History’s Biggest “Butterfly Effect”-Event Occurred On This Day

History’s Biggest “Butterfly Effect”-Event Occurred On This Day

Via Global Macro Monitor,

The butterfly effect is the concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science.

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The name, coined by Edward Lorenz for the effect which had been known long before, is derived from the metaphorical example of the details of a tornado (exact time of formation, exact path taken) being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier. Lorenz discovered the effect when he observed that runs of his weather model with initial condition data that was rounded in a seemingly inconsequential manner would fail to reproduce the results of runs with the unrounded initial condition data. A very small change in initial conditions had created a significantly different outcome. 

–  Wikipedia

On this day in history, June 28, 1914, the driver for Archduke Franz Ferdinand,  nephew of Emperor Franz Josef and heir to the Austro-Hungarian Empire,  made a wrong turn onto Franzjosefstrasse in Sarajevo.

Just hours earlier, Franz Ferdinand narrowly escaped assassination as a bomb bounced off  his car as he and his wife,  Sophie,  traveled from the local train station to the city’s civic city.   Rather than making the wrong turn onto Franz Josef  Street, the car was supposed to travel on the river expressway allowing for a higher speed ensuring the Archduke’s safety.

Yet, somehow, the driver made a fatal mistake and tuned onto Franz Josef Street.

The 19-year-old anarchist and Serbian nationalist, Gavrilo Princip, who was part of a small group who had traveled to Sarajevo to kill the Archduke,  and a cohort of the earlier bomb thrower, was on his way home thinking the plot had failed.   He stopped for a sandwich on Franz Josef Street.

Seeing the driver of the Archduke’s car trying to back up onto the river expressway, Princi seized the opportunity and fired into the car, shooting Franz Ferdinand and Sophie at point-blank range,  killing both.

That small wrong turn,  a minor perturbation to the initial conditions, or deviation from the original plan,  set off the chain events that led to World War I.

Stumbling Into The Great War

Fearing Russian support of Serbia, Franz Josef would not retaliate by invading Serbia unless he was assured he had the backing of Germany.   It is uncertain as to whether the Kaiser gave Franz Josef Germany’s unequivocal support.   Russia, fearing Germany would intervene, mobilized its troops forcing Germany’s hand.

The great European powers thus stumbled into a war they didn’t want through complicated entanglements and alliances, and miscalculation.  Russia backing Serbia;  France aligned with Russia,  Germany backing the Austro-Hungarian Empire;  and Britian, who really didn’t have a dog in the fight except her economic interests, aligned with France and Russia.

Later the U.S. would enter the war due to Germany’s unrestricted submarine warfare threatening American merchant ships and the Kaiser floating the idea of an alliance with Mexico in the famous Zimmerman Telegram, which was intercepted by the British.

Of course, some will argue that Great War in Europe was inevitable

The great Prussian statesman Otto von Bismarck, the man most responsible for the unification of Germany in 1871, was quoted as saying at the end of his life that “One day the great European War will come out of some damned foolish thing in the Balkans.” It went as he predicted.  – History.com

Nevertheless,  maybe the course of history would have been different if not for that wrong turn on June 28, 1914, which created the humongous butterfly effect, which we still experience the consequences this very day.

The botched Treaty of Versailles  sowed the seeds the for World II.  The War contributed to the Russian revolution and Cold War.  The redrawing of borders in the Middle East after the War created the conditions for the instability and breakdown to tribalism the region experiences today.

A map marked with crude chinagraph-pencil in the second decade of the 20th Century shows the ambition – and folly – of the 100-year old British-French plan that helped create the modern-day Middle East.

Straight lines make uncomplicated borders. Most probably that was the reason why most of the lines that Mark Sykes, representing the British government, and Francois Georges-Picot, from the French government, agreed upon in 1916 were straight ones.  — BBC News

If Franz Ferdinand had not been murdered on this day in history,  that conflict between the Serbs and the Austro-Hungarian Empire may have been contained to just the Balkans.   Maybe.

The butterfly effect.  Think how many small events, decisions, mistakes, one small turn, or “minor perturbations” in plans have had enormous consequences in your own personal life.

Tyler Durden
Tue, 06/28/2022 – 16:20

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The End of Roe Is Republicans’ Latest Excuse for Growing the Size and Cost of Government


A family with parents and children sitting at a picnic outside

The end of Roe v. Wade, pro-lifers have said since the Supreme Court overturned the longstanding abortion ruling on Friday, must be the beginning of a new era of generosity toward parents in America. For many, that undoubtedly means individual or church-organized care, but for some, it includes an embrace of federal family policy. This is not the first time there’s been a conservative push for “pro-family” reform, but the movement seems to have more wind in its sails than in years past.

“The end of Roe will require a new type of politics,” argued Patrick T. Brown of the conservative Ethics and Public Policy Center in The New York Times last month, pointing specifically to a plan by Republican Sens. Marco Rubio (Fla.) and Mitt Romney (Utah) as an example of the envisioned agenda.

That plan, which Rubio has been promoting since the Dobbs decision dropped, includes an expanded Child Tax Credit, more funding for several social programs, and, as its flagship, an unusual parental leave program. The gist of the leave idea is that parents could choose to receive up to 12 weeks of paid leave after birth or adoption by drawing early Social Security benefits. Several decades down the line, to compensate, they’d choose to either delay retirement by the same number of weeks or receive reduced payments for five years. Participation would be voluntary and available to at least some stay-at-home parents. And because Social Security payments are progressive, benefits would be proportionately higher for lower-income families who can least afford to take leave without pay.

