Month: January 2020

Authored by Alasdair Macleod via GoldMoney.com,

We don’t know what will trigger the crisis, but a likely candidate is foreign selling of US dollars combining with a collapse in the US government’s finances. Perhaps the coronavirus will turn out to be a catalyzing black swan event, but the underlying conditions for an economic and monetary crisis already exist.

This article looks at alternative outcomes. It concludes that the current situation bears a worrying resemblance to the collapse of John Law’s Mississippi scheme exactly 300 years ago. The key to understanding why this is so is because of the link forged between asset prices and fiat currencies. One fails, and they both fail, more rapidly than the most bearish bear might expect.

Introduction

Ahead of a financial event it is a matter for educated guesswork to anticipate its course. In the last few weeks increasing signs of a global recession have been observed, telling us that the credit cycle is on the turn and a systemic crisis is due shortly. Adding to our woes, the coronavirus might turn out to be a plague of biblical proportions, at least that is the way the hype is going. If so, the economic damage will be immense.

A prescient analyst might deduce that one of the following outcomes is therefore likely:

1) The playbook outcome. A few banks get into trouble and are successfully rescued. Bankers become cautious in their lending and seek to withdraw loan facilities from riskier customers. A moderate recession ensues, unemployment rises, the inflation rate declines, and central banks respond by easing monetary policy. In time, the economy steadies and begins to recover. This is the neo-Keynesian expectation of economists and monetary planners employed by central banks, their government masters and the version currently believed in financial markets.

2) A systemic breakdown. In this version, banking problems are just the start of it. After the first few banks collapse and are rescued, banking problems appear elsewhere, and it is clear the global economy is in deep trouble. In the authorities’ attempts to keep control over the situation, the expansion of base money is on a far larger scale than that witnessed following the Lehman crisis, both to fund burgeoning government deficits and to build bank reserves. After a protracted period of time, the global economy stabilises, and the immediate threat is over, at some cost to the credibility and purchasing power of currencies. A currency reset might be used in an attempt to stabilise the situation.

3) A total collapse. A systemic breakdown leads initially to lower interest rates (already in progress), and after a brief pause to a vicious bond bear market, undermining financial asset values upon which the whole fiat money edifice is based. The unbacked nature of modern fiat money then comes into play, the principal consideration being that the collapse in bank collateral values exposes the illiquidity and bankruptcy of businesses and individuals alike. Tax income evaporates, along with all credibility in the government’s unbacked money, which eventually becomes worthless.

In an attempt to divine the most likely outcome we must assess the importance of the moving parts and their likely sequencing.

Cyclical considerations

It is a mistake to regard the ending of the current credit cycle in isolation from previous cycles. In the distant past, it was valid to view the expansion of bank credit and its subsequent contraction as a purely cyclical phenomenon whereby excessive expansion is broadly wiped out by the subsequent contraction. But ever since President Hoover’s tenure, successive American governments and their central banks have attempted to contain the effects of bank credit contraction. Consequently, failures have been increasingly institutionalised.

The piling up of failures has required further evils to maintain them. Governments have taken increasing control over free markets. Regulation has severely restricted competition in all but the newest of industries, which in turn become regulated over time. Consumers have been encouraged to spend their savings and go into debt to increase immediate consumption. Trade barriers, rightly seen as contributing to the 1930s depression, have been preserved and protectionism is now weaponised.

Budget deficits, being twinned with trade deficits in savings-free economies, have also been increasing, notably for America under President Trump. The American government is in a debt trap only alleviated by the Fed’s forced suppression of borrowing costs. Increasingly, government funding is by overtly inflationary means.

The evidence and consequences of inflationary financing have been hidden from the general public because statistics, particularly price inflation estimates, have been suppressed. This has allowed governments to fund themselves by expanding money quantities without apparent consequences for the general level of prices, and at the same time to give the illusion that real GDP is positive when properly adjusted for price inflation it would be negative.

With successive cycles not being permitted to clear bad and unproductive debt, the dollar has gone from $20.77 per ounce since President Hoover’s time to nearly $1600 today. Relative to gold, that is a loss of purchasing power for the US dollar of nearly 99% over the whole epoch of non-clearing credit cycles. With increasing quantities of non-productive debt in the global economy, it is plainly naïve to think it is a process that will continue indefinitely, when the odds favouring a grand crisis, undermining the whole fiat money system, are increasing over time.

Diligent students of history will have recognised that economic and monetary systems under the control of governments have always failed, eventually. There is no reason why this one will be different; the question is not if, but when.

Monetary debasement

At the core of the government illusion of control is money. Over successive credit cycles its expansion has reflected a ratchet effect, with an underlying rate of expansion being supplemented by alternate expansions and contractions of bank credit. That was the case before the Lehman crisis. At that time the rescue of the banking system involved an unprecedented expansion of the money supply. Last year, the Fed’s attempt at reducing its balance sheet was hastily abandoned when it became clear that all the post-Lehman liquidity had simply vanished.

The fifty-year history of the money quantity is illustrated in Figure 1, which is of the fiat money quantity, a measure that includes bank reserves not in public circulation but is fiat money nonetheless.

