Political thought

The threat from the illiberal left

Don’t underestimate the danger of left-leaning identity politics

Something has gone very wrong with Western liberalism. 

At its heart classical liberalism believes human progress is brought about by debate and reform. 

The best way to navigate disruptive change in a divided world is through a universal commitment to individual dignity, open markets and limited government. 

Yet a resurgent China sneers at liberalism for being selfish, decadent and unstable. 

At home, populists on the right and left rage at liberalism for its supposed elitism and privilege.

Over the past 250 years classical liberalism has helped bring about unparalleled progress. 

It will not vanish in a puff of smoke. But it is undergoing a severe test, just as it did a century ago when the cancers of Bolshevism and fascism began to eat away at liberal Europe from within. 

It is time for liberals to understand what they are up against and to fight back.

Nowhere is the fight fiercer than in America, where this week the Supreme Court chose not to strike down a draconian and bizarre anti-abortion law. 

The most dangerous threat in liberalism’s spiritual home comes from the Trumpian right. 

Populists denigrate liberal edifices such as science and the rule of law as façades for a plot by the deep state against the people. 

They subordinate facts and reason to tribal emotion. 

The enduring falsehood that the presidential election in 2020 was stolen points to where such impulses lead. 

If people cannot settle their differences using debate and trusted institutions, they resort to force.

The attack from the left is harder to grasp, partly because in America “liberal” has come to include an illiberal left. 

We describe this week how a new style of politics has recently spread from elite university departments. 

As young graduates have taken jobs in the upmarket media and in politics, business and education, they have brought with them a horror of feeling “unsafe” and an agenda obsessed with a narrow vision of obtaining justice for oppressed identity groups. 

They have also brought along tactics to enforce ideological purity, by no-platforming their enemies and cancelling allies who have transgressed—with echoes of the confessional state that dominated Europe before classical liberalism took root at the end of the 18th century.

Superficially, the illiberal left and classical liberals like The Economist want many of the same things. 

Both believe that people should be able to flourish whatever their sexuality or race. 

They share a suspicion of authority and entrenched interests. 

They believe in the desirability of change.

However, classical liberals and illiberal progressives could hardly disagree more over how to bring these things about. 

For classical liberals, the precise direction of progress is unknowable. 

It must be spontaneous and from the bottom up—and it depends on the separation of powers, so that nobody nor any group is able to exert lasting control. 

By contrast the illiberal left put their own power at the centre of things, because they are sure real progress is possible only after they have first seen to it that racial, sexual and other hierarchies are dismantled.

This difference in method has profound implications. 

Classical liberals believe in setting fair initial conditions and letting events unfold through competition—by, say, eliminating corporate monopolies, opening up guilds, radically reforming taxation and making education accessible with vouchers.

Progressives see laissez-faire as a pretence which powerful vested interests use to preserve the status quo. 

Instead, they believe in imposing “equity”—the outcomes that they deem just. 

For example, Ibram X. Kendi, a scholar-activist, asserts that any colour-blind policy, including the standardised testing of children, is racist if it ends up increasing average racial differentials, however enlightened the intentions behind it.

Mr Kendi is right to want an anti-racist policy that works. 

But his blunderbuss approach risks denying some disadvantaged children the help they need and others the chance to realise their talents. 

Individuals, not just groups, must be treated fairly for society to flourish. 

Besides, society has many goals. 

People worry about economic growth, welfare, crime, the environment and national security, and policies cannot be judged simply on whether they advance a particular group. 

Classical liberals use debate to hash out priorities and trade-offs in a pluralist society and then use elections to settle on a course. 

The illiberal left believe that the marketplace of ideas is rigged just like all the others. 

What masquerades as evidence and argument, they say, is really yet another assertion of raw power by the elite.

Progressives of the old school remain champions of free speech. 

But illiberal progressives think that equity requires the field to be tilted against those who are privileged and reactionary. 

That means restricting their freedom of speech, using a caste system of victimhood in which those on top must defer to those with a greater claim to restorative justice. 

It also involves making an example of supposed reactionaries, by punishing them when they say something that is taken to make someone who is less privileged feel unsafe. 

The results are calling-out, cancellation and no-platforming.

Milton Friedman once said that the “society that puts equality before freedom will end up with neither”. 