It’s still unclear if the Rubio-Romney plan will indeed become a GOP priority. And though proponents like Chris Rufo have praised the leave program as “cost neutral,” the package as a whole would be quite costly. Even if the parental leave proposal could succeed as a stand-alone item, most of the other pieces stand no chance of federal passage—not without a new president and congressional majority, anyway. This new politics, if it’s coming, won’t come before 2025.

If this leave plan sounds familiar, that’s because it’s nearly the same proposal as the one touted by Rubio and former first daughter Ivanka Trump in 2018. It didn’t catch on among Republicans then and instead caught flak from the left for “penaliz[ing] parents” instead of committing to a universal family leave plan tied to new taxes on the rich. For Reason, Shikha Dalmia dubbed it “a clever idea that certainly avoids some of the problems with rival parental leave plans” but panned the idea, writing, “it isn’t like Social Security has a ton of spare cash lying around to dole out to people other than retirees.”

Indeed, Social Security is already expected to begin paying reduced benefits in 2034, and early payments for parental leave would have to come from somewhere, perhaps by accelerating that reduction or raising federal taxes or debt. If Social Security is gone or much diminished by the time millennials and younger retire, there may never be any payouts for us to delay or reduce. 

In either scenario, bringing these payments forward arguably isn’t cost-neutral after all. Yet, as a taxpayer of childbearing age who won’t retire before 2034, there’s a real appeal here even if this proposal doesn’t work out exactly as planned. It’s functionally a small tax cut for new parents—a chance to claw back some of the payroll taxes I otherwise expect to never see again. My own Social Security payments will be drastically reduced, if they materialize at all, three or four decades from now whether this parental leave program happens or not. Rubio’s plan would at least let me recoup a little of the thousands upon thousands of dollars I’ve paid for retirement payments I’ll likely never enjoy.

The rest of the Rubio family agenda, such as we know of it (the bill text for the whole package does not seem to have been released), is even more of a mixed bag. Expanding the child tax credit and the adoption tax credit is probably the most politically viable of the bunch, though of course, the credits aren’t offset by any spending cuts. The expanded funding for social programs will be too little (or too religious) to garner most Democrats’ support and too expensive for most Republicans.

Undoubtedly most controversial is Rubio and Romney’s proposal that the federal government fund pro-life pregnancy centers “by reallocating federal funds from organizations that perform or refer women for abortions.” Eliminating federal funding for abortion providers (whether to directly pay for abortions or, because money is fungible, to support these organizations at all) has been a pro-life cause for years on grounds of conscience—but also a source of deep contention. Perhaps inevitably in our era of negative partisanship, Rubio’s proposal would not simply eliminate the funding but invert its political polarization.

Maybe there’s a family policy yet to be crafted that could garner broad support from the American public—or clear the often higher bar of bipartisan backing in Washington. I don’t know what it would be nor, I suspect, does anyone else. But the end of Roe seems to have further spurred demand for a viable family policy, and the Rubio agenda isn’t it.

The post The End of <em>Roe</em> Is Republicans' Latest Excuse for Growing the Size and Cost of Government appeared first on Reason.com.

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‘Bad News’ Is Bad News Again: Stocks Slammed On Macro Meltdown, Bonds Shrug

‘Bad News’ Is Bad News Again: Stocks Slammed On Macro Meltdown, Bonds Shrug

Well that rotation didn’t last long.

Yesterday’s ‘good news’ spoiled the ‘growth scare’ narrative (which would pressure The Fed to lift its foot off the market’s throat) and sent stocks lower.

Today, a disastrous set of data reignited the ‘bad news is bad news’ mantra as Consumer confidence crashed, Richmond Fed was routed, Retail and Wholesale sinventories rose less than expected (not good for GDP and a signal that comanies are losing confidence in the consumer), Home Price acceleration slowed a smidge, Goldman’s Retail Spending comps in dex tumbled to its weakest since 2019, and Nielsen data showed increasing price pressures on the US consumer.

All of which pushed ‘hope’ back near pre-Trump lows with soft survey data leading hard real economic data lower…

Source: Bloomberg

All of which means the relative resilience of consensus margin and earnings estimate is likely to come increasingly under scrutiny which sent stocks significantly lower on the day with Nasdaq the biggest loser (down over 3% on the day). NOTE that overnight futures were bid towards the Asia close as China eased its COVID travel restrictions but after an initial mini spike at the US cash open, everything got clubbed like a baby seal…

The Nasdaq dived shortly after the kneejerk higher on the US cash open and erased all gains to the cash open on Friday. The S&P 500 and Dow also erased all of its post-Friday-open gains…

The S&P 500 fell back into bear market territory…

Source: Bloomberg

We note that today’s ugly data did nothing to stop the reversion to a hawkish trend in rate-hike expectations that hit yesterday…

Source: Bloomberg

VIX retraced all of yesterday’s drop, trading back up near 29 today…

Despite an ugly 7Y auction – following yesterday’s ugly auction – and the bloodbathery in stonks, Treasuries ended the day basically unchanged. Asia was buying bonds, Europe was selling, and US session saw the bid come back to leave 30Y yields -1bps and the rest unch…