The pre-banking crisis FMQ path had been growing at a long-term average rate of 5.9%, while the average rate of growth subsequent to it has been 9.6%. Despite the extra $5.6 trillion of money in the system arising from this divergence, there are signs of severe liquidity stresses with the Fed having to inject tens of billions of dollars daily into the banking system through repo operations. This is reflected in the sharp upturn in FMQ in recent months, visible in the chart.

It should be noted that before Lehman failed, FMQ was roughly one third of GDP; today it is three-quarters. There is therefore a substantial quantity of money in the US economy surplus to normal requirements, a factor which might be crucial to the dollar’s future.

That notwithstanding, the pressure is now on for a further increase in the acceleration of money creation, with growth in FMQ likely to rise well above 10% annualised. Instead of demands for money from the productive private sector, it has been the US Government and financial speculators who have demanded excess money in recent years. The government deficit is now officially expected to increase to over a trillion dollars while according to US Treasury TIC data foreigners appear to be losing their appetite for buying more US Treasuries.

The drain on wholesale liquidity imposed by the government’s financing demands now combine with demands on liquidity from very large hedge funds. They have provided artificial support for the dollar by gearing up their interest rate arbitrage positions, whereby they are short of euros and yen with their negative rates, and long of the dollar and short-term US government Treasury bills and bonds to capture yield differentials.

It is therefore becoming apparent that without further monetary expansion interest rates and government bond yields will rise, with devastating consequences for the US Government’s finances. The hedge funds would be forced by the banks to unwind their positions, selling dollars and buying euros and yen, for lack of available balance sheet reserves. Limited by Basel III rules, the shortage of dollar liquidity would drive up overnight interest rates at a time when the Federal Reserve Board would wish to reflate the economy.

Consequently, sub-10% annualised growth in broad money is no longer tenable, without triggering a widespread government funding and financial crisis. We now stand on the edge of an acceleration of monetary inflation, leading in time to a significant fall in the dollar’s purchasing power, measured not against other currencies facing similar difficulties, but against commodities and ultimately consumer goods and services.

Financial asset values

Central to how a financial crisis develops is the progression of asset values. Since the development of the Greenspan put in the 1980s, it has been assumed that the Fed would always put a floor under equity markets by lowering interest rates sufficiently to do so. Starting with the containment of the 1987 stock market crash, increasing numbers of methods have been deployed, including interest rate manipulation, open market operations, and quantitative easing. Changing the level of required reserves for commercial banks has also been an important monetary tool but is no longer an option due to overriding Basel III regulations for global systemically important banks. This is why the Fed removed the distinction between required and excess reserves a few years ago.

The principal method of monetary and asset price control remains reducing interest rates, and through them bond yields, thereby increasing the relative attraction of equities. But with the zero bound there is a theoretical limit to reducing interest rates, and dollar rates are already close to it as shown in Figure 2.

With the Fed Funds Rate under two per cent and the market already beginning to discount further declines, interest rate policy is unlikely to be sufficient to underwrite asset values in the next systemic and financial crisis. For this reason, many commentators think that negative rates for the dollar are increasingly likely.

That would not necessarily help stabilise the US economy, as evidence from the Eurozone’s ECB attests. Furthermore, by putting all commodities into permanent backwardation, not only would the purchasing power of the dollar be badly undermined, but so would those of the fiat currencies that take their cue from the dollar. As a matter of fact, even current Fed Funds Rates fully discount a general time preference for goods, meaning that interest rates are at zero in real terms, or even negative already. The only piece of the monetary puzzle missing is an appreciation by complacent investors of how close markets are to a currency cliff-edge.

Understanding how and why markets are on the brink of a significant erosion in the dollar’s purchasing power is crucial, because it defines the limit of how low interest rates can be pushed without triggering an immediate monetary crisis. We already know that current levels of interest rate suppression require the effect on prices to be suppressed by statistical method. Tip the relationship between fiat dollars and commodities just a little further, and the result will almost certainly become catastrophic for the dollar and all other currencies that sail with her.

If the dollar suffers this fate, then an initial dip in interest rates will be followed by a significant rise, forced on a reluctant Fed by global markets refusing to fund the US deficit and choosing to liquidate their dollar positions instead.

It would therefore appear that there are two opposing forces for investors in financial assets to consider. Currently there is a bullish hope that the current economic deterioration can be contained and an ongoing reduction in interest rates will help preserve asset values. Against that there is the threat of Fed policy failing to improve economic prospects, leading to US Treasury yields rising as markets become aware that budget deficits are spiralling out of control, to be financed entirely by monetary expansion. Muddying the waters is direct and indirect statist purchasing of equities by central banks and sovereign wealth funds, effectively binding financial assets more tightly to fiat currencies.

How the road ends

From the foregoing it should be clear that not only is there a financial and systemic crisis in the wings, but it cannot be resolved by central banks using the tools available to them. We can easily deduce that there will be the usual end of credit cycle systemic and financial problems, likely to involve the rescue of one or more major banks. Furthermore, the monetary debasement by central banks will be significantly greater than that following the Lehman crisis, not only because the scale of the banking problem is likely to involve far larger numbers, but because of the impossible position the US government finds itself in with respect to its own finances.