He was right. Illiberal progressives think they have a blueprint for freeing oppressed groups. 

In reality theirs is a formula for the oppression of individuals—and, in that, it is not so very different from the plans of the populist right. 

In their different ways both extremes put power before process, ends before means and the interests of the group before the freedom of the individual.

Countries run by the strongmen whom populists admire, such as Hungary under Viktor Orban and Russia under Vladimir Putin, show that unchecked power is a bad foundation for good government. 

Utopias like Cuba and Venezuela show that ends do not justify means. 

And nowhere at all do individuals willingly conform to state-imposed racial and economic stereotypes.

When populists put partisanship before truth, they sabotage good government. 

When progressives divide people into competing castes, they turn the nation against itself. 

Both diminish institutions that resolve social conflict. 

Hence they often resort to coercion, however much they like to talk about justice.

If classical liberalism is so much better than the alternatives, why is it struggling around the world? 

One reason is that populists and progressives feed off each other pathologically. 

The hatred each camp feels for the other inflames its own supporters—to the benefit of both. 

Criticising your own tribe’s excesses seems like treachery. 

Under these conditions, liberal debate is starved of oxygen. 

Just look at Britain, where politics in the past few years was consumed by the rows between uncompromising Tory Brexiteers and the Labour Party under Jeremy Corbyn.

Aspects of liberalism go against the grain of human nature. 

It requires you to defend your opponents’ right to speak, even when you know they are wrong. 

You must be willing to question your deepest beliefs. 

Businesses must not be sheltered from the gales of creative destruction. 

Your loved ones must advance on merit alone, even if all your instincts are to bend the rules for them. 

You must accept the victory of your enemies at the ballot box, even if you think they will bring the country to ruin.

In short, it is hard work to be a genuine liberal. 

After the collapse of the Soviet Union, when their last ideological challenger seemed to crumble, arrogant elites lost touch with liberalism’s humility and self-doubt. 

They fell into the habit of believing they were always right. 

They engineered America’s meritocracy to favour people like them. 

After the financial crisis, they oversaw an economy that grew too slowly for people to feel prosperous. 

Far from treating white working-class critics with dignity, they sneered at their supposed lack of sophistication.

This complacency has let opponents blame lasting imperfections on liberalism—and, because of the treatment of race in America, to insist the whole country was rotten from the start. 

In the face of persistent inequality and racism, classical liberals can remind people that change takes time. 

But Washington is broken, China is storming ahead and people are restless.

A liberal lack of conviction

The ultimate complacency would be for classical liberals to underestimate the threat. 

Too many right-leaning liberals are inclined to choose a shameless marriage of convenience with populists. 

Too many left-leaning liberals focus on how they, too, want social justice. 

They comfort themselves with the thought that the most intolerant illiberalism belongs to a fringe. 

Don’t worry, they say, intolerance is part of the mechanism of change: by focusing on injustice, they shift the centre ground.

Yet it is precisely by countering the forces propelling people to the extremes that classical liberals prevent the extremes from strengthening. 

By applying liberal principles, they help solve society’s many problems without anyone resorting to coercion. 

Only liberals appreciate diversity in all its forms and understand how to make it a strength. 

Only they can deal fairly with everything from education to planning and foreign policy so as to release people’s creative energies. 

Classical liberals must rediscover their fighting spirit. 

They should take on the bullies and cancellers. 

Liberalism is still the best engine for equitable progress. 

Liberals must have the courage to say so.

Here's Why the Government Response to COVID Should Trouble You

by Chris MacIntosh


I COME FROM A LAND DOWN UNDER …where rights are ripped asunder.

Actually, it’s rather ironic that the catchy song from which I took the above headline, "The Land Down Under," is written and sung by the band "Men at Work".

Why is that ironic? 

Because right now men in Australia are decidedly NOT at work. 

They are instead on the sofa, attached to the WiFi, their rights stripped from them under the ridiculous guise of a pandemic, unless, of course, they’re deemed by some pointy-shoe beaurocrat as "essential."

The Great Reset barrels ahead in Australia at a blistering pace. 

All hail the albino snail that lost his shell.

The damage already done is incalculable, and yet to come is much, much more because we have of course been promised much more. 

All the while the sheeple sleep, sound in the belief their leaders are protecting them and keeping them safe.

Some have said that the Australian government has lost the plot. 