Source: Bloomberg

The dollar spiked today as the Euro weakened as the ECB claimed it would start its defragmentation tool this weekend, just as QE ends…

Source: Bloomberg

Crypto was slammed.. again… with Bitcoin dropping back near $20k…

Source: Bloomberg

Gold rallied overnight in the Asia session then was sold all the way through Europe and US sessions…

Oil traded higher once again ahead of tonight’s API inventory data (note tomorrow’s official EIA data will include last week’s delayed data) helped by G-7 price cap malarkey and relatively positive news from China easing its quarantine restrictions…

Notably, while the G-7 were busily trying to persuade the world to cap the price they pay for Russian oil, the discount from brent for URALS Med Crude hit a new high of $36…

Source: Bloomberg

Remember, 1) they will never persuade China or India to agree, and 2) western nations already don’t buy Russian oil.

US NatGas tumbled in the afternoon – after Europe closed – perhaps on news that gas flows returned through Turkstream and the G-7 price caps – but ended modestly higher…

But US NatGas is trading in line with WTI on an oil barrel equivalent price (and EU NatGas trading almost 100% higher)…

Source: Bloomberg

Copper pumped and dumped today to end modestly lower, rallying during the Asia session (China easing restrictions) then selling off through Europe and US….

Finally, we note that US TSY Bonds are at their cheapest relative to stocks since 2011 and at a level of cheapness that has previously prompted rotation from stocks into bonds…

Source: Bloomberg

TINA is dead and quarter-end rebalancing may be a problem for those expecting stocks’ losses to mean some refills.

Also, as a reminder, the dollar liquidity market remains under stress…

Source: Bloomberg

Nothing to panic about yet but the closer we get to quarter-end, we will see who’s swimming naked.

Tyler Durden
Tue, 06/28/2022 – 16:01

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Pentagon Moves To Wrest Rare Earths Control From China

Pentagon Moves To Wrest Rare Earths Control From China

Authored by Greg Isaacson via The Epoch Times,

The battle for control of the global rare earths supply chain is heating up, with the U.S. Department of Defense investing in a new processing plant in a bid to challenge China’s chokehold over the critical minerals.

The Pentagon has agreed to fund the entire $120 million cost of a heavy rare earths separation facility to be built in Texas by Australia’s Lynas Rare Earths, advancing a program launched in 2020, the company announced on June 14.

Located on the Gulf Coast, the new facility will give the United States access to domestically produced heavy rare earths that are essential to industries such as electric vehicles, wind turbines, and electronics, according to the company, which is the largest processor of rare earths outside of China.

The Texas facility that landed Pentagon funding will process heavy rare earth carbonate mined in Australia, forming a production cycle that bypasses China entirely. Lynas Rare Earths plans to combine the upcoming plant with a proposed light rare earths separation facility that is being co-funded by the company and the Defense Department.

The project was first announced in July 2020 as part of the U.S. government’s strategy—under a 2017 executive order signed by former President Donald Trump—to reduce dependence on foreign imports of critical minerals. The Pentagon is also funding a heavy rare earths processing and separation facility in Mountain Pass, California.

China’s Dominance in Rare Earth Production

Rare earths are a group of 17 elements with unique properties used in virtually every piece of modern technology, from smartphones to jet engines. Although the United States pioneered the industry during World War II, China now controls over half of global rare earths mining and 80 to 90 percent of intermediate processing.

China’s dominance of the industry represents a major risk to the United States, which currently has only one active rare earths mine—the Mountain Pass mine in California—and zero commercial-scale processing capability. America’s dependence on Chinese rare earths processing gives the Chinese Communist Party (CCP) dangerous leverage over the U.S. economy and military.

For example, the Chinese regime obliquely threatened to limit exports of rare earths to the United States after Washington placed Chinese telecom giant Huawei on a trade blacklist in 2019.

“It is believed that if the U.S. increasingly suppresses the development of China, sooner or later, China will use rare earths as a weapon,” the state-run Global Times newspaper warned in May of that year.

It’s unclear how much damage Beijing could do if it chose to pull the trigger on that threat. A Chinese embargo would send shockwaves through the global market—as happened in 2010 when China temporarily restricted exports of rare earth minerals to Japan over a territorial dispute.

2021 study by the U.S. Department of Energy found that a one-year export ban on rare earths by China could cause a 40 percent drop in magnet production outside of China as metals would become harder to obtain. Dysprosium oxide, a key component of the neodymium magnets used in a vast array of technologies from wind turbines to electric vehicles, is particularly vulnerable to price shocks from a Chinese embargo, the study found.

But China’s ability to harm the U.S. economy by weaponizing the rare earths supply is probably more limited than its industry dominance would suggest. A research note published by investment bank Raymond James in 2019 argued that the impact of a Chinese embargo on rare earths exports to the United States would be “mild,” according to a report by CNBC.

The analysts pointed out that the United States spent only $160 million to import rare earths for manufacturing in 2018 and accounted for only 9 percent of global demand for rare earth inputs in the manufacturing process. Most of the high-tech products that would be affected by a rare earths embargo—including PCs, electric vehicle batteries, and fiber optics—are manufactured in Asia rather than the United States.

….

The U.S. military’s dependence on Chinese rare earths is a far more serious vulnerability. The defense supply chain relies heavily on rare earths, from disk drive motors in tanks to fin actuators in missile guidance systems.

