The purpose of this essay is not to convince the reader of the necessity for change. It is to present some commonsense policy changes to attempt to mitigate the economic harm that has been done to Western economies, especially to the United States and the United Kingdom, since the end of World War II. Please watch Godfrey Bloom and Alasdair Macleod’s recent interview with Sonia Poulton.

The video describes the current financial and reputational weaknesses of the West. For a more in-depth analysis of the financial threat to the West, please read any of Alasdair Macleod’s weekly essays from the past few months.

In the Poulton interview, Macleod ably describes the financial implications of the West’s deindustrialization policies and currency debasement. Bloom describes the reputational damage stemming from the West’s “sanctions” against Russia plus the consequences of deindustrialization due to the foolish pursuit of a Green New Deal.

This essay’s goal is not to convince the reader of the seriousness of the current situation, which Bloom and Macleod do so well, but rather to present policies that must be changed to stop the destruction of the West’s economies and reverse the harm to their reputations. Western nations need to build a reputation for honesty, fair dealing, and adherence to the rule of law in the international arena by embracing free trade and neutrality.

There is no need to point out that in the US and the UK, none of the policy changes listed below will be enacted by either of the two main political parties in their current state. Either one of the leading parties in each country must change leadership or a third party must emerge. There is precedence in both America and Britain for the emergence of a new party. In the mid-1850s, America’s Whig Party was thrown on the scrap heap of history when it was supplanted by the antislavery Republican Party. In the first half of the twentieth century, the Labour Party supplanted Britain’s Liberal Party. It has happened before, and it can happen again.

The following “policy imperatives” assume that such internal change has occurred and that the new ruling party must mitigate and eventually reverse the damage done by its predecessors over several years. The task will not be easy, nor will it be painless, but it must be done.

Policy Imperatives

Drastically cut government spending. The purchasing power of the dollar and the pound is being steadily weakened by the Treasury’s need to borrow more money than taxes and the bond markets will offset. Currently the central banks “buy” the excess debt with money created out of thin air. This leads inevitably to more money chasing fewer goods, which results in higher prices and the boom/bust credit cycle, among other economic damages.
Abolish the so-called Green New Deal, which is based upon the schlock science surrounding “climate change.” The Western economies not only must end the destruction of their industrial economies, but they must revive the entrepreneurial spirit in individuals by eliminating regulations on business activity that does not directly cause real harm to people. For example, the West must stop mandating costly and time-consuming environmental impact studies, which elevate nonhuman life above human life. The US should abolish the Occupational Safety and Health Administration (OSHA), and the UK should abolish the Health and Safety Executive (HSE). Both countries have well-established common-law precedents that protect and compensate workersfor on-the-job injuries.
Reinstitute the gold standard. The dollar and the pound must be seen as proxies for real money; i.e., gold. This means that currency cannot be issued unless the central bank has gold with which to back it. There is a long list of economic benefits to be derived from a stable currency, but perhaps the most important benefit is spending discipline. The government’s myriad spending orgies will face real-time discipline from the taxpayers and the markets.
House the nation’s gold, which is used to back its currency, in a neutral and internationally supervised place—for example, Switzerland—that will redeem the nation’s currency for gold upon demand. The government must not be allowed to suspend currency redemption. Remember, gold is money and all else is credit. If a nation’s credit is in question—i.e., the market fears that there is insufficient gold to redeem all the currency or that the government may suspend redemption—then demand to hold its currency for settlement purposes will drop or even evaporate completely.
Return stolen property to its rightful owners. Theft is a violation of law at every level. The Western powers confiscated Russian property as part of the so-called sanctions following Russia’s invasion of Ukraine. This insult to justice must end. Neither country has declared war on Russia, yet the sanctions are well-known tools of war. Ending sanctions is both a moral and an economic issue. If the world believes that its property can be seized for some act for which a country’s government disapproves, international trade of all varieties will fall drastically for such a country and become difficult to recover. Who in the world can trust such a country again?
Adopt a noninterventionist foreign policy. The world is full of controversies that often lead nations to war. Unless their interests are directly threatened, the US and the UK must not intervene in foreign disputes but remain neutral, even if these disputes lead friendly foreign nations to war. There is no way that the Western powers can honestly adjudicate these never-ending disputes. The West should encourage diplomacy rather than war making. Otherwise, keep out.

