This “Cure” For The Economy Could Kill It

This “Cure” For The Economy Could Kill It

Authored by James Rickards via The Daily Reckoning,

The economy remains under lockdown, although some states are beginning to relax restrictions. As with so many other aspects of American life, there’s been a red state/blue state divide.

Red states are generally more willing to reopen their economies, while harder-hit coastal blue states are generally more reluctant to open theirs.

Regardless, the economic consequences of the lockdown have been devastating, and we’ll be feeling their effects for a very long time. We’ll also be feeling the effects of the massive monetary and fiscal responses to the crisis for a long time.

There are so many government “stimulus” programs underway to deal with the New Depression it’s hard to keep track.

The Federal Reserve has at least 10 asset purchase programs going including purchases of corporate debt, Treasury debt, municipal bonds, commercial paper, mortgages and more.

Many of these are being done in a “special-purpose vehicle” using $425 billion given to the Fed by the Treasury as a kind of Fed bailout. (Of course, the Treasury money comes from the taxpayers, so you’re paying for all of this.)

Regardless of the legal structure, the Fed is on its way to printing $5 trillion of new money on top of the $5 trillion it has already printed to keep the lights turned on at the banks.

On the fiscal side, Congress has authorized $2.2 trillion of new spending on top of the baseline $1 trillion deficit for fiscal year 2020, and just authorized another $600 billion last week.

A new bill for $1.5 trillion of added spending is now being debated. Added together, that’s $5 trillion of deficit spending for this year, and possibly more next year.

Meanwhile, stimulus supporters hope that the checks Americans are getting from the government will give the economy a boost by way of increased consumer spending.

But a recent survey showed that 38% of recipients saved the money and 26% paid off debt. So the stimulus really isn’t stimulating. It’s main effect is to increase the deficit and the national debt.

But don’t worry, say the supporters of Modern Monetary Theory (MMT). We know how to stimulate the economy and who cares about the debt? It hasn’t been a problem yet and we can expand it a lot more.

Until a few months ago, MMT was a quirky idea known to very few and understood by even fewer.

It actually wasn’t modern (the idea has been around for over 100 years) and it wasn’t much of a theory because there was no way to test it in a controlled environment.

The basic idea is that the U.S. government could merge the balance sheets of the Treasury and the Federal Reserve and treat them as if they were a consolidated entity. (That’s not legally true, but never mind.)

The Treasury could spend as much money as it wanted on anything it wanted. MMT asks, if the Treasury doesn’t spend money, how are people supposed to earn any?

Ideas like hard work, innovation and entrepreneurship don’t enter the discussion. In MMT, all wealth comes from the government and the more they spend, the richer we get.

The Treasury finances this spending by issuing bonds. That’s where the Fed comes in.

If the private sector won’t buy the bonds or wants too high an interest rate, the Fed can just crank up the printing press, buy the bonds with money created from thin air, stick the bonds on its balance sheet and wait.

So the Fed can just give the Treasury an unlimited line of credit to spend as much as it wants.

When the bonds come due in 10 or 30 years, the Treasury can repeat the process and use new printed money to pay off the old printed money.

It all sounds nice in theory, but it’s an invitation to disaster.

If inflation breaks out, it will be too late to get it under control. You can’t just flip a switch. Inflation is like a tiger. Once it gets out of its cage, it’s very difficult to get it back in.

If confidence in the dollar is lost (something the Fed and Treasury can’t control), hyperinflation could wreck the economy. That could lead to social unrest, riots and looting, especially if the wealth disparities created by the Fed’s support of the stock market continue to grow.

Would there be any winners if MMT ran off the rails? There would be one big winner – gold.


Tyler Durden

Wed, 05/06/2020 – 14:35

via ZeroHedge News https://ift.tt/2ynHw81 Tyler Durden

Over 200 federal judges write in opposition to Advisory Opinion 117

Earlier this year, the Judicial Conference’s Code of Conduct Committee released an exposure draft of Advisory Opinion 117, titled “Judges’ Involvement With the American Constitution Society, the Federalist Society, and the American Bar Association.” In short, the opinion concluded that federal judges could remain members of the American Bar Association, but could not be members of the Federalist Society or the American Constitution. Judges could still speak at FedSoc or ACS events.

This draft created a huge stir in conservative legal circles. The WSJ Editorial Board attacked the draft in January. At the time, I abstained from writing about it; federal judges would be given an opportunity to comment, and outside commentary may prove to be counterproductive.

The New York Times and the Wall Street Journal have now published a letter signed by over two-hundred federal judges. This effort was spearheaded by the first four signatories: Judge Katsas (CADC), Judge Oldham (CA5), Judge Pryor (CA11), and Judge Thapar (CA6). By my count, there are more than 200-signatories, including appointees from Presidents Ford, Carter, Reagan, Bush, Clinton, Bush, Obama, and Trump.