The United States, in recent years, has begun to piece together a strategy for addressing the national security concerns involving rare earths.

Read more here…

Tyler Durden
Tue, 06/28/2022 – 15:45

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Alito’s Junk History About Lochner


Supreme Court Justice Samuel Alito

Littered throughout Justice Samuel Alito’s majority opinion in Dobbs v. Jackson Women’s Health Organization, which eliminated the constitutional right to abortion, are disparaging comments about a 1905 case in which the Supreme Court overturned a state economic regulation.

“On occasion,” Alito wrote in Dobbs, the Court “has fallen into the freewheeling judicial policymaking that characterized discredited decisions such as Lochner v. New York.” The Lochner decision was both “unprincipled” and “erroneous,” Alito declared. He even placed Lochner alongside Plessy v. Ferguson (1896), the notorious ruling which enshrined the vile doctrine of “separate but equal.”

Alito is not the first judicial conservative to attack Lochner. The late Robert Bork, a federal judge who almost made it onto the high court, denounced Lochner as “the symbol, indeed the quintessence, of judicial usurpation of power.” For conservatives like Bork and Alito, the problem with Lochner is that the ruling recognized a constitutional right that (in their view) does not and should not exist. “To this day,” Bork wrote, “when a judge simply makes up the Constitution he is said ‘to Lochnerize.'”

The problem with the Bork/Alito view of Lochner is that it is wrong as a matter of constitutional text and history. Indeed, the drafting and ratification history of the 14th Amendment make clear that the amendment was originally understood to protect a broad range of unenumerated rights, including the right to economic liberty, sometimes called liberty of contract, which was the very right at issue in Lochner.

Consider the words of Rep. John Bingham, the Ohio Republican who chiefly authored the first section of the 14th Amendment, which reads: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.” As Bingham told the House of Representatives, “the provisions of the Constitution guaranteeing rights, privileges, and immunities” include “the constitutional liberty…to work in an honest calling and contribute by your toil in some sort to the support of yourself, to the support of your fellow men, and to be secure in the enjoyment of the fruits of your toil.” In other words, the 14th Amendment was designed to protect, among other things, an unenumerated right to economic liberty.

Even those who opposed the 14th Amendment’s ratification said as much at the time. For example, Rep. Andrew Jackson Rogers (D–N.J.) complained to the House in 1866 that “all the rights we have under the laws of the country are embraced under the definition of privileges and immunities.” “The right to contract is a privilege,” he observed, adding, “I hold if that [the 14th Amendment] ever becomes a part of the fundamental law of the land, it will prevent any state from refusing to allow anything to anybody embraced under this term of privileges and immunities.”

To say the least, the fact that both advocates and opponents of the 14th Amendment agreed on its meaning at the time of ratification is strong originalist evidence in support of the Lochner Court’s reasoning and outcome. Contrary to the junk history peddled by Bork and Alito, Lochner is not a dirty word.

The post Alito's Junk History About <i>Lochner</i> appeared first on Reason.com.

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Oil Tanker Halted By US Authorities In Transit From Russia To New Orleans

Oil Tanker Halted By US Authorities In Transit From Russia To New Orleans

US authorities have stopped a tanker that was transporting oil and other fuel products from a Russian port to New Orleans, the Wall Street Journal reported on Tuesday citing American officials privy to the ongoing customs investigation of the vessel.

“The Daytona tanker is owned by Greek shipowner TMS Tankers Ltd. and was chartered by Vitol, a commodity trading house based in Switzerland,” the WSJ details. “It sailed from Russia’s Taman peninsula in the Black Sea in early June carrying fuel oil and vacuum gasoil, the data showed, and was planning to arrive in New Orleans on Sunday.”

File image: tankers delivering to refineries located along the Mississippi River just north of New Orleans.

In line with the US embargo on Russian oil, the Daytona has been prevented from unloading its cargo in the US, officials sought to underscore. The ship is currently said to be undergoing checks by the US Customs and Border Protection.

However, the commodities trader Vitol has emphasized that it “complied with sanctions” against Russia, according to a quote in the report. A spokesperson said it “complied with all relevant laws and regulations, including sanctions on Russian crude.”

The Biden administration’s March ban on imports of Russian oil was aimed at depriving President Vladimir Putin “of the economic resources he uses to continue his needless war of choice,” according to a White House statement at the time. “Russian oil will no longer be accepted at U.S. ports,” Biden had announced.

At that point following the early March announcement, importers were given a window of 45 days to take in en route and under-contract cargoes. It’s believed the last of almost a dozen of these made it to US ports by the April 22 deadline.

Some among hawkish critics of what later became a merely “partial” European Union embargo on Russian oil have argued that this allows the Kremlin to still cash in on its remaining oil sales to Europe for at least the short term.

Some central and eastern European countries, most notably Hungary, had long been on record as saying they weren’t able to fully comply, in order to preserve their economies and the consumption needs of their populations.

Tyler Durden
Tue, 06/28/2022 – 15:25

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Alito’s Junk History About Lochner


Supreme Court Justice Samuel Alito

Littered throughout Justice Samuel Alito’s majority opinion in Dobbs v. Jackson Women’s Health Organization, which eliminated the constitutional right to abortion, are disparaging comments about a 1905 case in which the Supreme Court overturned a state economic regulation.