The cliché following the Lehman crisis was kicking the can down the road. The end of that road is no longer over the hill or around a bend but is coming into view. That being the case, we can rule out the first of the three options in the introduction to this article, the playbook outcome. That leaves either a wider systemic breakdown or a total collapse. The difference between them will require success in stemming the former from evolving into the latter.

There can be little doubt a wider systemic breakdown will lead to a fall in the purchasing powers of fiat currencies which will be impossible to conceal by statistical method. At this juncture, a political leader with a true understanding of the situation and how to resolve it will have the opportunity to do so, because the alternative to not doing so will be far worse and obvious to the wider public. But such a leader must have guts and be surrounded by others willing to take his lead. It will require the abandonment of socialising money and markets, denying responsibility for future welfare in all but the most needy cases, and a return to sound money. While things can change, there does not appear to be a ghost of a chance that such a leader exists and that he or she would be able to carry his or her colleagues.

This leaves us with the last possible outcome, a total collapse of the neo-Keynesian paradigm and its principal tool, the fiat currency.

The likely sequencing is as follows. After an initial easing of interest rates and fall in government bond yields, which is already under way, it becomes clear that the economy is in a far worse condition than previously thought, the productive sector and those employed in it having been impoverished of their income and savings through monetary inflation.

Economic recovery becomes wishful thinking, followed by a realisation that government finances are deteriorating rapidly. With savers gone and consumers maxed out, the only means of financing budget deficits is by inflationary means. The currency begins its decline in either of two ways: foreigners sell it and refuse to help finance the budget deficit, or domestic depositors decide to reduce their cash in their bank accounts and buy goods instead. In the latter case, the damage comes from the public dumping of the currency, the effects of which heavily outweigh the apparent increase in demand from the rush out of money.

If the government is lucky, its people continue to use the currency as money, despite its purchasing power continuing to decline. Even at ten times its current rate of issue seigniorage still gives the government some income. Attempts to stabilise the currency, such as by introducing price controls, only make things worse. These are the conditions that have allowed certain Latin American countries to suffer high inflation rates for prolonged periods.

Alternatively, the currency is driven towards worthlessness. We shall dismiss a comparison with Venezuela or Zimbabwe, where corruption has been a major factor. The German experience after the First World War is a better model, when inflationary financing of government spending commenced before the war and led to the final collapse of the currency in November 1923. This suggests that a final collapse reflected in the destruction of a fiat currencies will take several years to evolve. But there are differences between the European hyperinflations of nearly a hundred years ago and the situation today.

In America and Britain as well as in some Eurozone countries, the majority of bank deposits are not owed to individuals, because consumer credit predominates. With eighty per cent of employees in these countries typically living from paycheck to paycheck and credit card borrowing being the norm, there is a greater weighting of institutional deposits in today’s banking system than in the past. In the case of the US dollar, total checking and savings accounts of $12.15 trillion includes about $4 trillion of foreign-owned deposits through correspondent banks. Credit card issuers and other finance companies accumulate significant cash flows, and therefore deposits. Financial speculators, such as hedge funds in the interest arbitrage business also maintain significant balances as repo collateral.

In short, deposit holder classifications are very different from those of yesteryear, so their collective attitude to money is likely to be very different. They are not in the business of spending it on goods and do not make relative value judgements in this basic sense. They are more likely to be spooked by purely financial developments. It leads us on to consider another possibility, a John Law bubble deflation and currency collapse as the model to examine.

Law’s financing model

John Law was a prototype Keynesian, who in 1716 obtained permission from the Duc d’Orléans, acting as Regent for Louis XV in his minority, to establish the Banque Genérale in Paris’s Place de Vendome as a private bank, capitalised with discredited state debt as a basis for issuing banknotes. He took in deposits of specie, mostly gold and silver coins. By September 1716 the bank had become so successful that it was driving other bankers out of business.

The relationship between the Regent and Law was based on Law’s plan to restore royal finances which were in considerable difficulties. Put crudely, his plan was to profit from the inflation of his own notes in order to pay down the royal debts. Furthermore, by introducing modern banking into a financially backward France, the improvement in the economy from more effective monetary circulation in the form of his notes compared with clumsy coinage would also help restore the royal finances through higher tax revenues.

The use of Law’s banknotes to settle taxes ensured their circulation, and specie continued to be deposited at Banque Royale in exchange for them. In accordance with Law’s plans, Banque Genérale’s balance sheet was rapidly inflating and beginning to dominate financial affairs in Paris. Law took in more discredited state debt which promised to pay a doubtful 4%, substituting it for his own notes, paying an apparently more certain 4% and including a bonus kicker of claims on Louisiana and the Canadian fur trade in France’s American colonies.

Law’s use of discredited state debt as the foundation for his affairs had similarities with the basic functioning of today’s central banks, issuing money through quantitative easing for government debt. And it came to pass that in December 1718 Banque Generale became Banque Royale, evolving from a private bank into the state’s bank. Law now had a monopoly on France’s money.

