent of them reported gaining more than 50 pounds.

Of course, obesity is not just a function of willpower, but also of genes, stress levels, and access to healthy food and healthcare. As industrial food production has scaled, our instincts for seeking salty, sugary, and fatty foods have not modulated. So, while individuals are not to blame, we are fighting an uphill battle: Once a person becomes severely overweight, their body changes and fights efforts to lose the excess weight and keep it off. If our government doesn’t tackle the obesity epidemic with the same urgency as it would any other public health crisis — starting with open, non-politicized conversation — we are destined to become a nation lacking the strength and vitality that has for so long cemented us as leaders on the global stage.

Summary

The U.S. is increasingly alone, broke, and overweight.

Four hotels in Texas and Arizona have pulled out of agreements to house around 600 migrants as federal facilities grapple with record numbers of illegal apprehensions at the US-Mexico border.

According to Axios, “A Woodspring Suites, a Hampton Inn by Hilton, a Microtel by Wyndham and a Best Western were slated to open up more space for migrant families starting April 30, but backed out and now the deadline has been pushed back, according to sources familiar with the situation.”

That said, the Texas nonprofit which won no-bid contracts after hiring a Biden transition official – Family Endeavors – told Axios that they’ve secured three alternative hotel sites, but did not elaborate.

Family Endeavors is securing the hotels as part of its $87 million contract with Immigration and Customs Enforcement. The nonprofit also signed a contract with the Department of Health and Human Services to find housing for unaccompanied minors, worth up to $550 million.

More via Axios:

• Lorenzen-Strait, a former official at U.S. Immigration and Customs Enforcement, previously advised the Biden-Harris transition team on Department of Homeland Security policy and staffing matters.
• He also ran a consulting firm advising companies on federal procurement practices, according to his LinkedIn page, with specific expertise on agencies that include the Administration for Children and Families — the division of the Department of Health and Human Services tasked with detaining and processing child migrants.
• The Washington Examiner first reported on Lorenzen-Strait’s role at Family Endeavors, in the context of an $87 million DHS contract awarded to the group last month.
• ACF officials did not respond to a request for comment from Axios. Family Endeavors said its contracting work on the border is “a continuation of services we have delivered to the migrant population since 2012.”

“The families that come into ICE custody will be housed in a manner consistent with legal requirements for the safety and well-being of children and their parents or guardians,” an ICE spokesperson told Axios in a statement, adding that families are generally in custody for less than 72 hours for processing.

 

Authored by Peter Earle via The American Institute for Economic Research,

Earlier this year, China began to roll out a project that had long been in the works – a digital version of its currency, the yuan, is now being used in four Chinese cities. The Chinese government sees two major potential benefits to the experiment: a tangible challenge to the U.S. dollar’s global ubiquity, and a way to control how Chinese citizens spend their money. 

As a government-issued currency, the digital yuan can be manipulated and monitored in a number of ways. Importantly, it is programmable. Writes The Wall Street Journal, “Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start.” 

Although the concept of a currency which is artificially inflatable/deflatable on demand seems novel, it has its roots (as do so many concepts) in the theorizing of a long-dead economist. A German entrepreneur by the name of Silvio Gesell witnessed Argentina’s 1890 financial crash firsthand. The ensuing unemployment, poverty, and economic stagnation convinced him that something needed to change. Such crises occurred, he theorized, because people hoarded money out of fear and brought business to a halt, argued Gesell––this he dubbed “poverty amid plenty.” 

To encourage quicker spending, disincentivize saving, and therefore avoid more catastrophic financial crashes, Gesell proposed money with an expiration date. “Currency Reform as a Bridge to the Social State,” his first published work, detailed a system in which paper bills would expire unless they were stamped––renewed––for a fee. This ultimately meant that holders of money incurred a demurrage cost, which is the cost of holding a given currency. Because of Gesell’s proposed renewal fee, savings had a negative interest rate. 

He called this Freigold, or “free money.” Speaking of his system’s perceived benefits in The Natural Economic Order, Gesell wrote,

Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money. So we must make money worse as a commodity if we wish to make it better as a medium of exchange.

At a time when nations were largely on the gold standard, Gesell’s idea was unorthodox (and unpopular). 

Gesell died in 1930, having never seen his monetary system realized. But just two years later, in the deepest depths of the Great Depression, a handful of small and medium towns in the United States and Europe looked to his proposal to soothe their economic distress. The best-known of these cases was the small town of Wörgl, Austria, in which town official Michael Unterguggenberger convinced Wörgl to issue stamped money known as “Certified Compensation Bills.” The experiment came to be known as the “Miracle of Wörgl,” reflecting the town’s success in reducing unemployment and the relative ease with which Wörgl weathered the Depression compared to the rest of Austria. Hawarden, Iowa, and Anaheim, California, inspired by Wörgl’s experience, soon enacted similar policies. 