“On occasion,” Alito wrote in Dobbs, the Court “has fallen into the freewheeling judicial policymaking that characterized discredited decisions such as Lochner v. New York.” The Lochner decision was both “unprincipled” and “erroneous,” Alito declared. He even placed Lochner alongside Plessy v. Ferguson (1896), the notorious ruling which enshrined the vile doctrine of “separate but equal.”

Alito is not the first judicial conservative to attack Lochner. The late Robert Bork, a federal judge who almost made it onto the high court, denounced Lochner as “the symbol, indeed the quintessence, of judicial usurpation of power.” For conservatives like Bork and Alito, the problem with Lochner is that the ruling recognized a constitutional right that (in their view) does not and should not exist. “To this day,” Bork wrote, “when a judge simply makes up the Constitution he is said ‘to Lochnerize.'”

The problem with the Bork/Alito view of Lochner is that it is wrong as a matter of constitutional text and history. Indeed, the drafting and ratification history of the 14th Amendment make clear that the amendment was originally understood to protect a broad range of unenumerated rights, including the right to economic liberty, sometimes called liberty of contract, which was the very right at issue in Lochner.

Consider the words of Rep. John Bingham, the Ohio Republican who chiefly authored the first section of the 14th Amendment, which reads: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.” As Bingham told the House of Representatives, “the provisions of the Constitution guaranteeing rights, privileges, and immunities” include “the constitutional liberty…to work in an honest calling and contribute by your toil in some sort to the support of yourself, to the support of your fellow men, and to be secure in the enjoyment of the fruits of your toil.” In other words, the 14th Amendment was designed to protect, among other things, an unenumerated right to economic liberty.

Even those who opposed the 14th Amendment’s ratification said as much at the time. For example, Rep. Andrew Jackson Rogers (D–N.J.) complained to the House in 1866 that “all the rights we have under the laws of the country are embraced under the definition of privileges and immunities.” “The right to contract is a privilege,” he observed, adding, “I hold if that [the 14th Amendment] ever becomes a part of the fundamental law of the land, it will prevent any state from refusing to allow anything to anybody embraced under this term of privileges and immunities.”

To say the least, the fact that both advocates and opponents of the 14th Amendment agreed on its meaning at the time of ratification is strong originalist evidence in support of the Lochner Court’s reasoning and outcome. Contrary to the junk history peddled by Bork and Alito, Lochner is not a dirty word.

The post Alito's Junk History About <i>Lochner</i> appeared first on Reason.com.

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Economic Winter Has Arrived

Economic Winter Has Arrived

Authored by Doug French via The Mises Institute,

The average card-carrying Austrian would say that the Federal Reserve is creating money by the bale, with evidence being Consumer Price Index prints of 8.6 percent per the Bureau of Labor Statistics or over 15 percent per John Williams’s shadowstats.com computation based on the way the government calculated CPI back in 1980. Surely, at best, the US dollar is only the cleanest dirty shirt in the currency laundry basket.

But Uncle Sam’s dollar continues to strengthen (vis-à-vis other government fiat), with the result being market crashes in … everything.

“People have started to realize that when the dollar goes up, it’s not good for anybody,” Alhambra Investments’ Jeff Snider told Maggie Lake on Real Vision. Snider’s “anybody” doesn’t just mean stock, bond, and crypto punters, but Joe and Jane Lunch Bucket as well.

A strong dollar “really tells you that there’s something really amiss in the global financial system, global economy, and global monetary system,” Snider said, covering all the bases.

So what gives? The dollar’s value is a symptom, and when it goes up, “what that tells you is that there’s tightening in the global monetary system for a variety of reasons, usually self-reinforcing reasons,” Snider explained. Money is tight, markets are risk averse, and a recession is coming forthwith.

With Jerome Powell and company pushing up rates, albeit in the market’s dust, and instituting quantitative tightening, it would seem the Fed is doing the wrong thing at the wrong time, unless the Eccles Building crowd wants to bring the recession to Americans as soon as possible, hoping the downdraft will cleanse the malinvestments that have built up since the post-2008 zero interest rate period and especially the papering over of the covid crash with monetary and fiscal handouts. 

Or, as David Rosenberg told Alex Gurevich:

We had several very repeated large scale fiscal stimulus packages. The last one in March of last year, clearly unnecessary untargeted stimulus checks and endless jobless benefits, … really created distortions in the labor market to this day.

There have been inversions along various points of the yield curve “telling us that something is just not right there,” Snider claims. All of this “tells you that the chances of something negative happening have been rising.” And more quickly during the past month. So, while employment numbers have been robust, employees’ 401(K)s, as a recent cartoon depicted, are down to just a K.

Despite what we’re led to believe, the Fed is as political as, well, the Supreme Court, it turns out. Powell’s army of PhD economists only has one gear to play with: the ability to create money at different speeds or hit the monetary brake. Chair Powell can do nothing about supply shocks, like straightening the supply chain, making the unwilling go back to work, or changing China’s covid policy. Monetary magic won’t make this price inflation vanish. 

GDP (gross domestic product), for what it’s worth, was negative in this year’s first quarter, but Snider pointed out that last year’s third and fourth quarters were also weak: “Three straight quarters of really low, almost zero numbers.” The ISM Purchasing Managers’ Index has also been nose-diving. Snider pointed out that the ISM level is the same as in 2019 and headed in the same downward direction. Three years ago, the Fed was cutting rates, yet this time they are hiking rates. 