Concurrently, Law had acquired all the rights to trade with France’s American colonies, which became the Mississippi venture. He capitalised it by the use of partly paid subscriptions which by giving quick and substantial profits to early subscribers ensured the Mississippi shares got off to a strong start, and he further used the Banque Royale’s note issues to boost share prices even further.

And so a bubble was born. But by late-1719 Law found it increasingly difficult to sustain the bubble. The best part of a billion livres had been created and spent in ramping the Mississippi shares. Following his appointment as Controller-General in 1720, he decreed that his banknotes were to be the only permitted currency except for small transactions and all old coins were to be handed in or seized. Clearly, he was plugging holes in an increasingly leaky vessel.

On 22 February 1720, the Mississippi Company and the Banque Royale merged. The King sold 100,000 shares at 9,000 livres, and the shares of the merged entities subsequently began to sink. By November that year they had fallen to 3,200 livres and many of them faced further unpaid calls. In the last three months of 1720, there was no sterling price for French livres, because Law’s notes had also collapsed in value along with the Mississippi bubble.

Today’s similarities with the Mississippi bubble

There are important similarities developing today with the events in France almost exactly three hundred years ago, the salient points being:

• Law implemented a similar inflation scheme to that proposed by Keynes. Both had an initially favourable economic impact, followed by a failure to sustain earlier promises. Having progressed through a number of credit cycles, Keynes’s scheme is yet to fully collapse.

• Law used state debt as the foundation for his scheme, as do today’s central banks. The difference is the public knew Louis XV to be bankrupt. Today, markets are yet to realise this fact about modern welfare-driven economies.

• Supported by the state, Law used the powers given to him to manipulate asset values to support his scheme, an objective now openly pursued by modern central banks and their allied sovereign wealth funds.

• In Banque Royale Law established a prototype central bank whose twin objectives were to finance government borrowing and to issue currency. The support offered to today’s commercial banking system by central banks is ultimately intended to achieve the same end.

• Law banished the circulation of specie as money and any other alternatives to his own banknotes. Today’s central banks exercise exactly the same monopolies in their respective jurisdictions.

• Law was an early user of derivatives in the form of partly paid stock and options to promote and sustain asset values. The global financial system today similarly uses derivatives to support and encourage bullish speculation in financial assets.

• By linking rising financial asset values to the purchasing power of his livre, Law ensured that the collapse of financial asset values undermined faith in the currency as well, causing it to collapse entirely in a short six-month period. Today, both central banks and sovereign wealth funds are active investors in bonds and equities, with the effect of creating a similar linkage across government bonds, equities and fiat currencies.

Given different times and different methods, there are dissimilarities between Law’s scheme and the way those of Keynes are playing out. But it is the similarities which should ring alarm bells. Critics of inflationary financing generally assume the end of a fiat currency is marked by the general public eventually discarding it. The similarities between Keynes’s and Law’s schemes suggest a different outcome.

By tying in financial asset values to currencies, if one fails the other will too. A loss of confidence in one immediately undermines the other. The sequencing is that a failure to sustain bond and equity prices occurs first, followed by their collapse, closely accompanied by the erosion of all faith in the currency.

With this framework we can propose a future for both financial markets and the dollar. The Fed in a similar role to Banque Royale continues with its attempts to manipulate US Treasury bond prices higher, and therefore equity markets, as has been the situation the case since the Greenspan put. In February 1720, the King sold 100,000 shares for 9,000 livres each, netting 900,000,000 livres. It marked the top of Law’s bubble. The question is who or what will ring the bell this time.

Today, we cannot see who outside the US banking system is going to buy ever-larger quantities of US Treasury stock, because foreigners are stalling in their appetite and domestic savers hardly exist. We should bear in mind ownership of foreign currencies is justified by trade volumes, and evidence of declining international trade firmly points to the dollar being sold. Consequently, the banks acting as agents for the Fed are going to be the only buyers, being paid by the Fed through crediting their reserves.

At the last count foreigners and their governments owned $19.4 trillion in US securities and had about $4 trillion in bank deposits. The bubble will surely burst when the dollar begins to decline against other currencies, creating doubled losses for foreign investors and a funding crisis for US government debt. With US Treasury bond yields then rising the dollar seems certain to accelerate its decline due to mounting portfolio losses faced by foreign investors.

That, perhaps, is where the similarity with the ending of Law’s scheme exists today: a combination of circumstances based on an official tie between financial assets and the fiat currency. Like the collapse of Law’s scheme, we can expect it to be measured in the soaring price of specie, physical gold and silver, and today perhaps decentralised issue-limited cryptocurrencies.

This being the case, the collapse will not be drawn out as even the most bearish bears expect but could be completed by the end of this year.

The Baltic Exchange’s main sea freight index plunged on Friday, with rates for capsize vessels hitting a record low as an economic shock could be developing in China as two-thirds of its economy has been shut down because of the coronavirus outbreak.

The Baltic Dry Index, which tracks rates for capesize, panamax and supramax vessels, ferry dry bulk commodities across the world slipped 11 points, or about 2.2%, to 487, the lowest level since April 2016, reported Reuters.