The letter raises five primary arguments:

We write to express our deep concern with the exposure draft of Advisory Opinion No. 117, recently issued by the Judicial Conference’s Code of Conduct Committee. We believe [1] the exposure draft conflicts with the Code of Conduct, [2] misunderstands the Federalist Society, [3] applies a double standard, and [4] leads to troubling consequences. [5] The circumstances surrounding the issuance of the exposure draft also raise serious questions about the Committee’s internal procedures and transparency. We strongly urge the Committee to withdraw the exposure draft.

First, the judges write that the draft conflicts with the Code of Conduct–that is, it represents a departure from well-established judicial practice:

Membership in the Federalist Society is wholly consistent with the Code. Until recently, the Committee agreed. It previously recognized that members of the judiciary may join the American Constitution Society and donate to the Federalist Society.3 Given these prior opinions and the text of the Code, we are disturbed by the draft’s new position that membership in the Federalist Society violates the Code.

Second, the draft grossly mischaracterizes the nature of FedSoc:

All of these arguments rest on a flawed understanding of the Federalist Society and of the Code itself. Take the claim that the Federalist Society advocates particular policies, rather than the general improvement of the law. The draft fails to identify a single “policy position” taken by the Federalist Society. That is because—to the best of our collective knowledge—the Federalist Society has never, in its several decades of existence, lobbied a policymaking body, filed an amicus brief, or otherwise advocated any policy change. We are at a loss to understand how membership can be seen as “indirect advocacy”7 of the organization’s policy positions when the organization itself takes no policy positions.

Moreover, the American Law Institute routinely advocates for changes in the law.

Moreover, the Committee has previously approved judicial membership in organizations that advocate far more specific legal positions. For example, it has blessed membership in the American Law Institute,9 which seeks to “clarify, modernize, and otherwise improve the law.”10 The Institute pursues this goal by publishing restatements and model codes, which advocate detailed changes to all aspects of the law. The Federalist Society’s approach to reform is comparatively mild. Instead of taking specific legal or policy positions, it facilitates open, informed, and robust debate.

The letter rightfully observes that FedSoc events have more ideological diversity than “many” (I would add, “virtually all”) law school faculties:

Indeed, anyone who attends a Federalist Society event will encounter a diversity of views far exceeding that of many law school faculties. Although not all of us are members of the Federalist Society, all of us who have attended its events can attest to this. As the New York Times has reported, Federalist Society events “scrupulously include liberals as well as conservatives.”11 Every current member of the Supreme Court has participated in at least one Federalist Society event, as have hundreds of current and former federal judges of all judicial philosophies. So have countless progressive scholars and attorneys, including Jack Balkin, William Eskridge, Michael Gerhardt, Heather Gerken, Neal Katyal, Reva Siegel, Geoffrey Stone, Nadine Strossen, and Laurence Tribe.12 Judicial membership in such organizations should be encouraged, not banned.

The judges also point out the obvious “double standard.” The ABA engages in overt political activity.

For some time now, the ABA has taken “public and generally liberal positions on all sorts of divisive issues.”15 What’s more, the ABA does so by directly advocating for particular outcomes in particular cases.16 Not long ago, the ABA submitted an amicus brief in a pending Supreme Court case related to abortion.17 The ABA also filed amicus briefs in other contentious cases like Masterpiece Cakeshop18 and Trump v. Hawaii.19 And before that, the ABA weighed in on cases involving gender identity,20 affirmative action,21 same-sex marriage,22 and the Second Amendment.23 In fact, over the last decade, the ABA has filed more than 100 amicus briefs in many of our nation’s most charged cases.24 The Federalist Society has not filed even one. Likewise, the ABA routinely lobbies Congress,25 while the Federalist Society does nothing of the sort

How does the Committee distinguish the ABA from FedSoc?

Despite the ABA’s open political advocacy, and its support for specific outcomes in pending cases, the Committee has blessed judicial membership in the ABA while banning judicial membership in the Federalist Society. The explanation for this differential treatment? The Committee says that the Federalist Society and the American Constitution Society are different because “[a] reasonable and informed public would view judges holding membership in these organizations to hold, advocate, and serve liberal or conservative interests.”

This rationale would apply equally to the ABA.

But it is strikingly inconsistent to prohibit membership in the Federalist Society because the public might view it as conservative, while blessing membership in the ABA because the ABA considers itself non-partisan. To make matters worse, this double standard rests on a critically flawed factual premise, for it is simply not true that the Federalist Society takes legal or policy positions.

Finally, the judges address certain “procedural questions.”

