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Paul-Martin Foss

Is the Trump Revolution Over?

Friday January 26, 2018

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A year after President Donald Trump’s inauguration, analysts and commentators are assessing both his performance in the first year of his presidency as well as the outlook for the remainder of his first term. Entering office as a surprise winner and a political neophyte, many people didn’t know just what to expect from Trump. Would he do what he pledged to do as a candidate, or was his campaign rhetoric just a lot of hot air to bamboozle enough people into voting for him? 
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The Symbiotic Relationship Between Central Banking and Total War

Wednesday September 28, 2016

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I am here today to talk about one of the most important, but also most overlooked, issues of our day: the relationship between central banking and total war. When you focus on central banking and the problems that result from it, it’s very easy to see how central banks enable larger, more centralized, and more pervasive governments. But it isn’t always easy for those who oppose war to see how central banks enable war. So I’ll go ahead and give you kind of the 10,000 foot view of the symbiotic relationship between central banking and war.

One of the primary activities that states engage in is fighting wars. But wars cost money. Armies march on their stomachs, and someone has to buy the necessary food and transport it. Weapons and armament cost money too, all of which has to be paid for. So where have kings and governments historically gotten that money from, particularly when their own treasuries ran out? As Willie Sutton could have told them – banks.
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The US Banking System as an Arm of US Foreign Policy

Friday February 26, 2016

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The Russian government is readying a new issuance of foreign bonds and has invited non-Russian banks to participate in the bond auction. US banks would like to participate in the auction but have been warned by the State Department that this would violate the spirit, if not the letter, of US sanctions against Russia. Even though it wouldn’t be illegal for the banks to bid in the auction, the State Department is warning of “reputational risk” to those banks that do decide to participate. There must be stronger language that the State Department is using privately, in which they’re undoubtedly trying to make the banks an offer they can’t refuse.

This incident is one more example that demonstrates the contempt with which the US government holds private companies. Private companies are literally being conscripted to serve the state. Last week we found out about the FBI trying to force Apple to hack into phones it produces in order to allow the FBI access whenever it wants. Now we have the State Department trying to bully American banks into not doing business in Russia. In fact, the very concept of sanctions relies on private companies acting as arms of the state. No company would willingly turn down lucrative business opportunities in Russia. It is only through government threats that companies cooperate with sanctions. There is a name for an economic system in which ownership is nominally private but ultimate control is exercised by the government: fascism.
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The Future of Banking: The Dangers of Electronic Currency

Sunday February 14, 2016

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We live in a world in which more and more things happen electronically. It is now possible to buy all your clothes online, all your books, all your food, and have them all delivered to you. Online communication allows us to communicate with almost anyone on the planet, anywhere, at any time. Someone who had fallen asleep 30 years ago would be amazed at how different things are. That extends to the realm of payments as well. Millions of people now access their bank accounts online, transferring money between accounts and paying off credit cards. Payment services such as PayPal are used by more and more merchants. Cash is being displaced by credit and debit cards, which are themselves beginning to be displaced by new digital currencies and payment systems such as Bitcoin, Samsung Pay, and Apple Pay. A world in which everything is transacted digitally may not be far off. But will this digital revolution enable a dream world for consumers or a never-ending nightmare?

Digital currencies, electronic payments, and online financial services are turning the monetary, financial, and banking systems on their heads. But despite all the advances brought about by the digital revolution, there are still quite a few drawbacks. The most obvious is that it is reliant on electricity. One major hurricane knocking out power, a mid-summer brownout, or a hacker attack on the power grid could bring commerce to a halt. With cash, transactions are still possible. With digital payments, civilization comes to an end until power is restored. Unless you have food stored or goods with which to barter, you’re out of luck. Just imagine a city like New York with no power and no way to buy or sell anything. It won’t be pretty. But those instances will hopefully be few and far between. There are other, more important problems with digital currencies and payments.
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The Continuing Demonization Of Cash

Wednesday January 27, 2016

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The insidious nature of the war on cash derives not just from the hurdles governments place in the way of those who use cash, but also from the from the aura of suspicion that has begun to pervade private cash transactions. In a normal market economy, businesses would welcome taking cash. After all, what business would willingly turn down customers? But in the war on cash that has developed in the 30 years since money laundering was declared a federal crime, businesses have had to walk a fine line between serving customers and serving the government. And since only one of those two parties has the power to shut down a business and throw business owners and employees into prison, guess whose wishes the business owner is going to follow more often?

The assumption on the part of government today is that possession of large amounts of cash is indicative of involvement in illegal activity. If you’re travelling with thousands of dollars in cash and get pulled over by the police, don’t be surprised when your money gets seized as “suspicious.” And if you want your money back, prepare to get into a long, drawn-out court case requiring you to prove that you came by that money legitimately, just because the courts have decided that carrying or using large amounts of cash is reasonable suspicion that you are engaging in illegal activity. Because of that risk of confiscation, businesses want to have less and less to do with cash, as even their legitimately-earned cash is subject to seizure by the government.
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Central Banking and War: Ron Paul’s ‘Swords Into Plowshares’ reviewed

Friday July 17, 2015

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It’s July 17th, which means that Ron Paul’s new book “Swords Into Plowshares” is finally available. And what a book it is. Only the hardest of hearts and most closed of minds could read Dr. Paul’s new book and fail to be convinced of the futility of war. But what interests us the most is Dr. Paul’s discussion of the connection between central banking and war. Almost since the first banks were developed, bankers have funded government wars in exchange for receiving privileges from government. The relationship continues today, but very few politicians ever touch on it. So what does Dr. Paul have to say about central banking and warmaking?