The Baltic Dry Index is the most important indicator for the rates of bulk shipping. The rate is determined based on the rates that are paid to transport raw materials on the 25 busiest shipping routes. Prices are falling sharply due to the cooling global economy: -80,2%!!! pic.twitter.com/tIeaZSlwIu

— Karel Mercx (@KarelMercx) January 31, 2020

The Baltic index has plunged 10.5% this week as coronavirus cases in China soared, and factories and cities in some of the largest industrial hubs in the world ground to a halt. This in itself is producing an economic shock, first seen in industrial metals and energy prices plummeting in the last several weeks. 

The capesize index has fallen by more than 99% this week, the sharpest drop on record as demand for large-sized bulk carriers and tankers typically above 150,000 deadweight tonnage, comes to an abrupt stop. 

The panamax index declined 3.5% on Friday, down 14% on the week. 

The supramax index lost 4 points to 524 on Friday. 

We’ve noted that the “frontloading” effect ahead of tariff deadlines ended in late 3Q19 when the first signs of a trade resolution emerged between the U.S. and China. 

In the last four months, the Baltic index has crashed the most since 2008 and has confirmed our slowbalisation thoughts. 

And now, the situation is much worse, and the reason is that the global economy was already weakening and susceptible to a shock. 

The Federal Reserve’s tightening cycle, coupled with President Trump’s trade war blowing up complex supply chains around China and the world, did immense damage to the global economy and world trade. It opened up something cycle folks call a “period of vulnerability,” and it’s in this timeframe that the global economy could be tilted into recession if an exogenous shock is seen. That shock, as per the former Morgan Stanley Asia chairman Stephen Roach said this week, happens to be coronavirus outbreak shutting down China’s economy, and the shock may vibrate across the world in the weeks or months ahead. 

“With the world economy operating dangerously close to stall speed, the confluence of ever-present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects,” Roach said via his op-ed in Project Syndicate.

The coronavirus shock from China has already sent commodities tumbling; for instance, copper futures are on the longest losing streak since 1986. Dr. Copper suggests China’s economy is headed for a hard landing, along with continued deceleration across the world. 

“The global economy continues to show declining rates of economic growth, originating from a US-based tightening cycle and a private sector deleveraging in China. The slowdown was exacerbated by a US-China trade spat, denting business confidence. 

The global PMI heatmap shows over the last 18 months, the industrial economy has been weakening with the average and median reading below the 50 expansion-contraction line. The Baltic Dry Index has declined a staggering 80% since September 2019.

Historically, recessions occur when an organic economic slowdown clashes with a negative economic shock. Should the employment market weaken further, and job losses continue to spread throughout cyclical sectors of the global economy, a recessionary shock becomes an increasingly large concern,” noted Eric Basmajian, Founder of EPB Macro Research. 

The collapse in the Baltic index, happened well in advance of the coronavirus outbreak, suggests that the virus shock will start reversing global economic data and lead to another episode of falling bond yields and soaring negative-yielding debt. 

And the chatter on Twitter in the last several months as the stock market roared higher, was that the Baltic index had lost its predictive powers of suggesting economic doom. Though, the reason for it was due to the “frontloading of tariffs,” and with that widely over, now comes the payback period with a coronavirus shock that could tilt the world into recession. 

 

Authored by Anthony DiMaggio via Counterpunch.org,

As the Democratic primaries near, the usual chorus of Democratic-establishment pundits have emerged to remind Americans that their party needs to remain “moderate” and appeal to “the center” if it wants to win the presidency. The calls for moderation are pervasive in commentary from the New York Times, the Hill, and the Wall Street Journal, among others.

Most recent is a January New York Times op-ed from Ezra Klein, entitled “Why Democrats Still Have to Appeal to the Center, but Republicans Don’t.”

Klein is the sort of pundit who likes to drape his political prescriptions in empirical social science data, thereby adding the appearance of legitimacy to what are neoliberal Democratic talking points. He warns primary voters that “Democrats can’t win running the kinds of campaigns and deploying the kinds of tactics that succeed for Republicans. They can move to the left…but they can’t abandon the center or, given the geography of American politics, the center-right, and still hold power.”

Klein draws on statistics describing the demographic foundations of Democratic and Republican Party support, claiming that Democrats must appeal to Americans of many different backgrounds. Democrats are “more diverse,” drawing support from “a coalition of liberal whites, African-Americans, Hispanics, Asians, and mixed-race voters,” in addition to “liberal and nonwhite Christians, Jews, Muslims, New Agers, agnostics, Buddhists, and so on…winning the Democratic primary means winning liberal whites in New Hampshire and traditionalist blacks in South Carolina. It means talking to Irish Catholics in Boston and atheists in San Francisco.” In contrast, Klein points out that the Republican Party is primarily comprised of white voters, with “three-quarters of Republicans identify[ing] as conservative, while only half of Democrats call themselves liberals.”

Klein believes that “to win power, Democrats don’t just need to appeal to the voter in the middle. They need to appeal to voters to the right of the middle.” Republicans, to the contrary, rely on undemocratic entities like the Electoral College and the suppression of minority voters to win elections, while relying disproportionately on white conservative supporters who vote in high numbers, despite the party’s steadily “shrinking constituency.”