Finally, the issuance of this exposure draft raises several procedural questions. Since its inception, the federal judiciary has insisted that each judge on a collegial body may state his or her individual views on the question presented. Yet reports suggest that no member of the Committee was permitted to dissent, despite some members’ strong disagreement with the exposure draft. Other reports suggest that at least one member of the Committee was barred from voting on the draft. And the Committee’s reversal of its prior, settled interpretation— without any relevant change in the Code—raises further concerns.

One member of the committee publicly commented on the proposal. (You can see the list of members here.)

The judges raises additional questions about the process:

We cannot know what has gone on behind closed doors, so we take no position on the propriety of what has or has not occurred within the Committee. But we do believe that the Committee’s procedures raise pressing questions. If the Committee adheres to its opinion, we think that it is obligated to address the following issues:

 Was the Committee unanimous in its support of this policy? If not, how many members dissented, and what were their reasons?

 Were members of the Committee allowed to note and explain their dissents? If not, why not? Does any regulation of the Judicial Conference authorize the suppression of dissent?

 Are any members of the Committee also members of the ABA? If so, did these members recuse themselves from working and voting on the exposure draft?

 What specific circumstances justify the Committee’s overruling of its prior, settled position that the Code permitted judicial membership in the ACS?

All questions that should be answered.

The WSJ editorial closed with this line:

Chief Justice John Roberts is the official head of the Judicial Conference, and he should call Judge Erickson and tell him to kill this draft forthwith.

Agreed. Roberts should flush this out quietly and discretely, the way it ought to be. No more public leaks.

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‘Feeding My Kids Isn’t Selfish’: Salon Owner Gets Jail Time for Reopening in Dallas

A Dallas woman has been ordered to spend a week in jail and pay $7,000 after reopening her hair salon in defiance of the state and local stay-at-home orders, meant to stem the spread of COVID-19.

District Judge Eric Moyé found Shelley Luther, the owner of Salon à la Mode, in contempt of court for resuming business on April 24, refusing to heed orders to reclose, and tearing up a cease and desist letter in protest. The salon had been shuttered since March 22.

Prior to sentencing Luther, Moyé gave her the opportunity to admit “the error of [her] ways” in exchange for a fine instead of incarceration, which he said she had “so clearly earned.” She would also have to promise to close her salon.

“A society cannot function where one’s own beliefs in a concept of liberty permits you to flaunt your disdain for the rulings of duly elected officials,” said a masked Moyé, addressing Luther from the bench. The Dallas entrepreneur would need to formally apologize to those elected officials, he said, who she “disrespected by flagrantly ignoring and in one case defiling their orders.” 

Luther declined.

“Judge, I would like to say that I have much respect for this court and laws, and that I’ve never been in this position before, and it’s not someplace that I want to be,” she said, speaking through a mask into a telephone for a court transcriber. “But I have to disagree with you, sir, when you say that I’m selfish. Because feeding my kids is not selfish.”

Luther told the judge she opened her business out of desperation after she was unable to earn any sort of living for over a month. While she noted that she successfully secured a loan from the federal government under the Paycheck Protection Program, that money didn’t come through until May 3. Intended to provide money to small businesses closed by government orders, the program has been plagued by errors. 

“I’ve got hairstylists that are going hungry because they’d rather feed their kids,” Luther said. “So sir, if you think the law is more important than kids getting fed, then please go ahead with your decision, but I am not going to shut the salon.”

Government efforts across the U.S. to enforce social distancing are increasingly failing. Americans are growing more anxious and depressed as a result of losing their jobs and their right to recreate freely in most public places. In Luther’s case, the COVID-19 shutdown has taken a devastating economic toll. Workers everywhere are wondering how they will get by at a time when earning a living the only way they know how suddenly becomes illegal.

Due to the lack of testing capacity, social distancing is currently America’s best strategy for beating back the spread of the novel coronavirus. Government officials at the local, state, and federal levels failed to prepare for a world in which they put people out of work in the middle of March but could not provide financial relief to them for more than a month afterward. Luther speaks for many Americans when she says the choice imposed on her—possibly contract or spread COVID-19, or definitely watch her children go without food—necessitated an act of civil disobedience. 

Moyé further ordered that Luther publicly concede that the “proper way to engage concerns” is to “hire a lawyer” and advocate for “exceptions or an amendment to laws” that Luther finds disagreeable. But that’s a slow approach to a problem Luther clearly felt required more urgent action. Hungry kids can’t wait for the litigation process to run its yearslong course.

Moyé’s one-size-fits-all suggestion comports with his one-size-fits-all punishment: You pay an outlandish fine, and we put you in a cage. The sentence imposed is possibly a greater threat to public health than Luther’s disobedience, as America’s jails and prisons are now the country’s largest COVID-19 outbreak centers. And the $7,000 fine is merciless, when considering that Luther’s entire case hinged on her inability to provide for her children. 