No, they haven’t. 

Suggesting that provides a plausibility to their actions. 

There is none. 

It is not possible to implement such far reaching, damaging rules and regulations by merely being incompetent, and certainly not for such a length of time, where the evidence piles high that highlight the innefectiveness of the experimental gene therapies, constantly changing protocols and mandates (no mask, one mask, two masks, etc.), and control groups such as Sweden, which instead of being used as a proof of evidence are chastised and ignored, or where the country sporting the greatest deaths per capita is simultaneously the country most vaccinated: Israel.

No, only an idiot would look at all of this and conclude that it is mere incompetence. 

Only an idiot would look at this and conclude that it is being done in good faith.


No this is planned. 

It is, folks, "the great reset" that the global elites scumbags drool over.

Davos man has been hard at work. 

And you may say, "Well, they have no real power. 

I mean, they don’t pass these laws." 

True. They don’t need to. Instead, like a mob boss who never brings out the baseball bat to beat the victim, relying instead on his henchman, today it is gutless invertebrates that out of sheer cowardice follow them.

Corporates, CEOs, governors, local elected officials. 

And, of course, there is the media — the poisoned chalice that never stops giving. 

Driving the hysteria, and boy has it worked. 

More clicks, more eyeballs. 

Then, of course, there is the fact that the revenue model for media has flipped to one of advertising. 

And so it is that the advertisers pull the strings.

For context, Bill Gates, via various structures, owns 113 media outlets.

And don’t get me started on the "fact checkers." 

These are the folks telling Nobel Laureate Luc Montagnier (whose field of expertise is virology) to stand down and stop spreading "misinformation." 

The same folks telling us that the inventor of mRNA technology Dr. Robert Malone doesn't know what he’s talking about when he yells from the rooftops that we’re in the process of committing a slow motion global genocide.

It is surreal. I understand that, but just because it’s surreal doesn’t mean it’s not happening.

We look at evidence, such as this.


But when we look around us the outcomes of this evidence are nowhere to be found. 

Everyone dutifully scans into shops, dons a useless, dirty mask ensuring they breathe their own carbon dioxide back into their body along with the chemicals from the mask.

Here is the issue, folks, and it’s dead bloody serious. 

This is a colossal deception based on fraud and lies. 

The governments of Australia, New Zealand, the US, Canada, all those in the European Union, and the UK have borrowed sums of money that will never ever be paid back.

A father and his daughter in a park. Their crime? Unmasked.


Sadly, one can see exactly where this is all headed. 

Most everyone knows exactly what Auschwitz and the numerous "facilities" like it were. 

We also know that many of the victims actually willingly went to these camps. 

Heck, some paid the rail fare to get there, such was the power of the propaganda.

And yet it is hard to imagine anything like this happening again, which is, of course, why it happens. 

It is why history repeats itself. 

When you are confronted with something so dark, so sinister, so dystopian that it makes you feel physically ill, and at the same time nobody around you seems to think it an issue it is only normal to think to yourself… well, it must be me that is mad. 

But you are not mad. 

You are the rational one. 

Just because you are in the minority does not mean you are wrong. It just means that you are in the minority.

Here is the new Alice Springs "quarantine" facility.


Not at all like, you know, a prison. 

And here are the rules.


If you’re looking at this progression of events and not alarmed, you have a screw loose. 

That it has as much to do with "public health" as a donkey has to do with cryptography should be obvious to all.

So what comes next? Asset seizure.

Editor’s Note: Disturbing economic, political, and social trends are already in motion and now accelerating at breathtaking speed. 

Most troubling of all, they cannot be stopped.

The risks that lie ahead are too big and dangerous to ignore.

Beyond Evergrande’s Troubles, a Slowing Chinese Economy

Investors are watching whether the property developer defaults. But in the background, the world’s No. 2 economy is flashing numerous warning signs.

By Keith Bradsher and Alexandra Stevenson

The Evergrande Cultural Tourism City in Taicang, China, where construction stopped as of last week.Credit...Jessica Yang/Agence France-Presse — Getty Images

BEIJING — Global markets have watched anxiously as a huge and deeply indebted Chinese property company flirts with default, fearing that any collapse could ripple through the international financial system.

China Evergrande Group, the developer, said on Wednesday that it had reached a deal that might give it some breathing room in the face of a bond payment due the next day. 