But Klein’s narrative is largely a regurgitation of an old establishment Democratic trope that’s been crammed down Americans’ throats for the last three decades. The notion that moderate pro-business Democrats are the party’s only chance to win office traces back to the rise of Bill Clinton’s “New Democrat” “third way” coalition, which is defined by center-left social politics and conservative, pro-business economic policies in favor of deregulation, free trade, corporate tax cuts, and attacks on the welfare state. I’m intimately the narrative of the “electable” neoliberal Democrat in my own line of work as a professor. Most social scientists, after all, are milquetoast liberals, so claims that only establishment Democrats can win abound in the halls of higher education.

Things Change

The claim that only neoliberal Democrats are viable candidates has been exposed in the era of Donald Trump. Trump’s election demonstrates that candidates don’t need to appeal to the “center” to win. Reactionary media and political leaders have been pulling Republican voters to the right for decades. Given this shift, the vast majority of Republican voters are willing to vote for most any right-wing candidate running in the general election, so long as they aren’t a Democrat. Claims were commonly made in 2016 that Trump would spell doom for the Republican Party, since his brazenly xenophobic, racist, sexist, and authoritarian rhetoric would never appeal to moderate Republican voters. Clearly, this wasn’t the case; an overwhelming 88 percent of Republican voters turned out in favor of Trump.

Klein recognizes that Republicans no longer need to rely on moderation to win because of the rightward movement of the party. But he and other Democrats have no insight into what is politically possible, were the Democratic Party to commit to building a durable popular base in pursuit of progressive change. And establishment Democrats have no vision for how to make their party relevant at a time when nearly half of Americans don’t bother to vote, and when the vast majority of Americans express little to no trust in government. As a neoliberal entity, the party is fundamentally incapable of operating as a democratic medium for raising support among disadvantaged groups.

Sanders’ Appeal

Bernie Sanders’ rise in the 2016 Democratic primary provides more evidence to challenge traditional neoliberal notions of “electability.” As I’ve documented, the mainstreaming of Sanders’ progressive agenda was revealed in polling at the time, which found that one quarter of Democrats in 2016 believed Sanders’ identification as a “democratic socialist” made him more electable, while less than one in ten felt it made him less so, and with two-thirds who thought it made “no difference.” In other words, 90 percent of Democrats felt the “socialism” stigma was irrelevant to their political calculations. Such sentiment undermines the notion that only neoliberal Democrats can appeal to voters.

Looking at the 2016 election, we see the poverty behind the claim that Americans thirst for a neoliberal Democrat. Hillary Clinton, the quintessential corporate-friendly politician, failed to defeat one of the most unpopular presidential candidates in modern history. And her party stumbled badly when it came to cultivating support from economically vulnerable Americans.

As documented at the time, Donald Trump did not gain disaffected voters who were harmed by manufacturing outsourcing, so much as pro-free trade Democrats lost them. The Democratic Party lost 3.5 times as many votes from those living in rustbelt areas hardest hit by corporate free trade than Republicans gained, when comparing Republican and Democratic presidential vote tallies from 2012 and 2016.

The story of the modern Democratic Party is one of demobilizing working-class Americans. This is hardly a radical claim, or one lacking historical foundation. The party shamelessly embraced center-right pro-business policies for the last 25 years, and as a result has failed to build a stable coalition that can consistently win and hold political power.

Neoliberalism in Freefall

Looking at the 2020 Democratic primaries, we again see the limits of Democratic centrism. Polling data in the run-up to the primaries demonstrates that those depicted as the most “electable” Democratic candidates benefit from little to no support from disadvantaged socio-economic groups. Pete Buttigieg, a neoliberal Democrat if there ever was one, receives virtually no support from people of color and from the less educated. Joe Biden’s campaign has done little to nothing to inspire support from younger and poorer Americans. An overwhelming 73 percent of his supporters are 50 and older, while just 7 percent are 18-29, and only 19 percent are 30-49, for a total of just 26 percent who are under 50. Elizabeth Warren polls well among whites, liberals, and those with a college education, but not so well with everyone else. She benefits from little enthusiasm from people of color, who make up just 4 percent of her supporters.

By comparison, Bernie Sanders does better among disadvantaged groups. Looking at generational cohorts, Sanders’ largest group of supporters are 18-29-year olds, followed by 30 to 49-year olds. He receives six times more support from the 18-29 age group than he does from those 65 and over. He is more likely to be supported by liberals, and he receives a range of support from different educational groups, including high school graduates, and those with two and four-year college degrees. Sanders also polls well among black, white, and LatinX voters, in contrast to Buttigieg and Warren.

Finally, Sanders’ support is significantly higher among middle and lower income Americans. He is more than two times as likely to receive support from Americans with moderate to low incomes (households earning less than $75,000 a year), compared to those with higher incomes (over $75,000). By comparison, Warren receives twice as much support from higher income Americans than from those with lower incomes. Buttigieg polls equally among higher and lower income groups, while Biden performs better with higher income over lower income Americans by a ratio of 1.3:1.