Minutes before Moyé’s ruling, Gov. Greg Abbott (R) announced that salons will be permitted to reopen on Friday. While hairstylists across the state will start heading back to work. Luther will be sitting in jail.

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Over 200 federal judges write in opposition to Advisory Opinion 117

Earlier this year, the Judicial Conference’s Code of Conduct Committee released an exposure draft of Advisory Opinion 117, titled “Judges’ Involvement With the American Constitution Society, the Federalist Society, and the American Bar Association.” In short, the opinion concluded that federal judges could remain members of the American Bar Association, but could not be members of the Federalist Society or the American Constitution. Judges could still speak at FedSoc or ACS events.

This draft created a huge stir in conservative legal circles. The WSJ Editorial Board attacked the draft in January. At the time, I abstained from writing about it; federal judges would be given an opportunity to comment, and outside commentary may prove to be counterproductive.

The New York Times and the Wall Street Journal have now published a letter signed by over two-hundred federal judges. This effort was spearheaded by the first four signatories: Judge Katsas (CADC), Judge Oldham (CA5), Judge Pryor (CA11), and Judge Thapar (CA6). By my count, there are more than 200-signatories, including appointees from Presidents Ford, Carter, Reagan, Bush, Clinton, Bush, Obama, and Trump.

The letter raises five primary arguments:

We write to express our deep concern with the exposure draft of Advisory Opinion No. 117, recently issued by the Judicial Conference’s Code of Conduct Committee. We believe [1] the exposure draft conflicts with the Code of Conduct, [2] misunderstands the Federalist Society, [3] applies a double standard, and [4] leads to troubling consequences. [5] The circumstances surrounding the issuance of the exposure draft also raise serious questions about the Committee’s internal procedures and transparency. We strongly urge the Committee to withdraw the exposure draft.

First, the judges write that the draft conflicts with the Code of Conduct–that is, it represents a departure from well-established judicial practice:

Membership in the Federalist Society is wholly consistent with the Code. Until recently, the Committee agreed. It previously recognized that members of the judiciary may join the American Constitution Society and donate to the Federalist Society.3 Given these prior opinions and the text of the Code, we are disturbed by the draft’s new position that membership in the Federalist Society violates the Code.

Second, the draft grossly mischaracterizes the nature of FedSoc:

All of these arguments rest on a flawed understanding of the Federalist Society and of the Code itself. Take the claim that the Federalist Society advocates particular policies, rather than the general improvement of the law. The draft fails to identify a single “policy position” taken by the Federalist Society. That is because—to the best of our collective knowledge—the Federalist Society has never, in its several decades of existence, lobbied a policymaking body, filed an amicus brief, or otherwise advocated any policy change. We are at a loss to understand how membership can be seen as “indirect advocacy”7 of the organization’s policy positions when the organization itself takes no policy positions.

Moreover, the American Law Institute routinely advocates for changes in the law.

Moreover, the Committee has previously approved judicial membership in organizations that advocate far more specific legal positions. For example, it has blessed membership in the American Law Institute,9 which seeks to “clarify, modernize, and otherwise improve the law.”10 The Institute pursues this goal by publishing restatements and model codes, which advocate detailed changes to all aspects of the law. The Federalist Society’s approach to reform is comparatively mild. Instead of taking specific legal or policy positions, it facilitates open, informed, and robust debate.

The letter rightfully observes that FedSoc events have more ideological diversity than “many” (I would add, “virtually all”) law school faculties:

Indeed, anyone who attends a Federalist Society event will encounter a diversity of views far exceeding that of many law school faculties. Although not all of us are members of the Federalist Society, all of us who have attended its events can attest to this. As the New York Times has reported, Federalist Society events “scrupulously include liberals as well as conservatives.”11 Every current member of the Supreme Court has participated in at least one Federalist Society event, as have hundreds of current and former federal judges of all judicial philosophies. So have countless progressive scholars and attorneys, including Jack Balkin, William Eskridge, Michael Gerhardt, Heather Gerken, Neal Katyal, Reva Siegel, Geoffrey Stone, Nadine Strossen, and Laurence Tribe.12 Judicial membership in such organizations should be encouraged, not banned.

The judges also point out the obvious “double standard.” The ABA engages in overt political activity.