According to Snider, the marketplace believes Powell is playing politics, feeling consumers’ pain and “raising rates for reasons that are their own.”

And with that, “there’s that risk of rates continuing to go higher.”

To that end, “if the name of the game is to kill this sort of pernicious supply-side inflation, a recession is the only way we’re going to be able to do it,” Rosenberg told Real Vision.

Consumers already feel the pain.

“The University of Michigan’s closely watched Surveys of Consumers consumer sentiment index slumped to 50.2 in the preliminary June survey, marking the lowest level recorded by the survey, which dates back to the mid-’70s,” reports Yahoo.

Murray Rothbard explained in Economic Controversies:

For without the anodyne of continuing inflation of money, the distortions and misallocations of production, the overinvestment in uneconomic capital projects and the excessively high prices and wages in those capital goods industries become evident and obvious. It is then that the inevitable recession sets in, the recession being the reaction by which the market economy readjusts itself, liquidates unsound investments, and realigns prices and outputs of the economy so as to eliminate the unsound consequences of the boom. The recovery arrives when the readjustment has been completed.

“There’s been 14 Fed rate hiking cycles in the post–World War II experience, 14,” Rosenberg emphasized.

“Eleven landed the economy in a recession. I pose the question back to you, is that just a coincidence? Or is it really a pattern? The Fed has had its thumb prints on every expansion, on every bull market, on every recession, and every bear market, the Fed has had its thumb print.

Chairman Powell is doing his part, so say goodbye to unsound investments. 

Tyler Durden
Tue, 06/28/2022 – 15:05

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Preliminary Thoughts on NYSRPA v. Bruen

My contribution to a symposium on New York State Rifle & Pistol Association v. Bruen is now up on SCOTUSBlog. It is pithily entitled: A minor impact on gun laws but a potentially momentous shift in constitutional method. In it, I describe the extensive “shall issue” process I underwent to obtain my concealed carry license in DC for the many who have no idea what this process entails.

I had to pay an application fee of $75. I had to submit my application in person at the Metropolitan Police Department headquarters and be photographed and fingerprinted at an additional cost of $35. I had to pass a federal background check. I had to enroll in and pay for an approved firearms training course, which included 16 hours of classroom study of D.C. gun laws as well as the law governing the use of deadly force, plus another two hours of range instruction. In 2018, the course cost $250 plus $20 for the range fee. The monetary cost of the license amounted to $380. This was in addition to the $125 tax I paid to D.C. on the purchase of my handgun, which brought the total regulatory cost to $505. Since the course took 18 hours to complete, I took it on a Saturday and a Sunday so as not to lose two days of work.

There being no gun ranges in the District of Columbia, my course was taught in Virginia. The instructor was African American, and most of the other students in the course were members of underrepresented groups, which is unsurprising given the demographics of D.C. Since it is doubtful that any other Georgetown professor has a concealed-carry license, I suppose I too was a member of an underrepresented group.

Every two years, I must renew the license. If I miss renewing within the 30-day window before my permit expires, I have to start all over. So, two years later, I had to pay another $75 fee and complete a recertification class consisting of four hours of training, and two hours of range training from an MPD-certified firearms training instructor, which cost $160. I can afford all this, of course, though I cannot say the same for all other citizens of D.C.

This is the type of regulatory regime that, in Bruen, the court said it was not questioning: “[N]othing in our analysis should be interpreted to suggest the unconstitutionality of the 43 States’ ‘shall-issue’ licensing regimes.”

I then discuss my effort to understand Justice Thomas’s “text and history” alternative to the “tiers of scrutiny” doctrine that has dominated constitutional law since the 1950s. I explain why am still not sure I completely understand how it is supposed to work. The essay is long and I cannot truly summarize it my uncertainties and reservations, so you may wish to click through to read it here. Here is a taste:

There is, however, an even more fundamental question raised by Thomas’ text-and-history approach. It seems to assume that, once we use history to identify the “outer contours” of a constitutional right, then any such right bars not only prohibitions on its exercise but also trumps any statutory regulation of it. Prior to the New Deal, however, rights were not viewed as trumps on the regulatory power of government. Instead, the existence of a right barred the complete deprivation of it — that is, a prohibition — and statutes were “strictly” or “equitably” construed to avoid this result. And the existence of a right also required that a regulation be within the power of a legislature to enact. At the federal level, this meant a power delegated to Congress by the Constitution. At the state  level, this meant what is called the state’s “police power.” While broad, the state police power was not unlimited….

Thomas seems to want to limit the original scope of a constitutional right by his historical inquiry. And then the right, so limited, may not be restricted in any way. If rights are this absolute, however, then we cannot afford to recognize very many if government is to function. This would explain Thomas’ apparent movement toward an “enumerated rights only” view of constitutional rights (though he has not yet committed himself to this view). But viewing rights as absolute in this way is quite modern and ahistorical, and its invocation in a purportedly originalist opinion is therefore surprising.

I do conclude with a tentatively proposed alternative:

Perhaps a better approach would have been to distinguish between prohibiting and regulating the exercise of a right. Any prohibition of the exercise of a constitutional right is per se unconstitutional. In contrast, a regulation of how a right may be exercised is permissible, provided the ends of such a regulation are within the legislative power of Congress or a state.