Conclusion

The Western world has violated international norms of fair dealing to the point that its reputation is nearing long-term destruction. The West’s currencies are poised to fall in value due to unprecedented money printing over several decades. Western governments foolishly believe that there is nothing that the rest of the world can do. They believe that the rest of the world must kowtow to whatever international norms the US and the UK dictate.

But they are horribly wrong. The rest of the world is moving beyond dollar hegemony and beyond the reach of US and UK sanctions. It is building a new reserve currency for settlement of international trade. The non-Western world is much larger than the West in terms of population and commodities. More importantly, the non-Western world is willing to exploit its commodities for the benefit of its citizens, whereas the West has placed its commodities off limits due to its belief in and commitment to schlock environmental science that posits impending environmental doom.

The process can be reversed, but such a reversal requires new leadership. Nothing can be done unless new leaders can change policy. The West does not need to “rule the world” in order to be peaceful and prosperous.

theory. Despite being written in the early twentieth century, its arguments and conclusions are still valid and interesting today. Mises describes five characteristics that are vital to the function of money: marketability, durability, fungibility, trustworthiness, and convenience.

The history of money is straightforward. Markets developed and expanded as long as the private sector controlled the money supply. A decline followed once the state took hold of the monetary system. This arc can be illustrated by looking at a few broad examples of historical money.

Barter produces serious bottlenecks. The double coincidence of wants is a high barrier to trade. Primitive societies gravitated toward the use of various commodities as media of exchange. Iron hoes, salt, sugar, animal hides, and even animals themselves were given monetary applications in places around the world; bits of shell were even strung together for this purpose.

However, while each of these goods satisfied some of the requirements for good money, they also had significant shortcomings: living creatures require expertise to assess their quality and can die; salt and sugar can be eaten by animals or washed away by floods; animal hides rot; base metals corrode; and bits of shell can be broken into smaller pieces, either erasing their value completely or turning them into more, equally valued pieces. The existence of multiple types of money in different countries effectively reduced international trade to barter. Clearly, a more universal solution was needed.

Coinage of noble metals, most notably silver and gold, was the solution the market arrived at. Noble metals have several advantages. First, they are far less susceptible to damage from the elements. As such, they do not need to be individually examined for rust or other blemishes during trade, improving their fungibility. Further improving their fungibility, noble metals could be coined in specific and precise weights by private mints.

 As far as trustworthiness and convenience were concerned, noble metals served well-known mints with good reputations quite well. The use of metals with unusually high densities (such as gold) made several types of counterfeiting easier to discern. However, the potential for clipping or sweating coins often led to them being measured and valued by mass anyway, limiting their convenience.

As the monetary system matured, systems of token coins and banknotes came into common use. Private mints and banks had a new incentive to produce more money substitutes than their holdings could justify, but the threat of bank runs kept institutions in check as long as the state opposed bailouts. However, the state, seeing an opportunity, gradually seized the administration of the monetary system. This point marked the apex of money from the perspective of the market. From here, the state systematically made things worse.

In theory, state arrogation of the minting process can have both positive and negative effects. In the positive direction, a single trustworthy state mint could reduce traders’ need to evaluate and remember the trustworthiness of many private mints. Laws against defacing the currency could reduce the chance coins used in trade were adulterated or counterfeit. Free coinage allows the supply of money to grow and shrink in response to market needs.

However, in the negative direction, untrustworthy state mints could adulterate their coins and enforce legal tender laws, creating a strong profit motive for the state and debasing the currency for everyone else. Nearly all large states eventually monopolized the minting process and engaged in negative policy behavior, making state coinage a mixed blessing—at best—for the monetary system. (The inertia of value regression combined with legal tender laws was, however, able to keep many monetary systems from collapsing.)

Once the state had taken complete control of money, it continued to operate on a fractional reserve basis, allowing redemption for gold or silver for some time. However, the tendency was toward a drastic reduction in the movement of metal. State treasuries encouraged conversion to notes and token coins for both retail and wholesale trade, as far as was practicable. Fiat notes were made nearly indistinguishable from money certificates, so most people would consider them generally indistinct.

Fiat notes were marketable because they were made legally equivalent to money certificates. The notes were much less durable than gold coins. While durable enough for a period of circulation, fiat notes were fragile enough that damaged notes had to constantly be collected and reprinted, giving the state an opportunity to replace money certificates with fiat. The notes, having set face values, were fungible, convenient, and even offered a degree of anonymity.

It is also worth noting that fiat notes and money certificates were as trustworthy as their issuing authority, the state. Eventually, the richest states managed to completely pull the gold backing out from under their currencies without causing a collapse.