For some time now, the ABA has taken “public and generally liberal positions on all sorts of divisive issues.”15 What’s more, the ABA does so by directly advocating for particular outcomes in particular cases.16 Not long ago, the ABA submitted an amicus brief in a pending Supreme Court case related to abortion.17 The ABA also filed amicus briefs in other contentious cases like Masterpiece Cakeshop18 and Trump v. Hawaii.19 And before that, the ABA weighed in on cases involving gender identity,20 affirmative action,21 same-sex marriage,22 and the Second Amendment.23 In fact, over the last decade, the ABA has filed more than 100 amicus briefs in many of our nation’s most charged cases.24 The Federalist Society has not filed even one. Likewise, the ABA routinely lobbies Congress,25 while the Federalist Society does nothing of the sort

How does the Committee distinguish the ABA from FedSoc?

Despite the ABA’s open political advocacy, and its support for specific outcomes in pending cases, the Committee has blessed judicial membership in the ABA while banning judicial membership in the Federalist Society. The explanation for this differential treatment? The Committee says that the Federalist Society and the American Constitution Society are different because “[a] reasonable and informed public would view judges holding membership in these organizations to hold, advocate, and serve liberal or conservative interests.”

This rationale would apply equally to the ABA.

But it is strikingly inconsistent to prohibit membership in the Federalist Society because the public might view it as conservative, while blessing membership in the ABA because the ABA considers itself non-partisan. To make matters worse, this double standard rests on a critically flawed factual premise, for it is simply not true that the Federalist Society takes legal or policy positions.

Finally, the judges address certain “procedural questions.”

Finally, the issuance of this exposure draft raises several procedural questions. Since its inception, the federal judiciary has insisted that each judge on a collegial body may state his or her individual views on the question presented. Yet reports suggest that no member of the Committee was permitted to dissent, despite some members’ strong disagreement with the exposure draft. Other reports suggest that at least one member of the Committee was barred from voting on the draft. And the Committee’s reversal of its prior, settled interpretation— without any relevant change in the Code—raises further concerns.

One member of the committee publicly commented on the proposal. (You can see the list of members here.)

The judges raises additional questions about the process:

We cannot know what has gone on behind closed doors, so we take no position on the propriety of what has or has not occurred within the Committee. But we do believe that the Committee’s procedures raise pressing questions. If the Committee adheres to its opinion, we think that it is obligated to address the following issues:

 Was the Committee unanimous in its support of this policy? If not, how many members dissented, and what were their reasons?

 Were members of the Committee allowed to note and explain their dissents? If not, why not? Does any regulation of the Judicial Conference authorize the suppression of dissent?

 Are any members of the Committee also members of the ABA? If so, did these members recuse themselves from working and voting on the exposure draft?

 What specific circumstances justify the Committee’s overruling of its prior, settled position that the Code permitted judicial membership in the ACS?

All questions that should be answered.

The WSJ editorial closed with this line:

Chief Justice John Roberts is the official head of the Judicial Conference, and he should call Judge Erickson and tell him to kill this draft forthwith.

Agreed. Roberts should flush this out quietly and discretely, the way it ought to be. No more public leaks.

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‘Feeding My Kids Isn’t Selfish’: Salon Owner Gets Jail Time for Reopening in Dallas

A Dallas woman has been ordered to spend a week in jail and pay $7,000 after reopening her hair salon in defiance of the state and local stay-at-home orders, meant to stem the spread of COVID-19.

District Judge Eric Moyé found Shelley Luther, the owner of Salon à la Mode, in contempt of court for resuming business on April 24, refusing to heed orders to reclose, and tearing up a cease and desist letter in protest. The salon had been shuttered since March 22.

Prior to sentencing Luther, Moyé gave her the opportunity to admit “the error of [her] ways” in exchange for a fine instead of incarceration, which he said she had “so clearly earned.” She would also have to promise to close her salon.

“A society cannot function where one’s own beliefs in a concept of liberty permits you to flaunt your disdain for the rulings of duly elected officials,” said a masked Moyé, addressing Luther from the bench. The Dallas entrepreneur would need to formally apologize to those elected officials, he said, who she “disrespected by flagrantly ignoring and in one case defiling their orders.” 

Luther declined.

“Judge, I would like to say that I have much respect for this court and laws, and that I’ve never been in this position before, and it’s not someplace that I want to be,” she said, speaking through a mask into a telephone for a court transcriber. “But I have to disagree with you, sir, when you say that I’m selfish. Because feeding my kids is not selfish.”

Luther told the judge she opened her business out of desperation after she was unable to earn any sort of living for over a month. While she noted that she successfully secured a loan from the federal government under the Paycheck Protection Program, that money didn’t come through until May 3. Intended to provide money to small businesses closed by government orders, the program has been plagued by errors. 

“I’ve got hairstylists that are going hungry because they’d rather feed their kids,” Luther said. “So sir, if you think the law is more important than kids getting fed, then please go ahead with your decision, but I am not going to shut the salon.”