But that murky arrangement doesn’t address the broader threat for Beijing’s top leaders and the global economic outlook: China’s growth is slowing, and the government may have to work harder to rekindle it.

Retail sales were much weaker than expected last month in China, led by slow car sales. 

Industrial production has slackened, particularly for large freight trucks. 

And developers sharply reduced new housing projects over the summer, while rushing to finish the projects they had already started.

Heavy government spending on new rail lines, highways and other projects is keeping the economy afloat right now, but may not be sustainable through next year.

Markets have been riveted by the idea that Evergrande could be China’s “Lehman moment,” a reference to the collapse of the Lehman Brothers investment bank back in 2008, which kicked off the global financial crisis. 

While many economists in China are pouring cold water over the idea of potential financial contagion, they are pointing to the broad weakness in China’s property market, a mainstay of the economy, and other long-term threats.

“This is not a Lehman moment. 

This is too sensational,” said Xu Sitao, an economist in the Beijing office of Deloitte. 

“The question is next year.”

With Evergrande, it isn’t entirely clear what will happen on Thursday, when bond interest payments are due. 

On Wednesday, it said in a vaguely worded stock market filing that it had reached an arrangement with Chinese investors to make a payment due the next day, without offering details.

It did not mention an $83.5 million payment due Thursday to foreign bondholders. Bloomberg News, citing bond documents, said the company had a 30-day grace period before a missed payment would becomes a default. 

Evergrande did not respond to questions.

Chinese policymakers could conceivably step in and rescue Evergrande. 

But that would run contrary to their efforts to get companies to borrow less and to take some of the steam out of the property market, where apartments for purchase are increasingly unaffordable for many Chinese families in a number of markets.

The stock exchange in Hong Kong on Tuesday as the Hang Seng Index dropped over concerns about Evergrande.Credit...Jerome Favre/EPA, via Shutterstock

People familiar with Chinese economic policymaking say big companies often carry a lot of collateral on their books, so officials believe lenders won’t get fully burned by a collapse. 

They also cite the tools Beijing has to unwind debts gradually and limit financial disruptions, such as its control of the banking system.

Letting Evergrande collapse quickly, on the other hand, risks a broad fall in apartment prices or other potentially unforeseeable shocks to the financial system.

Chinese officials have taken short-term measures to shore up confidence. 

The central bank announced on Wednesday morning, and then again on Thursday, that it had temporarily injected about $18.6 billion in credit markets, part of a broader effort in recent days to make sure that ample cash is available.

Real estate sales were slowing even before the latest difficulties, in part because of Beijing’s cool-down efforts, depriving Evergrande and other property developers of the cash they need to finish other projects. 

Sales dropped 7.1 percent by value in July and 18.7 percent in August from the same months last year.

Overcapacity in many industrial sectors, coupled with a faltering construction sector, have prompted economists to predict slower growth. 

On Tuesday, Bank of America lowered its forecast for China’s economic growth next year to 5.3 percent from a previous forecast of 6.2 percent.

Growth over 5 percent is still strong by most standards. 

But it would be a much weaker showing than this year, which many economists project will total 8 percent or higher. 

It also would be considerably slower than the official growth rates China has posted in recent years.

Other questions hovering right now over the Chinese economy can be seen in a handful of measures that might at first glance seem to have little to do with the real estate industry, bond prices or Evergrande’s 1.6 million unfinished apartments. 

The measures gauge the production and sale of heavy-duty freight trucks.

Construction companies and manufacturers all over the world tend to stop buying large trucks when they see trouble ahead. 

Alan Greenspan, the former chairman of the Federal Reserve, used to cite the strength of the freight truck manufacturing industry as one of his favorite predictors of the health of the American economy.

The China Association of Automobile Manufacturers disclosed this month that heavy truck production and heavy truck sales plummeted by nearly half in August from a year earlier. 

Excluding statistical quirks caused by the timing of the Lunar New Year holiday, it was the worst performance for both heavy truck indicators since the spring of 2015, when China was struggling to emerge from a botched currency devaluation.

Trucks for export at a sea port in Yantai, China, in July. Truck production and sales plummeted by nearly half in August.Credit...CHINATOPIX, via Associated Press

The nosedive in freight truck production and sales is about much more than lost economic confidence, however. 