Under this distinction, because the “special need for self-protection” that was required by the New York system was “distinguishable from that of the general community,” the law amounted to a prohibition on ordinary citizens exercising their constitutional right to bear arms outside the home. Not only was this the scheme’s effect; it was also its intention.

By contrast, D.C.’s “shall issue” regime provides a means by which every “law-abiding” (per the background check) citizen of D.C. can obtain a permit, so it is not a prohibition of the exercise of a constitutional right. Unlike the New York law, it is a “regulation” because it proscribes the manner of exercising the right.

It may not always be easy to distinguish a prohibition of a right from a mere regulation of its exercise. For example, is a ban on a particular class of firearms a prohibition or merely a regulation of the manner by which the right to keep and bear arms may be exercised? However, at the extremes it can be quite obvious, as I think it is with New York’s law and the D.C. and Chicago gun bans the court held to be unconstitutional in Heller and McDonald v. City of Chicago. (Even after Heller, D.C. still regulates the types of firearms that can be kept in the home or carried concealed outside.)

Rather than use modern tiers of scrutiny, when considering the appropriate regulation of constitutional rights, we should look instead to the type of eyes-open arbitrariness or rationality review that preceded the adoption of modern tiers of scrutiny. This is not, I should stress, the same as the modern eyes-closed rational basis scrutiny, which the court today considers its default approach under its tiers-of-scrutiny doctrine. (See Dobbs. “A law regulating abortion, like other health and welfare laws, … must be sustained if there is a rational basis on which the legislature could have thought that it would serve legitimate state interests.”)

I put the sentence above in bold because I realize how prohibitions can be characterized as regulations and vice versa. But at the extremes there is surely a difference between telling someone they cannot do something and telling them how they must do it.

Such are my preliminary thoughts on the reasoning of Bruen, whose outcome I applaud. I look forward to benefiting from the thoughts of others about the text and history approach before reaching any final verdict on its merits.

The post Preliminary Thoughts on <i>NYSRPA v. Bruen</i> appeared first on Reason.com.

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The Kavanaugh Concurrences in Bruen and Dobbs

Justice Kavanaugh joined, in full, the two most significant cases of the term. In Dobbs, Kavanaugh did not join the Chief’s concurrence-in-judgment. And in Bruen, Justice Kavanaugh, as well as the Chief, fully endorsed the majority’s reasoning. To be candid, I did not expect both votes. Even after the leak, I had my doubts about whether Kavanaugh was prepared to overrule Roe. His concurrence in Ramos certainly provided the predicates to jettison Roe, but it was no certain thing. Moreover, I worried that if Kavanaugh bit the bullet in Dobbs, he would chart some middle-course for Bruen. But no, I was wrong. Wrong, wrong, wrong. Both majority opinions had five solid votes.

Still, Justice Kavanaugh wrote concurrences in both cases. And, in my view, the Kavanaugh concurrence is the new Kennedy concurrence. Let’s start with Bruen.

First, Kavanaugh observes that the Court “employs and elaborates on the text, history, and tradition test.” So far, so good. Indeed, Kavanaugh has personally pushed the “text and history” approach in several cases, back to his service on the D.C. Circuit. Still, in a recent concurrence, Judge Newsom (CA11) cast doubt on “tradition” prong of this text:

I say “largely” because it has never been clear to me what work “tradition” is supposed to be doing in the tripartite “text, history, and tradition” formulation. The duly adopted and ratified text of the Second Amendment, as originally (and thus historically) understood, governs the interpretive inquiry. To the extent that “tradition” is meant to stand in for the original (i.e., historical) public meaning of the words on the page, it is duplicative. And to the extent that it is meant to expand the inquiry beyond the original public meaning- say, to encompass latter-day-but-still-kind-of-oldish understandings-it misdirects the inquiry.

I’m with Newsom.

Second, Kavanaugh “write[s] separately to underscore two important points about the limits of the Court’s decision.” There’s that word again: “underscore.” Like Justice Kennedy before him, a Kavanaugh concurrence with two votes has the power to constrain a majority opinion.

Third, Kavanaugh suggests that the shall-issue regimes in 40-odd states are permissible. But he did not simply endorse”background checks” and “firearms safety course,” as did Justice Thomas’s majority opinion. He listed another criteria that “shall-issue” regimes can require:

By contrast, 43 States employ objective shall-issue licensing regimes. Those shall-issue regimes may require a license applicant to undergo fingerprinting, a background check, a mental health records check, and training in firearms handling and in laws regarding the use of force, among other possible requirements.

The requirement of a “mental health records check” was not at issue in this case. Yet, Kavanaugh reached out to decide that this requirement was constitutionally permissible.  I fear that this exception will be exploited by states to probe into a person’s confidential medical history to deny carry licenses. Indeed, the California Attorney General’s guidance specifically cited the Kavanaugh concurrence on this point:

Bruen recognizes that States may ensure that those carrying firearms in their jurisdiction are “‘law-abiding, responsible citizens.'” See also id. (Kavanaugh, J., concurring) (States may “require a license applicant to undergo a background check, a mental health records check, and training in firearms handling and in laws regarding the use of force, among other possible requirements”). Accordingly, in assessing whether an applicant has established “good moral character,” issuing authorities should recognize that Bruen does not eliminate the duty or authority of local officials to protect the communities that they know best by ensuring that licenses are only issued to individuals who—by virtue of their character and temperament—can be trusted to abide by the law and otherwise ensure the safety of themselves and others. The investigation into whether an applicant satisfies the “good moral character” requirement should go beyond the determination of whether any “firearms prohibiting categories” apply, such as a mental health prohibition or prior felony conviction.