Dr. Paul’s book starts off with personal reminiscences of life during times of war. It includes his personal experiences during World War II, his awareness of the possibility of being drafted to fight in Korea, and his eventual drafting into the Air Force during the Vietnam War. Included among his personal recollections are his comments on rationing during World War II. As a child, that was just the system that was in place, but his future understanding of Austrian economics allowed him to look back on that period of time and realize how detrimental to an economy war could be. In particular, it allowed Dr. Paul to continuously fight against those economists who repeat the lie that government spending in World War II pulled the United States out of the Great Depression. Au contraire – the government war effort did nothing for the common man, as the rationing system merely extended the misery of the Depression.

Of real interest too is Dr. Paul’s discussion of how his views developed over time. While his personal experiences always led him to be uncomfortable with the idea of war, his nascent antiwar impulses took a long time to manifest themselves fully.
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When Money Dies

Friday July 10, 2015

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“When Money Dies” is the title of a 1975 book by Adam Fergusson, in which he describes the downfall of the Reichsmark in Weimar Germany. A fascinating look at that period of history, one can glean quite a few useful pieces of advice on how to survive a currency crisis. But “when money dies” could also describe the current currency crisis in Greece, in which many Greeks seem to have taken those lessons from Fergusson’s account of the Weimar hyperinflation to heart.

Even though the Greek currency crisis isn’t a traditional hyperinflationary crisis, many Greeks are trying to get their hands on, and then spend, cash. One of the fears is that bank depositors will be forced to take losses on their accounts, the so-called “haircut”. This happened in Cyprus to some larger depositors, but the fear in Greece is that people with even just a few thousand euros in their accounts might be forced to take losses of 30-50% or more. Just imagine that you have $10,000 in your bank account and overnight the government says, “Sorry, your account balance is now $5,000.” Overnight, the purchasing power of your bank account has been cut in half.
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Greece Shows Why Banks & Governments Hate Cash: Bank Runs

Wednesday July 1, 2015

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The photos from Greece showing long lines at ATMs are astonishing. Even after the deposit outflows from Greek banks over the past weeks, there are still large numbers of people who are trying to get their money out of the banking system. With the banks closed, ATMs are the only way for people to get any cash. Let’s not beat around the bush in describing what is happening: this is a bank run. Even though Greece has a deposit insurance scheme that covers up to €100,000 in savings accounts, trust in the banking sector is declining and people are trying to get their money out. Cash is the ultimate means by which consumers can restrain the behavior of governments and banks, which is why governments and banks are doing everything they can to do away with cash.

The problem with the banking system is that banks today operate as fractional reserve banks. Money deposited into savings accounts is loaned out up to the bank’s reserve requirement. If the reserve requirement is 10%, then 90% of the money in savings accounts is loaned out. If the reserve requirement is 3%, then 97% of the money in savings accounts is loaned out. 

The problem comes about in that the bank simultaneously gives the full use of that money to borrowers, often lending at long terms up to 30 years in the case of mortgages, while still telling depositors that they can withdraw their money at any time. So what happens when depositors want to withdraw more money than the bank has on reserve? The bank tries to refuse to honor withdrawal requests. Then the public loses confidence in the bank, depositors line up to demand their money, and you have a scene out of “It’s a Wonderful Life.”
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If Greece Defaults, Will the Fed Bailout Europe?

Saturday June 20, 2015

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The Greek crisis is dominating headlines this week, and promises to be the most important economic and financial topic of conversation through the weekend and into Monday. Neither the Greek government nor the European Central Bank (ECB) seem to be prepared to give an inch, and there’s every indication that things could come to head next week. If Greece does default, and if there is a resulting crisis in European markets, will the Federal Reserve get involved? To quote Sarah Palin, “You betcha!” How would the Fed do this? Read on to find out.

Although the euro is the dominant currency in Europe, a lot of debt in Europe is still denominated in dollars. The dollar being the world’s reserve currency and dollar markets being incredibly liquid, it just makes sense for a lot of companies to do business in dollars. But when a crisis hits and those businesses need dollars, they have to get a hold of dollars somehow. Banks in Europe have a limited supply, and once those dollars are gone, there is no dollar-printing central bank in Europe that can step in. Enter the Federal Reserve.
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Greece: The Problem with Playing Hardball

Saturday February 7, 2015

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Greece and the European Central Bank are currently at loggerheads. The new Greek government wants to lighten its debt burden but the ECB won’t give the Greeks everything they want. Only two weeks into Syriza’s governance of Greece, the ECB has decided to play hardball, deciding that Greek government debt may no longer be used as collateral for monetary policy operations. While the ECB thought it was playing a strong hand with that move, it may end up coming back to haunt them.

That one move reduces the market demand for Greek debt. Yields will begin to rise, and the spread between Greek debt and other Eurozone countries’ securities will increase. Remember the great benefit of the euro to the peripheral European countries: all sovereign debt was treated equally by markets because it was assumed that the ECB would ensure that creditors would not suffer losses in the event that there were any difficulties with a Eurozone country servicing its debt. That enabled Italy, Spain, and Greece, among others, to borrow money at rates close to what Germany could, rates far lower than the peripheral countries had historically been able to reach.

Naturally they took advantage of that, overspent, and found themselves in difficulty. But the ECB’s bailout of Greece assuaged investors’ fears, and the spreads between peripheral debt and core Eurozone debt began to narrow again. With this latest move by the ECB, the risk is that the spread will widen with respect to Greek debt. If Greece no longer has the advantage of being able to borrow at low rates, then what good is the euro to them? Why not go back to the drachma? At least then they are in control of their own monetary policy.
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