When he wrote The Theory of Money and Credit, Mises was not sure a pure fiat system could even be sustained, but pure fiat systems arose during his lifetime and have persisted ever since. An attractive aspect of fiat notes to the state is that they can be printed with any face value. This has some market attractiveness, but the state often uses this ability to inflate. Inflation would prove to be the downfall of several currencies, most notably Zimbabwe’s.

The American public was mostly unaware of these incentives or convinced they were a minor factor. The relentless debasement of even relatively good fiat currencies continues to this day, in stark opposition to the natural tendencies of the market.

Trade is a vital force toward the enrichment of mankind. The division of labor and accumulation of capital make us more productive and improve our lives. When the market had control of the monetary system, we saw a gradual but consistent increase in its complexity and scale.

However, once the state monopolized the monetary system, we watched that long-standing trend reverse as the trustworthiness of money was reduced. Finally, the monetary system was disconnected completely from the gold standard, and the state used subterfuge and inertia to give itself broader power. As the state seeks more power over the people and the market, we can expect the money imposed upon us to further deteriorate. The question is, how far will the state be allowed to go?

I was born shortly after the end of World War II, in 1949, in the British occupied zone of West Germany. My parents were both refugees, endangered at or forcibly expelled from their original homes in Soviet-occupied East Germany. As countless others of my generation, then, I was raised by a generation of parents and teachers who had just experienced some horrific military defeat and were then subjected to harsh and often brutal treatment by hostile foreign occupiers. Humiliated, abused and intimidated, then, the generation of my parents kept largely quiet and obediently went with the “flow” as increasingly dictated in the West by the US. Hence, the “education” of my generation was to a large extent the result of Anglo-American propaganda and indoctrination. Every fad or fashion over there, in the lands of the victors, cultural or intellectual, was immediately imported and eagerly adopted by my generation.

From the mid-1960s to the early 1970s, during my last years at school and the beginnings of my university studies, when my intellectual curiosity first arose and grew, the US had experienced the so-called civil-rights movement, widespread anti–Vietnam War demonstrations, massive student protests demanding “free speech” and some spectacular “race” and “anti-establishment” riots. The ideas and motivations underlying these events quickly swept across the Atlantic and took hold in West Germany and many other European countries. As a young man full of vigor and blessed with an American “education,” I, as countless others of my generation, later labeled the 68-ish generation, was converted to the fashionable leftist causes represented by such events, convinced as Paul Samuelson, at the time the Western world’s most prominent economist, of the economic superiority of socialism over capitalism.

To the delight of my parents, my leftist phase did not last for long, however. I first encountered Milton Friedman, then occasionally mentioned in the German press as Samuelson’s major counterpart in the US, and became a vaguely defined “free marketeer.” From Friedman I found my way to Friedrich A. Hayek, who further strengthened my newfound convictions and who impressed me above that with his wide-ranging interdisciplinary knowledge, largely missing in Friedman. Then, through Hayek, by way of various footnotes, I discovered his own mentor, Ludwig von Mises, who, in my estimation, had to be placed in an intellectual league of his own and through whose work I was turned into a radical, uncompromising advocate of free market capitalism.

In none of my readings, however, not even in Mises, had I ever encountered any serious doubt regarding the necessity of the institution of a tax-funded state as a provider of law and order. It was an intellectual shock, then, when I finally discovered Mises’ most prominent American student, Murray N. Rothbard, and read his For a New Liberty, first published fifty years ago, in 1973. Therein, in the clearest of terms, with the utmost analytic rigor and with impeccable logic, Rothbard presented the full-blown case for a stateless society, of free market anarchism, or “anarcho-capitalism.” Taxes were explained as theft and the state as a criminal gang, a protection racket or a mafia writ large. And the state was unmasked not only as a moral perversion but also as an economic monstrosity creating nothing but waste. Compelling economic reasons were presented for the state’s inefficiency not just in all the areas typically held to be prerogatives of state activity, from education and money to welfare, but also regarding the production of law and order in particular. Law and order, too, Rothbard demonstrated in great detail, could and should, for moral as well as economic reasons, be produced by freely financed and competing private producers.

Upon reading the book I became an anarchist, or as I later preferred to characterize my intellectual position, a proponent of a pure private law society. In my judgment, Rothbard with his work had brought the intellectual edifice inherited from his own mentor Mises to its ultimate completion. And in my very own personal eyes he had also finally redeemed America.