It also shows how China’s policies over the past few years temporarily inflated demand and produced severe overcapacity.

Stringent new standards for air pollution took effect for freight trucks manufactured beginning July 1. 

Stricter safety standards are also being phased in, such as a requirement that onboard software and sensors warn drivers when they start to drift out of their traffic lanes.

Domestic truck manufacturers expanded their factories last year to build as many trucks as they could before the tougher rules took effect.

China’s freight truck manufacturing capacity has ballooned to 1.6 million trucks a year in a market where long-term sales estimates are far fewer than a million trucks a year. 

Truck dealerships across China are now clogged with rows of unsold trucks.

Car sales were also weak last month, adding to uncertainty about whether consumer spending will stay strong in China even as Evergrande struggles. 

After construction and government spending, the auto industry is one of the biggest sectors of the Chinese economy, playing nearly three times as large a role as exports to the United States.

An acute shortage of computer chips has separately affected the production and sale of cars in China, muddying the picture.

“The market for car sales is generally in a downturn, partly because of the chip shortage,” said Cui Dongshu, the secretary general of the China Passenger Car Association, a Beijing-based industry trade group.

While China faces broad overcapacity and other worries, many economists in China still express more confidence than economists elsewhere that the country can weather its troubles. 

Economists in China note that the Chinese government has more ability than most to set interest rates and control large movements of money in and out of the country.

“China,” said Mr. Xu, of Deloitte, “still has a lot of tools.”

Keith Bradsher reported from Beijing, and Alexandra Stevenson from Hong Kong. Li You and Cao Li contributed research. 

America's Return to Realism

It was already clear that former President Donald Trump repudiated the humanitarian or quasi-humanitarian motives that underpinned US military interventions after the Cold War. But Joe Biden’s forceful renunciation of foreign-policy idealism is somewhat surprising.

Eric Posner

CHICAGO – US President Joe Biden’s speech defending the withdrawal from Afghanistan announced a decisive break with a tradition of foreign-policy idealism that began with Woodrow Wilson and reached its apex in the 1990s. 

While that tradition has often been called “liberal internationalism,” it also was the dominant view on the right by the end of the Cold War. 

The United States, according to liberal internationalists, should use military force as well as its economic power to compel other countries to embrace liberal democracy and uphold human rights.

Both in conception and in practice, American idealism rejected the Westphalian international system, in which states are forbidden to intervene in others’ internal affairs, and peace results from maintaining a balance of power. 

Wilson sought to replace this system with universal principles of justice, administered by international institutions. 

During World War II, Franklin D. Roosevelt revived these ideals in the Atlantic Charter of 1941, which declared self-determination, democracy, and human rights to be war goals.

But during the Cold War, the US pursued a resolutely “realist” foreign policy that focused on national interest and propped up or tolerated dictatorships as long as they opposed the Soviet Union. 

The two rivals had little use for international institutions or universal ideals except for propaganda purposes, instead using regional arrangements to knit together their allies. 

It was Europe that, in the 1970s, tried to advance human rights and assume a position of moral leadership to distinguish itself from the goliaths to its east and west.

America’s commitment to human rights began at a moment of weakness. 

In the wake of the military and moral disaster of Vietnam, President Jimmy Carter and the US Congress sought to infuse American foreign policy with a moral center and reached for the language of human rights. 

President Ronald Reagan saw human rights as a convenient rhetorical cudgel for clobbering the Soviet Union. 

But both presidents continued to support dictatorships that served US security interests, and neither used military force to advance humanitarian ideals. 

The era of US-led humanitarian intervention would have to await the end of the Cold War.

The rhetoric outstripped the reality, but reality did change. 

As the sole global hegemon, the US embarked on a large number of wars, big and small, involving a confusing mélange of hard-nosed security interests and idealistic rhetoric. 

In Panama, Somalia, Yugoslavia (twice), Iraq (twice), Libya, Afghanistan, and elsewhere, the US launched military interventions on both national-security and humanitarian grounds.

The nonintervention in the Rwandan genocide of 1994 may have been the most consequential (non)event of this period, because it was reinterpreted with the benefit of hindsight as a missed opportunity to use military force to save hundreds of thousands of lives. 