But it must be said that Wörgl’s experiment was likely successful because it, similar to the currency itself, had an expiration date. After just one year, the town put the project to rest. As Jonathan Goodwin wrote, “Once the taxes in arrears were completely paid and when people had paid enough taxes in advance to feel safe and comfortable (at some point they would stop paying forward), the scrip would lose a key part of its attractiveness.”

Of course, even if consumption drove economic growth (and there are a number of both economic and reductio ad absurdum arguments that point out the flaw in that concept), the idea of money that can be coded to decay at tailorable rates is disconcerting. 

Chinese Yuan spot (40 years)

(Source: Bloomberg Finance, LP)

Central banks are monetary central planners, and the many criticisms that apply to central planning in every other field apply here as well. Their insularity, the blizzard of information they face, and political manipulation result in a preponderance of erroneous, ineffective, or late policy choices, all of which bring about unintended consequences. At times, those unintended consequences become new crises, which demand further policy intervention. Given this inevitability, any expansion of policy armamentaria should be viewed with deep concern. This is true of China’s digital yuan, the Wörgl experiment, and any number of other unconventional monetary policy tools in use now or in the future.

In the specific case of a currency engineered for customizable demurrage, pernicious applications come to mind immediately. The extent to which those are realizable, however, pivots upon a degree of theorizing as to how “targetable” the programmed change of purchasing power will be. (Because such a system will ultimately require the elimination of cash to be fully effective, the warnings associated with a closely-related unconventional monetary policy, negative interest rates, apply here as well.)

A preliminary question is to what extent, or even whether, the induced loss of purchasing power will be communicated by the implementers of monetary policy. It is conceivable that in some nations the disclosure of an impending demurrage operation will be disseminated well in advance and will include specifics regarding the anticipated amount of change; other governments may be less forthcoming. This will likely derive as much from the authoritarian character of the state as from specific policy aims. Further, while in the 1890s the average farmer understood the basics of inflation and deflation (owing to their dealings in grains and other commodities), it may be difficult to expect the same of citizens in the modern age. 

By announcing that money will be debased by a discrete amount at a certain point in time, individuals, firms, and other institutions holding money––again, assuming these policies are applied on something akin to an M3 basis––will make decisions based not upon their tastes and needs, but rather upon the desire to convert money to another form in anticipation of the loss of purchasing power. The effect of individuals and large financial institutions singling out certain goods as stores of value under the artificial upward ratcheting of time preference would, as do most other forms of monetary tinkering, inevitably create price distortions and possibly shortages, depending on the availability of local goods and services.

Should the ability to direct the demurrage be more precise, the implications are much starker. It is conceivable that financial institutions might make the case that their money (more precisely, money in their accounts) should be insulated from those policy measures, thus creating a corporatist monetary system: consumers and unfavored economic actors wrestling with concocted losses of purchasing power, economic elites, their firms, and other court favorites receiving, or being left with, unimpinged purchasing power. Exactly where the lines between the favored and not are drawn, and the occasions upon which they are invoked, are left to the reader’s imagination. A look at the influence exerted by both special interest groups and corporations on public policy is instructive.

Chinese CPI (YoY, 10 years)

(Source: Bloomberg Finance, LP)

But this only opens the proverbial door. History is rife with examples of political initiatives which, however nobly intended or narrowly designed, became blunt tools of widespread oppression. 

Could a demurrage feature of a programmable digital currency, nominally designed to spur consumption and increase monetary velocity, not ultimately become a broad punitive instrument? It could serve as an intermediate form of a fine for misdemeanors or other legal sanctions: Rather than forfeiting a lump sum, a violator’s account balance could be rigged for an accelerated loss of purchasing power. The argument in support of such a measure may well be that it punishes wrongdoers virtuously, afflicting the health of their bank balance whilst “supporting the economy” or “fostering economic growth.”

Although it tempts speculation of a particularly Orwellian tenor, one may imagine––I stress the term imagine as distinct from predict or expect, as this is not a conspiracy theory––the tying of anything from mandatory insurance coverage to getting vaccinated to compulsory voting to be enforceable under the threat of individually-targeted monetary penalties. Whether or not such a measure would fall under the legal category of a Bill of Attainder would also, likely, be a matter of considerable controversy.