Sanders’ Problem

Sanders’ main challenge moving forward is that he isn’t really a Democrat, but a progressive independent running in the Democratic primaries. And this clearly hurt him in the 2016 election. As I’ve documented, Sanders was more likely to receive support from Americans who self-identified as political independents, not as Democrats. Most Democratic primary voters in 2016 preferred an establishment candidate of the Clinton variety. This challenge remains moving into the 2020 primaries. Biden is clearly the central establishment figure in the party, and he retains significant support from the party’s sizable centrist, corporate-friendly base, which will be well represented in primary races across the country.

Nine months out, it’s impossible to know how the 2020 general election will turn out. But based on available evidence, it’s clear that the “more of the same” approach to propping up Democratic neoliberal politics will continue to fail in cultivating sustained mass support. As an electoral strategy, it’s failed to produce consistent Democratic victories, despite the promises of its adherents over the last few decades. The 2016 election was the most extreme case of the party’s failure, as witnessed by the mass demobilization of formerly Democratic voters who felt betrayed by the party’s pro-business politics. Biden, should he win the Democratic nomination, will do little to inspire traditionally disadvantaged demographic groups to vote. Based on pre-election polling data, it’s clear that Warren, Buttigieg, and Biden are incapable of building a progressive electoral coalition that will unite white liberals, the poor, younger Americans, and people of color.

As a professional politician, Sanders hasn’t been central to progressive movement building. But he has declared support for these movements, via his alliances with Fight for $15, the Madison protests, and Occupy Wall Street. Contrary to the other Democratic primary candidates, he recognizes the importance and centrality of such movements to driving progressive political change. Furthermore, the public is increasingly attuned to the bankruptcy of Democratic-establishment politics, regardless of what the party’s pundits say. Their efforts to prop-up Bill Clinton’s “new Democrat” coalition represent a last desperate gasp of air for a party that has struggled for years to remain relevant in an era of mass discontent with government. Sanders’ rising popularity in recent primary polling suggests that much of the party’s base hungers for a serious left alternative to the Democrats’ pro-business politics.

Authored by Simon Black via SovereignMan.com,

Are you ready for this week’s absurdity? Here’s our Friday roll-up of the most ridiculous stories from around the world that are threats to your liberty, your finances, and your prosperity.

Pedophile released from prison due to sex change

Joseph Matthe Smith molested 15 children, and his victims were as young as one year old. It’s gruesome.

Smith was first convicted of sex crimes against children in 2012, and again in 2014.

When Smith was incarcerated, the court even determined he was likely to continue being a repeat offender… so the state wanted him locked up for a long time.

But Smith he has just been released and is preparing to rejoin society.

State prosecutors say this is because Smith is undergoing a gender transition to become a woman.

They claim “hormone levels are an important part of substantiating an offender’s likelihood of recidivism.”

Now referring to Smith as “Josie” and using the preferred pronouns “she” and “her,” the Attorney General’s office said, “We don’t believe we have evidence sufficient to prove Josie Smith has a significant chance of reoffending.”

Unfortunately, this appears to be a trend.

In November we highlighted an Australian case where an already light child porn sentence was overturned. The criminal was confused about his/her gender at the time of the crimes, so the court let him/her go.

Click here for the full story.

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Art history is ‘too white’ for Yale University

Introduction to Art History at Yale has always been a popular course about Western art.

It starts in Italy during the Renaissance, and continues to modern day Europe and North America.

But these days, that’s a little too white, straight, and male. Especially for Yale.

The class will be cancelled after the spring semester. But even in this last rendition of the class, the professor says he will focus the study of Western art in relation to “questions of gender, class and ‘race’”.

This is all part of Yale’s attempts since 2017 to “decolonize” its curriculum.

It’s interesting that Yale’s Art History department offers DOZENS of other courses in art from different cultures, including:

• Black British Art and Culture

• Women in Ancient Rome

• Afro-Modernism in the 20th Century

• African Arts and Expressive Cultures

• Power, Gender, and Ritual in African Art History

• Buddhist Art and Architecture

You get the idea.

Yale could have encouraged students who want to learn about other cultures to, you know, sign up for those classes. But no. Instead, one of the most esteemed educational institutions in the world is simply censoring itself… and the works of Monet, Picasso, and Michelangelo along with it.

Click here to read the full story.

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Chinese student sentenced to six months in prison for Tweets

While studying in the USA, a Chinese student tweeted images mocking President Xi.

These included picturing Xi as a cartoon mob boss, or as Winnie the Pooh. The Chinese government has already banned any such images that are unflattering to President Xi.

When the student arrived back to China, he was arrested for “provocation.”

Now he’s been sentenced to six months in prison for using his “Twitter account to post more than 40 comments denigrating a national leader’s image and indecent pictures.”

His online Twittering “created a negative social impact,” according to court documents.

Click here for the full story.

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Police officer claiming he is black questioned by city council

The video plays out somewhat like a Saturday Night Live skit.

Miami police Captain Javier Ortiz testifies to the commission that he is a black man.

“That’s how I feel,” he says.

The officer came under disciplinary review after fellow cops raised concerns that Ortiz was claiming to be black on his applications to be promoted more rapidly within the department.