Government efforts across the U.S. to enforce social distancing are increasingly failing. Americans are growing more anxious and depressed as a result of losing their jobs and their right to recreate freely in most public places. In Luther’s case, the COVID-19 shutdown has taken a devastating economic toll. Workers everywhere are wondering how they will get by at a time when earning a living the only way they know how suddenly becomes illegal.

Due to the lack of testing capacity, social distancing is currently America’s best strategy for beating back the spread of the novel coronavirus. Government officials at the local, state, and federal levels failed to prepare for a world in which they put people out of work in the middle of March but could not provide financial relief to them for more than a month afterward. Luther speaks for many Americans when she says the choice imposed on her—possibly contract or spread COVID-19, or definitely watch her children go without food—necessitated an act of civil disobedience. 

Moyé further ordered that Luther publicly concede that the “proper way to engage concerns” is to “hire a lawyer” and advocate for “exceptions or an amendment to laws” that Luther finds disagreeable. But that’s a slow approach to a problem Luther clearly felt required more urgent action. Hungry kids can’t wait for the litigation process to run its yearslong course.

Moyé’s one-size-fits-all suggestion comports with his one-size-fits-all punishment: You pay an outlandish fine, and we put you in a cage. The sentence imposed is possibly a greater threat to public health than Luther’s disobedience, as America’s jails and prisons are now the country’s largest COVID-19 outbreak centers. And the $7,000 fine is merciless, when considering that Luther’s entire case hinged on her inability to provide for her children. 

Minutes before Moyé’s ruling, Gov. Greg Abbott (R) announced that salons will be permitted to reopen on Friday. While hairstylists across the state will start heading back to work. Luther will be sitting in jail.

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Eisenhower’s Military Industrial Complex Speech in the Age of Coronavirus

In his 1961 farewell address, President Dwight D. Eisenhower warned against federal overreach during times of national crises.

“Whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties,” he said.

“Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields…Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity.”

In this video, we looked at how Eisenhower’s warnings can be applied to the government’s current response to COVID-19.

Full text of Eisenhower’s 1961 farewell address.

Motion graphics by Lex Villena 

Music: “7” by Lex Villena; “Mareé” by Kai Engel, CC BY 4.0

Photos: Living room, smoggybeard; Eisenhower, akg-images/Newscom; Mask, Makidotvn/Dreamstime; DC archival footage, Throwback; Window, Daniel M. Cisilino/Dreamstime; NYC window, Joaquin Camejo/Dreamstime

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DoD vs. FCC

It is not every day that a cabinet secretary publicly attacks the decision of a federal agency, but this is 2020.

In today’s WSJ, Secretary of Defense Mark Esper criticizes the Federal Communications Commission for approving Ligado’s applicaiton to repurpose portions of radio spectrum for planned 5G services. According to the Secretary Esper, this plan will create interference for GPS services and compromise national security. Although the FCC imposed conditions, Secretary Esper maintains they are insufficient to prevent the compromise of GPS reliability and usability for both military and civilian uses.

I have no idea whether Secretary Esper’s claims have substantive merit. What interests me about Secretary Esper’s op-ed is the interagency conflict. Here we have a cabinet secretary—and presumably one of the more influential cabinet secretaries—publicly criticizing the actions of another federal agency on the op-ed page of a major newspaper.

Under normal circumstances, when two executive branch agencies disagree, the dispute is handled within the executive branch, sometimes with direct White House intervention. So, for instance, if the Environmental Protection Agency adopts rules that limit a fuel source the Department of Energy is trying to promote, the dispute will get resolved through various informal interagency processes. And, in the end, because both agencies are ultimately subject to presidential control, the White House typically has the ability to resolve the dispute in favor of one agency or the other.

In this case, however, we have an independent agency. The FCC is not subject to direct Presidential control and if the FCC votes unanimously to take a given course of action (as it did here) there is little the White House can do. So whereas the Defense Secretary could seek White House intervention to obtain relief from an EPA regulation, it is effectively powerless against the FCC. So, rather than call the Oval Office, Secretary Esper took his complaint to the WSJ, perhaps in the hope of encouraging intervention by Congress.

While public criticism of one agency by the head of another is rare, interagency litigation is even less common—but it does happen. See, for example, this litigation between the Tennessee Valley Authority and the EPA concerning TVA’s alleged Clean Air Act violations.

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“Desperate” Hedge Fund Liquidated CLO At 80% Discount In Liquidity Panic

“Desperate” Hedge Fund Liquidated CLO At 80% Discount In Liquidity Panic

A few weeks ago we reported that something “impossible” just happened in the world of structured credit: a CLO had just failed its AAA overcollateralization test, an event that was formerly considered impossible perhaps because it did not take place even during the depths of the global financial crisis in 2008/9.