A state determining that its populace is insufficiently supportive of a military campaign may decide that hardships are not being sufficiently shared: A sudden, unannounced attack on bank balances resulting in an immediate loss of purchasing power could be imposed to align interests. Could a failure to consume certain goods––say, domestic versus foreign––trigger a government-decreed, disciplinary lopping of an offender’s bank balances? In the same way that a former president allegedly used the Internal Revenue Service to terrorize and harass political opponents, a currently innocuous programmable digital currency may, over time, morph into nothing less than weaponizable money. 

China, by launching its digital yuan project, is traversing new territory in the realm of authoritarian monetary planning. Unfortunately, this endeavor may not be an isolated experiment for much longer; already, officials with the U.S. Federal Reserve are engaging in research to build and test a digital dollar. Central bankers the world over, in fact, are signaling increasing openness to experimental policy initiatives. This particular project is still in its infancy, but one thing is certain regardless of differing cultures or political systems: Central banks of all colors are prone to the pitfalls of central planning and will necessarily inflict unintended consequences upon the populations they serve. 

Money, in its most basic form, is an irreplaceable facilitator of economic calculation and a social instrument making cooperation possible on a global scale. Policies of the sort which programmable digital currencies bring into the realm of possibility potentially turn those on their head, introducing new possibilities for intentional––and systematic––coercion.

Turkey has predictably responded in a swift and fierce manner to Joe Biden’s Saturday statement in recognition of the historic Armenian Genocide, becoming the first US President to do so: “Each year on this day, we remember the lives of all those who died in the Ottoman-era Armenian genocide and recommit ourselves to preventing such an atrocity from ever again occurring,” Biden wrote on Armenian Genocide Remembrance Day.

“Today, as we mourn what was lost, let us also turn our eyes to the future – toward the world that we wish to build for our children. A world unstained by the daily evils of bigotry and intolerance, where human rights are respected, and where all people are able to pursue their lives in dignity and security,” Biden continued. “Let us renew our shared resolve to prevent future atrocities from occurring anywhere in the world. And let us pursue healing and reconciliation for all the people of the world.”

Minutes after the declaration was issued, Turkish Foreign Minister Mevlut Cavusoglu said that Turkey “entirely rejects” the US characterization of the event. Cavusoglu said it will only serve to “open a deep wound” in bilateral ties. 

Turkey further called the US change in policy toward recognition of “genocide” a distortion of “historical facts”: 

“This statement of the US, which distorts the historical facts, will never be accepted in the conscience of the Turkish people, and will open a deep wound that undermines our mutual trust and friendship,” Turkey’s foreign ministry said, adding it rejected and denounced the statement “in the strongest terms”.

“We have nothing to learn from anybody on our own past. Political opportunism is the greatest betrayal to peace and justice,” Cavusoglu said further. “We entirely reject this statement based solely on populism.”

“Words cannot change or rewrite history.”

We have nothing to learn from anybody on our own past. Political opportunism is the greatest betrayal to peace and justice.

We entirely reject this statement based solely on populism.#1915Events

— Mevlüt Çavuşoğlu (@MevlutCavusoglu) April 24, 2021

Another top Turkish official told the United States it should focus on its own ugly past instead of lecturing others. 

Turkey’s official position has long been that wartime (connected with the events of WWI) deaths of Armenians were a few hundred thousand and that they weren’t a targeted ethnic group, while historians have tended to recognize around a million or more deaths in the name of ‘Turkification’.

A huge number of Greek and Assyrian Christians were also massacred or left to die in the middle of the northern Syrian desert.

It’s official: President Biden has officially recognized the Armenian genocide.

“The American people honor all those Armenians who perished in the genocide that began 106 years ago today.” https://t.co/QfWcFKD7Lv

— Christopher Miller (@ChristopherJM) April 24, 2021

Previously Presidents Barack Obama and Donald Trump carefully avoided using the term “genocide” when addressing historic atrocities in Asia Minor – so as not to offend the key NATO ally, particularly when the Pentagon relied so heavily on Turkish bases related to the war in Syria. 

It’s also of note that Biden’s Saturday statement referenced Constantinople as opposed to Turkey’s modern name of Istanbul – which is also sure to be generally seen by the Turks as an offence (though still an accurate historical reference)…

“Beginning on April 24, 1915, with the arrest of Armenian intellectuals and community leaders in Constantinople by Ottoman authorities, one and a half million Armenians were deported, massacred, or marched to their deaths in a campaign of extermination,” the White House statement said.