Of course, mankind being what it is, reading For a New Liberty now, for the first time, will not have the same effect on everyone that it had on me many years ago. But I am certain that no one will come away from such a reading without seeing the world with very different eyes.

[This article is published with the permission of the author and recently appeared in the Italian journal StoriaLibera.]

In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time:

As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible.

That was twelve years ago, and it was all academic at the time. But in 2023, the Fed really is insolvent, although its fake post-2011 account doesn’t show this. Nevertheless, the reality is that the Fed’s assets are losing value at the same time that the Fed is paying out more in interest than it is making in interest income.

This became clear last week, when the Fed released a new report showing that its interest payments on bank reserves skyrocketed in 2022. The press release states:

Total interest expense of $102.4 billion increased $96.6 billion from 2021 total interest expense of $5.7 billion; of the increase in interest expense, $55.1 billion pertained to interest expense on Reserve Balances held by depository institutions and $41.5 billion related to interest on securities sold under agreements to repurchase.

As this graphic from the Fed shows, the cost of operations also exceeded earnings in 2022 because remittances have fallen from 2021:

For the year overall, the Fed still managed to achieve a positive net income, thanks to positive inflows in the first half of the year. But since September, as Reuters notes, the Fed began recording what’s called a deferred asset, which tallies up the Fed’s loss; the deferred asset stood at $18.8 billion at the end of the year.

The “deferred asset” phrase basically means “losing money” in Fedspeak: the Fed is supposed to make remittances to the US Treasury out of its surplus, but when it has no surplus, the Fed “defers” its payments. We can see how these remittances plummeted into negative territory beginning in September:

The trend of falling remittances is unlikely to reverse in 2023, unless the Fed takes a very dovish turn and forces interest rates down again. What is more likely is that the Fed will hold rates flat or only slightly reduce them. In either case, the Fed will have to keep paying out more in interest than it makes in income.

Why Is the Fed Insolvent Now?

A sizable part of the reason that the Fed has become insolvent in recent months (and almost certainly will be in 2023 overall) stems from the fact that since 2008, the Fed has bought up trillions of dollars in Treasury debt and mortgage-backed securities (MBSs). The Fed has done this to prop up the prices of real estate and government bonds (i.e., to subsidize Wall Street, banks, and the real estate industry.)

Yet it bought these fixed-rate assets when interest rates were very low, and most of those assets have a maturity of over a year. That means that even as interest rates have risen in the past year, the Fed’s income from these assets has not risen sizably. Yet the Fed is also paying banks interest on reserves and reverse repos. That interest rate is not fixed and changes rapidly. So although total reserves at the Fed have fallen by 25 percent in recent months, that won’t bring interest payments down to 2021 levels because interest rates have increased 4,300 percent, from 0.1 percent to 4.4 percent.

The end result? The Fed is now paying out more interest to banks than it earns in income from the MBSs and government bonds that it holds in its portfolio. Thus, as we saw in the Fed’s Friday release, outflows in interest payments have surged but income has not, and the Fed is now forced to defer its promised payments to the Treasury.

Another complicating factor driving the Fed deeper into the red is the fact that its portfolio is also losing value.

(The key to understanding how this becomes a problem is to remember that bond prices move in the opposite direction of interest rates. So, as newly issued bonds’ interest rates [i.e., yields] move up, the prices of existing bonds move down.)

As interest rates have moved up in the past year, the value of the Fed’s MBSs and Treasury debt has fallen. So now the Fed also has less capital. Thanks to Enron-like accounting, however, the Fed’s bankruptcy is legally just a matter of “deferred assets,” so it’s not a legal problem for the Fed.

Nonetheless, that the Fed’s losses are likely to mount further and require a bailout can be seen in the fact that we’ve seen this sort of problem before. As noted by Alex Pollock in a 2022 lecture at the Mises Institute, the Fed has put itself in a situation similar to the one that sank the savings and loans in the early 1990s. Like the S and Ls, the Fed “invested” in large amounts of long-term debt at low fixed interest rates. But then interest rates went up. The fixed-rate interest income stayed largely the same, but interest payment obligations increased sizably. That’s where the Fed is now.