In the video, a black commissioner says, “Let’s not talk about the degree of blackness.”

Ortiz replies, “Oh no, you’re blacker than me, that’s obvious.”

Then Ortiz cites the slave-era “one-drop” rule to say if he has one drop of black blood in his ancestry–which he recently discovered he does–then he’s black.

Ortiz also mentioned being half Jewish in the bizarre exchange.

That prompted a city councillor to remark, “Mr. Ortiz claimed that he is black, now we hear Jewish black. I’m afraid maybe next month it’ll be, you know, a black, Jewish, woman.”

Of course if Ortiz claimed to feel like a woman, he would be beyond reproach.

But the same sentiment doesn’t apply to identifying as whatever race you want– at least not yet.

Ortiz has been suspended indefinitely with pay.

Click here to see the video.

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Should a deadly pandemic comparable to the 1918 influenza outbreak reach the US in the relatively near future, the US government would be powerless to stop it. And in all likelihood, hundreds of thousands – if not, millions – of Americans will die.

That was the message Microsoft founder Bill Gates sent to the world before the Massachusetts Medical Society in April 2018.

If a highly contagious and lethal airborne pathogen like the 1918 influenza were to take hold today, nearly 33 million people worldwide would die in just six months, Gates noted in his prepared remarks, citing a simulation done by the Institute for Disease Modeling, a research organization in Bellevue, Wash.

Specifically, Gates said the U.S. government is falling short in preparing the nation and the world for the “significant probability of a large and lethal modern-day pandemic occurring in our lifetimes.”

Gates discussed his efforts to convince the Trump administration to set aside more funding for the Centers for Disease Control and Prevention and to prioritize the creation of a national response plan that would govern how resources are deployed during a pandemic or biological weapons attack.

“So we need to invest in other approaches, like antiviral drugs and antibody therapies that can be stockpiled or rapidly manufactured to stop the spread of pandemic diseases or treat people who have been exposed,” he said in his speech.

Gates said he believed “the world needs to prepare for pandemics in the same serious way it prepares for war.” He added,

“This preparation includes staging simulations, war games, and preparedness exercises so that we can better understand how diseases will spread and how to deal with responses such as quarantine and communications to minimize panic,” Gates said.

That was not the first time the billionaire had warned the world.

At the 2017 Munich Security Conference, Gates asked world leaders to “imagine that somewhere in the world a new weapon exists or could emerge that is capable of killing millions of people, bringing economies to a standstill, and casting nations into chaos. If it were a military weapon, the response would be to do everything possible to develop countermeasures,” he said at the NEJM event, adding that a “sense of urgency is lacking” when it comes to biologic threats.

This should concern everyone said Gates, “because history has taught us there will be another deadly global pandemic.

“We can’t predict when, but given the continual emergence of new pathogens, the increasing risk of a bioterror attack, and the ever-increasing connectedness of our world, there is a significant probability that a large and lethal modern-day pandemic will occur in our lifetime,” Gates said.

Furthermore, as SHTFplan.com’s Mac Slavo notes, last October, Gates was involved in Event 201 when a then-imaginary and deadly virus spread around the globe killing 65 million people. 

The fictional coronavirus at the center of the Event 201 simulation — a collaboration between the Johns Hopkins Center for Health Security, the World Economic Forum, and the Bill and Melinda Gates Foundation — was called CAPS, and it started with pigs in Brazil before spreading to farmers, not unlike how 2019-nCoV reportedly began with animals before spreading to people.

In the simulation, CAPS infected people all across the globe within six months, and by the 18-month mark, it had killed 65 million people and triggered a global financial crisis. –Futurism

The ruling classes were unable to stop it too and with the WHO finally admitting the coronavirus is a global pandemic, the slippery slope towards that simulation’s results are accelerating.

“The Ebola epidemic in West Africa four years ago was another wake-up call, as the number of confirmed cases climbed, the death toll mounted, and local health systems collapsed. Again, the world was much too slow to respond,” Gates said of the 2014-2016 epidemic, which killed 11,000 and infected more than 28,000. Eleven people were treated for Ebola in the United States during that epidemic, according to the CDC. Gates also compared future deadly global pandemics to a new type of “military weapon.”

As Mac Slavo so poignantly concludes, Gates – like many others – is relying on the ruling class (our masters) to prepare and keep us safe. Gates said “world leaders” need to invest in approaches such as antiviral drugs and antibody therapies that can be stockpiled or rapidly manufactured to the spread of these future diseases. We think you should prepare on your own outside of what the rulers are doing.  If we have learned anything from studying history, it’s that the ruling class cares only about the expansion of their own wealth and power and not the people they are enslaving.

While Gates’s sense of urgency at the time was admirable – and perhaps prophetic given the current status of the spread of the Wuhan coronavirus, other experts on the likelihood of a global pandemic emerging in the relatively near future make Gates look like a Walt Disney-level optimist. 

“We know that it is coming, but we have no way of stopping it,” said WHO infectious disease specialist Dr. Sylvie Brand.

We warned at the time that “if you haven’t already, now would probably be as good a time as any to invest in some surgical masks.” Sadly, now it is too late and the world is ‘out’ of masks.