Later, Kavanaugh refers to the “mental health records check” as an “objective licensing requirement.” Far from it.

Likewise, the 6 States including New York potentially affected by today’s decision may continue to require licenses for carrying handguns for self-defense so long as those States employ objective licensing requirements like those used by the 43 shall-issue States.

Now, government bureaucrats who are hostile to guns will have vast discretion to abridge a person’s constitutional right based on nebulous judgments about mental health. I have to think that Kavanaugh’s dicta here was affected by the assassination attempt, in which a person with apparent mental health problems tried to kill the Justice.

Finally, Kavanaugh block-quotes the two paragraphs from Heller that the lower courts have treated as the only relevant portions of the case.

“Like most rights, the right secured by the Second Amendment is not unlimited. From Blackstone through the 19th-century cases, commentators and courts routinely explained that the right was not a right to keep and carry any weapon whatsoever in any manner whatsoever and for whatever purpose. . . . [N]othing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms. [Footnote 26: We identify these presumptively lawful regulatory measures only as examples; our list does not purport to be exhaustive.]

“We also recognize another important limitation on the right to keep and carry arms. Miller said, as we have explained, that the sorts of weapons protected were those in common use at the time. We think that limitation is fairly supported by the historical tradition of prohibiting the carrying of dangerous and unusual weapons.” Heller; see also McDonald.

Kavanaugh and Roberts went out of their way to reiterate these limitations.

Now, onto Dobbs.

First, Part I of Justice Kavanaugh’s concurrence addresses the policy debate about abortion.

Abortion is a profoundly difficult and contentious issue because it presents an irreconcilable conflict between the interests of a pregnant woman who seeks an abortion and the interests in protecting fetal life. The interests on both sides of the abortion issue are extraordinarily weighty.

But after this discussion, Kavanaugh pivots:

The issue before this Court, however, is not the policy or morality of abortion. The issue before this Court is what the Constitution says about abortion.

Part I reminded me of Kavanaugh’s American Legion concurrence: a stray digression on policy debates that has no bearing on the bottom line.

Second, in a footnote, Kavanaugh identifies one limit on abortion laws:

In his dissent in Roe, Justice Rehnquist indicated that an exception to a State’s restriction on abortion would be constitutionally required when an abortion is necessary to save the life of the mother. See Roe v. Wade (1973). Abortion statutes traditionally and currently provide for an exception when an abortion is necessary to protect the life of the mother. Some statutes also provide other exceptions.

I’m not sure that Justice Alito’s opinion squarely stated a life-of-the-mother exception was “constitutionally required,” but I think that is a fair reading of the majority.

Third, Justice Kavanaugh gave some props to his former boss, whose handiwork he voted to overrule:

I have deep and unyielding respect for the Justices who wrote the Casey plurality opinion. And I respect the Casey plurality’s good-faith effort to locate some middle ground or compromise that could resolve this controversy for America. But as has become increasingly evident over time, Casey‘s well-intentioned effort did not resolve the abortion debate. The national division has not ended.

Fourth, Justice Kavanaugh–like in Bruen–reaches out to decide novel questions:

But the parties’ arguments have raised other related questions, and I address some of them here. . . .

Second, as I see it, some of the other abortion-related legal questions raised by today’s decision are not especially difficult as a constitutional matter. For example, may a State bar a resident of that State from traveling to another State to obtain an abortion? In my view, the answer is no based on the constitutional right to interstate travel. May a State retroactively impose liability or punishment for an abortion that occurred before today’s decision takes effect? In my view, the answer is no based on the Due Process Clause or the Ex Post Facto Clause. Other abortion-related legal questions may emerge in the future.

“Not especially difficult”? Generally, courts can decide if a case is difficult after reviewing arguments from both parties. But here, Justice Kavanaugh looked at important issues in the abstract. Suddenly, everyone has become an expert on the right to travel. I have no idea how a right to travel under the Privileges and Immunities Clause may apply to abortion cases. I would not prejudge the issue.

Moreover, Kavanaugh’s discussion of “liability or punishment” is not limited to the criminal context; he also seems to suggest the civil context is at issue. (The Ex Post Facto Clause applies to the former, and not the latter.) There is ongoing litigation over Texas’s fetal heartbeat law that does seek to impose civil liability for actions taken prior to Roe. But now, the deciding justice in Dobbs has weighed in on the issue.

Why? Why decide these questions, without the benefit of any briefing, that are almost certainly likely to come to the Court. Here, I think Justice Kavanaugh cannot let his opinions be seen as too radical, so he takes steps to moderate his views. I don’t have any problem with this approach in the abstract. But I do object when this desire for middlingness compels a judge to summarily adjudicate questions that are not presented–such as the mental-health checks in Bruen and the right to travel in Dobbs. Alas, by now, these aspects of Kavanaugh’s jurisprudence are entirely predictable. If ever the price of a fifth vote, as the saying goes. And the lower courts will dutifully follow.

The post The Kavanaugh Concurrences in <i>Bruen</i> and <i>Dobbs</i> appeared first on Reason.com.

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