For a normal financial institution, this situation leads to bankruptcy. But the Fed will bail itself out by printing money. In the end, that means price inflation, either in assets like stocks and real estate or in consumer goods like eggs and auto parts. Ordinary people will see their cost of living go up and their real wages fall, and they’ll get poorer. Through it all, though, the Fed and the regime itself will benefit. As the Fed has been careful to say in recent days, its de facto bankruptcy does not impede its ability to carry out its usual inflationary monetary policy. Never fear—because the Fed can create its own income at will via monetary inflation, the regime will continue to benefit from the Fed’s usual tricks. The regime will be able to run higher deficits, spending on “free” benefits for the voters and on corporate welfare for the politically powerful. It’s all a great scam for the parasitical class. For the productive classes? Not so much.

The number one threat to our lives and prosperity is the US government.

How could it otherwise be? Loaded with trillions of dollars acquired through legalized theft, the US government has gone beyond mere incompetence and foreign adventurism; it now colludes with other governments to reduce populations through the manufactured covid crisis.

Governments are now killing their citizens . . . deliberately.

Taking the House of Representatives away from the Democrats will not cut it. How many “radical” Republicans have called out the covid crisis as the genocidal program it is? How many Republicans were elected on a platform of eliminating government programs or agencies? How many Republicans see the government, with its power to ignite nuclear Armageddon, as a threat to our lives?

How often have you heard a politician call for more personal freedom? For eliminating the income tax and federal reserve? For disbanding government as we know it and relying on the free market for our safety and prosperity?

What If Life Really Could Get Better?

We have to begin by recognizing the government for what it is. See Robert Higgs’s essay “Ten Reasons Not to Abolish Slavery.”

Admit that freedom is what you want, otherwise you will not know what it is you are after. To believe in freedom is to believe that good government only results in the absence of the state.

What if, as Murray Rothbard has written, the sstate is nothing more than a criminal gang, regardless of which party is in power?

Is it scary to contemplate life without the great god state? Can a state-free economic system provide everything we need? What if it could? What about other concerns such as biological warfare? Do we not need a state to protect us and tell us what to do?

What if we do not? What if we can deal with all threats through market institutions?

What if the state is incompatible with a free society?

What if the state’s elections, regardless of the candidates, make a free society impossible?

What if the estimated fourteen billion dollars spent electing politicians in 2020 could have been invested into economic growth?

What if a free society (based on property rights) includes the necessary incentives to govern itself?

What if a free society is the best means of defending the country from foreign attack?

State Control of Money and Banking

What if a free society provides a safe medium of exchange?

What if our government criminalizes the market’s choice of money, which has historically been gold and silver coins, so that it can expand control over our lives?

What if our government criminalizes society’s choice of money so it can reward preferred constituencies through central bank inflation?

What if central banks cannot exist in a free market because they require government support for their operation?

What if “government support” amounts to forcefully prohibiting any competition to the central bank or the money it issues?

What if peace and prosperity are the hallmarks of a market-selected money, as shown in the last half of the nineteenth century?

What if the nineteenth century robber barons were a result of government favors rather than an indictment of the free market?

What if war, debt, and money devaluation are the hallmarks of the central bank’s fiat money?

What if banking crises result from the practice of fractional reserve banking?

What if fractional reserve banking satisfies the definition of embezzlement but is not regarded as such legally?

What if banks that practiced fractional reserve banking turned to the government to establish a central bank for protection?

What if banks that practiced fractional reserve banking could be criminally prosecuted?

State Control of Education

What if the government takes control of the country’s educational institutions?

What if people are taught from day one that their government exists to defend their natural rights as human beings?

What if events unfavorable to the government are sanitized or excluded from its recorded history?

What if adults accept the idea that the government as we know it is a naturally evolving social phenomenon that strives to serve our best interests?

What if the closed-door Constitutional Convention was not a step in the direction of freedom but a revolt against freedom? (See this as well.)

What if the Constitution provides for the expansion of government power through ambiguous clauses that the government itself gets to interpret?

What if the rationale that the Constitution is not a suicide pact renders the Bill of Rights null and void during “emergencies”?

What if the state evolved from a raiding party set upon a peaceful society? What if the raiding party used its superiority to force the conquered into a protection racket? What if they called the racket government?

What if Big Tech, Big Pharma, Big Money, and other “Big” influences derive their power from favors bestowed by the state?

Conclusion

What if enough people make known their wish for a state-free existence? What if they make known the supreme advantages of a state-free society? What if the state then begins to weaken through attrition in its ranks?

What if the people, under the control of a weakening state, demand the state dissolve itself completely, perhaps by refusing to pay taxes?

What if people surrender victimhood and graft and begin to take full responsibility for their lives?