Who has heard of the monetary repression tax (MRT)?
Article by Brendan Brown from Mises.
Very few, it seems, judging by the lack of popular anger. Yet revenues from this tax have swollen under the 2 percent inflation standard. They are now set to reach a new record level as the pandemic recedes, with guesstimates for the US alone this year around $600 billion.
There is nothing new in a fiat money central bank imposing an effective tax on the public’s holdings of government bonds and bills (including those in the banking system) by manipulating interest rates to artificially low levels, especially in real terms. Until the twenty-first century, however, no one thought this could continue for long without triggering some combination of accelerating consumer price inflation and a nonsustainable, highly speculative economic boom.
We have learnt in the long cyclical expansion which started in 2009 (later in Europe), interrupted recently by a pandemic spasm, that virulent monetary inflation (of which a key driver is interest rate manipulation) can coexist with “lowflation,” a persistent absence of economic boom and a continuous powerful asset inflation. Indeed, the high speculative temperatures in asset markets, far from triggering any monetary response, facilitate the vast collection of MRT. Many individuals are convinced that they can avoid MRT by using their skills to make persistent capital gains across a wide range of assets.
Toward understanding MRT, let’s take a step back to, first, some definitions and, second, a setting of historical context.
Cumulative collections of monetary repression tax correspond to the amount by which interest income in real terms from safe assets (in nominal terms) like government paper is below what it would be under a sound money regime.
We should distinguish MRT from the better-known inflation tax. MRT includes first the windfall loss in real terms which holders of government bonds suffer from an unexpected surge in consumer price inflation and, second, the erosion in real value of non-interest-bearing high-powered money (today mainly banknotes) as caused by continuous inflation.
As far back as the Roaring Twenties we can identify an embryo of the potential for the levying of MRT. The presence of powerful nonmonetary forces of disinflation—rapid productivity growth stemming from the Second Industrial Revolution plus commodity glut—meant that the Fed could manipulate rates downward in pursuance of stable prices (as against an episode of falling prices, which would have occurred under a sound money regime). But emergence of a colossal speculative economic boom in the US and, most of all, the Weimar Republic (essentially part of the dollar zone from 1924) meant there could be no steady state of asset inflation and stable consumer prices. In any case, with federal government debt then below 30 percent of GDP, the US government had no interest in collecting MRT. Herbert Hoover (elected president in November 1928) was a vocal critic of speculative frenzy on Wall Street and of how the Federal Reserve under Benjamin Strong had stimulated this.
Fast-forward to the early 2000s. Already from 1997 onward, the Fed had started the process of joining the 2 percent inflation standard, at a time of rapid productivity growth related to the IT revolution that fueled asset inflation. Amid the contemporary federal government budget surpluses, there was no thought of monetary taxation. Briefly in 2000, the Fed ceased its rate manipulations in response to a small late spurt of consumer prices above target.
Then, in the aftermath of a very mild recession (since revised away by the statisticians), the Bush administration pressed ahead with huge unfunded tax cuts. The Fed, with its newly appointed star from Princeton as governor and its chair seeking a new term extension, obliged by manipulating rates downward. MRT was born in 2002–04 amid powerful asset inflation. Even despite powerful nonmonetary forces of disinflation including globalization and digitalization, consumer price inflation rose above target in 2005–06 against the background of a growingly speculative global economic boom, triggering a sharp tightening of monetary policy. Accordingly, MRT collection was aborted in the run-up to the crash and Great Recession.
It has been quite different in the long economic expansion since 2010. Massive fiscal deficits in the US, Europe, and Japan have had a counterpart in the levying of a giant monetary repression tax. Goods and services inflation did not gallop ahead again. No heady economic boom developed. Asset inflation became virulent. US president Donald Trump and Japan prime minister Shinzo Abe followed a political strategy of seeking to camouflage massive collections of MRT (especially in the US, following the big business tax cuts) by exciting popular excitement about gains in the stock market, for which they claimed credit.
The failure of consumer price inflation to accelerate despite the waning of productivity growth since the late 1990s and early 2000s—hardly surprising among growing malinvestment—is remarkable. Explanations for this failure—in fact closely related to the nonarrival of tremendous economic boom despite the manipulated interest rates—include, prominently, sclerosis of the economic system deriving from the monetary inflation.
Some households clobbered by high MRT and not under the spell of asset market gains forever boosted their savings for retirement. Investors in equities did not in general reward business for making long-gestation investments given presentiments about an eventual day of reckoning but instead chased momentum and especially the wonders of financial engineering. This meant that official and market perceptions of the so-called neutral rate of interest fell far below where they would have been under sound money.
A further factor operates in the same direction of sclerosis—the growth of monopoly power itself fueled by the asset inflation. The speculative story about a company gaining present or future monopoly power has proved to be a winner (in terms of sending particular equity values to the sky) for investors starved of interest income. The monopoly story has been a key component of the market craze about digitalization, whose features of winner take all and network effects have had great speculative appeal. The would-be monopolist gaining from an especially low cost of equity capital can eradicate competitive threats from new entrants by some combination of price cutting and preemptive takeover. The resulting loss of economic dynamism shows up in a fall of the apparent neutral interest rate.