And as increasingly more “impossible” events took place over the past two months, here is something else that should not have happened. As Bloomberg reports, “in one of the more desperate acts of the coronavirus-fueled credit crunch, a hedge fund last month sold about $100 million of European collateralized loan obligations for about a fifth of their face value.” 

The hedge fund offloaded stakes in the lowest-rated tranches of European CLOs to a small group of banks including Bank of America said the anonymous Bloomberg sources, adding that while secondary market trading in CLO equity has been sparse in recent weeks mostly because one can driver a Hummer through the bid and ask, with U.S. deals seen anywhere between 20 to 80 cents on the dollar, depending on the quality of the collateral pool, market participants said.

The recent collapse in cash flows has triggered a record wave of rating agency downgrades with Moody’s recently warning it may cut the ratings on $22 billion of U.S. CLOs – a fifth of all such bonds it grades. The ratings agency took action on 859 bonds from 358 CLOs that package leveraged loans into securities of varying degrees of risk and return. The step – which according to Bloomberg affects about 19% of Moody’s-rated CLOs that purchase broadly syndicated loans – comes as the underlying debt gets downgraded at a record pace.

As Bloomberg then pointed out, CLOs “are being downgraded at a pace so frenetic that it threatens to overwhelm safeguards that were put in place to ensure the securities’ financial strength.”

As a result of the growing risk that increasingly more lower-rated tranches stop paying interest, hedge funds – which bought the structured debt using borrowed money – have found themselves in a liquidation panic since the Fed has so far refused to bail out CLOs, willing to take massive losses on holdings just to recover some principal. Ironically, CLOs, which package and sell leveraged loans into chunks of varying risk and return, became a darling of asset managers from pensions to hedge funds in recent years as record low interest rates and depressed bond yields encouraged investors to take greater risk. One such “investor” was Scaramucci’s SkyBridge Capital whose fund of funds plunged 22% as a result of its billions in CLO investements.

As Bloomberg adds, some analysts expect as many as one in three U.S. CLOs may soon have to limit interest and principal payments to holders of the riskiest and highest-yielding part of the CLO structure – the equity portion. And, as we first reported on April 20, payouts are already at risk of being cut off for investment-grade tranches in about a dozen different transactions totaling a few billion dollars, including the formerly untouchable AAA tranche.

One thing that is certain is that the CLO firesales are only just starting as the asset class is battling not only a collapse in cash flows but a wave of downgrades to underlying corporate loans that threatens to overwhelm safeguards put in place to ensure the securities’ financial strength. One example: CLO debt rated BB fell to as low as 60 cents in late March, with the gauge rebounding in recent days to about 68 cents according to Palmer Square data.

But while it’s only a matter of time before the lower tranches are now toast, keep an eye on the top of the stack: that’s where the real pain for retirees and pensioners will soon be found.


Tyler Durden

Wed, 05/06/2020 – 14:20

via ZeroHedge News https://ift.tt/2YHj38i Tyler Durden

Jim Bianco Warns Buying When (& What) The Fed Is Buying May Not Work Anymore

Jim Bianco Warns Buying When (& What) The Fed Is Buying May Not Work Anymore

Authored by James Bianco, op-ed via Bloomberg.com,

The S&P 500 Index has rallied 28% from its low this year on March 23, with Wall Street praising the Federal Reserve for basically creating money to purchase a broad range of securities, effectively supporting asset prices.

So now, many believe the bear market that saw the S&P 500 plunge 34% over the course of five weeks starting in late February is over and that major stock indexes will not revisit their recent lows.

Don’t count on it.

The basis for the optimistic outlook  is based on three ideas, starting with “you can’t go wrong co-investing with the Fed.”

The central bank on March 22 announced what is probably the most aggressive set of moves in its 106-year history. They included a reduction in the target federal funds interest rate by 1 percentage point to zero as well as numerous liquidity facilities to support various parts of the financial market. If the Fed, with its nearly unlimited ability to print money, is buying, how could prices ever go down? That notion alone was reason enough for investors to buy.

Optimism was further fueled by some states starting to lift shelter-in-place orders.

Georgia and Texas were among the first to announce plans to begin opening their economies. About 30 other states will begin easing restrictions in the days and weeks ahead.

And there is finally some hope in the battle against the spreading pandemic, with Gilead Science Inc.’s remdesivir drug being found effective in shortening hospital stays for those with the coronavirus.

The Food and Drug Administration approved its use for Covid-19 patients on May 1.

Now, though, investors will increasingly need proof that these reasons for optimism are bearing fruit. In Wall Street parlance, investors “bought on the rumor,” and any setbacks may cause them to “sell on the news.”

When considering the potential magnitude of the economic rebound, recall that the deepest post-World War II recession was the last one, which lasted from 2007 to 2009. At its worst, real gross domestic product fell 4% from its peak. Put another way, the economy held onto 96% of its pre-recession output.

That was still enough to push the unemployment up to 10%, cause the S&P 500 to fall as much as 56% and spark social unrest.

This time around, a re-opening of the economy would have to lead to an almost complete rebound in output for Fed support of asset prices to hold at current levels. This seems unlikely if the state re-openings are accompanied by de-risking, de-globalization, extended periods of social distancing and a more cautious attitude in general.

Even with output returning to 90% of its previous levels, it’s likely that the recession the economy is now in would be twice as bad as the one during the financial crisis, suggesting the recent rebound in equities has gone too far. On Friday, the government will probably say that the U.S. unemployment rate reached 16% in April, much higher than the peak of 10% in October 2009, according to a Bloomberg survey of economists. 

And at that level of output, highly indebted governments and companies will struggle. A 10% decline in revenue is enough to blow a big hole in government budgets, requiring massive tax hikes or bailouts. Companies would be unable to stay profitable or meet debt payments, let alone dividends.

We saw this in October 2008 when the Fed also went to unprecedented levels to support plunging markets. Along with a bailout of the banks via the Troubled Asset Relief Program, or TARP, the Fed was also trying to support asset prices at too high a level. As a result, the S&P 500 fell 25% over the following six months.

This leaves the hope of a vaccine as the sole reason to believe that economic output will soon return to 100% of 2019’s level, which is the only way current asset valuations make sense.

But hope is not a strategy. As cities and states begin to re-open their economies and hard data becomes available, the fear of missing out in the stock rally,  or FOMO , may be replaced by the realization that a return to a pre-virus world will be much more difficult than imagined.


Tyler Durden

Wed, 05/06/2020 – 14:05

via ZeroHedge News https://ift.tt/2WqX1Uo Tyler Durden

“Hostile” Russia Excluded From Trump’s ‘Moon Mining Pact’ Dubbed The Artemis Accords

“Hostile” Russia Excluded From Trump’s ‘Moon Mining Pact’ Dubbed The Artemis Accords

In a bombshell exclusive, Reuters reports the Trump administration is readying plans to initiate a pact among US allies for mining the moon: 

The Trump administration is drafting a legal blueprint for mining on the moon under a new U.S.-sponsored international agreement called the Artemis Accords, people familiar with the proposed pact told Reuters.

The agreement would be the latest effort to cultivate allies around NASA’s plan to put humans and space stations on the moon within the next decade, and comes as the civilian space agency plays a growing role in implementing American foreign policy. The draft pact has not been formally shared with U.S. allies yet.

Notably, and now grabbing international headlines, Russia is to be excluded from the pact, which is already sounding like a ‘NATO in space’ alliance of sorts, due to its “hostile” actions which includes “threatening” satellite maneuvers toward US spy satellites in Earth orbit. 

Via AP

Reuters continues: 

The Artemis Accords, named after the National Aeronautics and Space Administration’s new Artemis moon program, propose “safety zones” that would surround future moon bases to prevent damage or interference from rival countries or companies operating in close proximity.

The pact also aims to provide a framework under international law for companies to own the resources they mine, the sources said.

The report notes further the moon is expected to be a future jumping off point for similar exploration and mining possibilities on Mars. 

The White House has already named specific partner countries it expects to kickstart the moon mining pact with: 

In the coming weeks, U.S. officials plan to formally negotiate the accords with space partners such as Canada, Japan, and European countries, as well as the United Arab Emirates, opening talks with countries the Trump administration sees as having “like-minded” interests in lunar mining.

Russia, a major partner with NASA on the International Space Station, won’t be an early partner in these accords, the sources said, as the Pentagon increasingly views Moscow as hostile…

However, anonymous top US officials interviewed by Reuters sought to underscore: “This isn’t some territorial claim.”

“The idea is if you are going to be coming near someone’s operations, and they’ve declared safety zones around it, then you need to reach out to them in advance, consult and figure out how you can do that safely for everyone,” the source added.

But we highly doubt Moscow will see it like this, given it looks like Washington is trying to claim moon resources exclusively for itself and its allies, even before the futuristic sounding industry of ‘moon mining’ gets its start, not to mention the question of whether the technology exists to mine the moon on a large scale. 

An illustration by NASA shows Artemis astronauts on the moon, via AP.

Since the launch of Trump’s ‘Space Force’ – now officially the newest branch of the American military, critics warned of a coming and dangerous ‘weaponization of space’. Russian officials and media especially underscored just such a likelihood.

The newly revealed ‘Artemis Accords’ sound precisely like a first monumental step toward this future scenario.


Tyler Durden

Wed, 05/06/2020 – 13:50

via ZeroHedge News https://ift.tt/2SIwnWe Tyler Durden