Hence low or negative rates have not fed higher consumer price inflation and meanwhile asset inflation shows no endogenous tendency to go into reverse as might happen through falling profits rates or growing credit defaults and encounters no political resistance. In fact, we have been in a situation now for many years where high monetary repression tax co-exists with stable low consumer price inflation and persistent asset inflation. (The measure here for asset inflation is the overall degree to which price signals in capital markets are corrupted by monetary inflation).
It is plausible that the pandemic has extended the life of this stationary state for consumer price inflation and asset inflation. Whatever the buzz in the financial media, the pandemic has subtracted from economic prosperity. Absent the optical illusion of fantastic quarterly growth rates, even where an economy (such as the US) is now back to the same GDP level as on the eve of the pandemic, there has been a big loss of cumulative income along the way. Moreover, GDP during the pandemic and even now includes much expenditure related to the war against covid—not normally regarded as a component of prosperity.
Stepped-up monetary inflation and vast issuance of government debt to finance relief payments plus other transfers could mean that individuals in aggregate across the advanced economies feel better off. If so, that is a delusion founded on disregard of the vast MRT now being paid and of other tax burdens which will surely become heavier.
These fundamentals are a headwind for private spending. We should add the potential decline ahead of business investment in the pandemic boom (or bubble?) sectors. Hence, the level of interest rates seemingly consistent with economic balance as the pandemic recedes could be lower than prepandemic. Governments and their central banks would have new scope to manipulate down rates without provoking an acceleration of consumer price inflation, collecting vast amounts of MRT under the cover of still popular asset inflation.
There are alternative scenarios, though, where the collection of MRT wanes and instead governments turn to the inflation tax. For example, suppose a further Fed “stimulus” in winter 2021/2022, implemented as a growth cycle downturn or worse emerged, failed to arrest the journey of asset inflation into asset market crash and recession. As the huge malinvestment of the past decade including the pandemic shows up as capital stock obsolescence, as government expenditure ratchets higher, and the Fed radicalizes further its conduct of monetary policy, the criers of wolf on high consumer price inflation could well prove correct.
‘The Purge’ by Big Tech targets conservatives, including us
Just when we thought the Covid-19 lockdowns were ending and our ability to stay afloat was improving, censorship reared its ugly head.
For the last few months, NOQ Report, Conservative Playbook, and the American Conservative Movement have appealed to our readers for assistance in staying afloat through Covid-19 lockdowns. The downturn in the economy has limited our ability to generate proper ad revenue just as our traffic was skyrocketing. We had our first sustained stretch of three months with over a million visitors in November, December, and January, but February saw a dip.
It wasn’t just the shortened month. We expected that. We also expected the continuation of dropping traffic from “woke” Big Tech companies like Google, Facebook, and Twitter, but it has actually been much worse than anticipated. Our Twitter account was banned. Both of our YouTube accounts were banned. Facebook “fact-checks” everything we post. Spotify canceled us. Medium canceled us. Apple canceled us. Why? Because we believe in the truth prevailing, and that means we will continue to discuss “taboo” topics.
The 2020 presidential election was stolen. You can’t say that on Big Tech platforms without risking cancellation, but we’d rather get cancelled for telling the truth rather than staying around to repeat mainstream media’s lies. They have been covering it up since before the election and they’ve convinced the vast majority of conservative news outlets that they will be harmed if they continue to discuss voter fraud. We refuse to back down. The truth is the truth.
The lies associated with Covid-19 are only slightly more prevalent than the suppression of valid scientific information that runs counter to the prescribed narrative. We should be allowed to ask questions about the vaccines, for example, as there is ample evidence for concern. One does not have to be an “anti-vaxxer” in order to want answers about vaccines that are still considered experimental and that have a track record in a short period of time of having side-effects, including death. One of our stories about the Johnson & Johnson “vaccine” causing blood clots was “fact-checked” and removed one day before the government hit the brakes on it. These questions and news items are not allowed on Big Tech which is just another reason we are getting canceled.
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Will America-First News Outlets Make it to 2023?
Things are looking grim for conservative and populist news sites.
There’s something happening behind the scenes at several popular conservative news outlets. 2021 was bad, but 2022 is proving to be disastrous for news sites that aren’t “playing ball” with the corporate media narrative. It’s being said that advertisers are cracking down, forcing some of the biggest ad networks like Google and Yahoo to pull their inventory from conservative outlets. This has had two major effects. First, it has cooled most conservative outlets from discussing “taboo” topics like Pandemic Panic Theater, voter fraud, or The Great Reset. Second, it has isolated those ad networks that aren’t playing ball.
Certain topics are anathema for most ad networks. Speaking out against vaccines or vaccine mandates is a certain path to being demonetized. Highlighting voter fraud in the 2020 and future elections is another instant advertising death penalty. Throw in truthful stories about climate change hysteria, Critical Race Theory, and the border crisis and it’s easy to understand how difficult it is for America-First news outlets to spread the facts, share conservative opinions, and still pay the bills.
Without naming names, I have been told of several news outlets who have been forced to either consolidate with larger organizations or who have backed down on covering certain topics out of fear of being “canceled” by the ad networks. I get it. This is a business for many of us and it’s not very profitable. Those of us who do this for a living are often barely squeaking by, so loss of additional revenue can often mean being forced to make cuts. That means not being able to cover the topics properly. Its a Catch-22: Tell the truth and lose the money necessary to keep telling the truth, or avoid the truth and make enough money to survive. Those who have chosen survival simply aren’t able to spread the truth properly.
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