The debacle was used to justify the wars in Afghanistan and Iraq, and to urge US military intervention in Sudan in the early 2000s, which President George W. Bush’s administration wisely resisted, despite mass killings that amounted to another genocide.

All of this led to an extraordinary burst of interest in international law and legal institutions. 

Multiple international tribunals were created, leading to the establishment of a permanent International Criminal Court. Human rights treaties and institutions were revived and strengthened. 

Principles of humanitarian intervention were advanced, including the now-forgotten “responsibility to protect.” Every Western university nowadays has a human rights center of some sort that is a testament to the idealism of that era.

It was already clear that President Donald Trump repudiated this tradition of humanitarian or quasi-humanitarian military intervention, but Biden’s forceful renunciation of it is somewhat surprising. 

In his speech, he repeatedly emphasized the importance of identifying and defending America’s “vital national interest.” 

The word “national” is key, and Biden wasn’t subtle:

“If we had been attacked on September 11, 2001, from Yemen instead of Afghanistan, would we have ever gone to war in Afghanistan? 

Even though the Taliban controlled Afghanistan in the year 2001? 

I believe the honest answer is no. 

That’s because we had no vital interest in Afghanistan other than to prevent an attack on America’s homeland and our friends. And that’s true today.”

America had no vital interest in introducing democracy to Afghanistan, in helping women escape a medieval theological regime, in educating children, or in helping to prevent another civil war. 

His decision to withdraw from Afghanistan was “about ending an era of major military operations to remake other countries. 

We saw a mission of counterterrorism in Afghanistan, getting the terrorists to stop the attacks, morph into a counterinsurgency, nation-building, trying to create a democratic, cohesive, and united Afghanistan. 

Something that has never been done over many centuries of Afghan’s [sic] history. 

Moving on from that mindset and those kind of large-scale troop deployments will make us stronger and more effective and safer at home.”

Biden also did say that human rights will remain “the center of our foreign policy,” and that economic tools and moral suasion can be used to advance them. 

This claim is in tension with his declaration that “vital national interests” should determine military intervention. 

Why wouldn’t vital national interests determine nonmilitary forms of intervention as well? 

Clearly, the role of human rights and other moral ideals in US foreign policy has been downgraded. 

The only question is whether the rhetoric will be toned town to match the new reality.

Of course, it was never very clear that US governments were actually motivated by humanitarian considerations. 

Critics often found more nefarious motives. 

Future historians may well argue that US foreign policy in the 1990s and 2000s was simply advancing a very ambitious vision of the national interest: America required all countries to adopt American ideals and institutions so that none would want to act against America. 

Or they might say that, like any empire, the US lacked the patience and wisdom to maintain a consistent stance in its treatment of its peripheries.

In any case, idealism is not actually so idealistic when a country has enough power, and the only thing that is clear now is that America doesn’t. 

Resistance to its post-Cold War nation-building goals took the form of international terrorism. 

China and Russia did not obediently embrace democracy. And much of the rest of the world has reverted to various forms of nationalism and authoritarianism.

With the fall of Afghanistan to the Taliban, the limits of American power have finally become obvious. 

Many people, and not just the leaders of hostile powers, will celebrate America’s comeuppance. 

But it is doubtful that the moral superstructure of human rights will survive without any country willing to use military force to support it.

Eric Posner, a professor at the University of Chicago Law School, is the author of the forthcoming How Antitrust Failed Workers.

Four Unreported Signs Paper Money is Dying

By Matthew Piepenburg

Below, we look at four deliberately ignored reasons why extreme liquidity is drowning paper money.

Reason 1: The Taper Debate May Not be a Debate at All

Here, we look past the taper headlines and ask a simple question: Would a Fed “tapering” of QE really matter?

As we’ve written elsewhere, the Great Taper Debate is less of a debate than it is a pundit circus, forever fueling now classic yet complimentary debates on inflation vs. deflation, gold vs. the dollar and Fed-speak vs. honesty.

Of course, such topics, including the great “taper,” are all critical issues worthy of opposing views and somber discussions.

The world needs open, transparent and respectful (as opposed to tyrannical) debate, now more than ever.

If the Fed, for example, were to taper money printing, it’s logical to assume (and argue) that this would mean falling bonds, rising rates, deflationary forces, a stronger dollar and massive headwinds for risk assets like stocks and real estate.

But for many who are not otherwise deeply ensconced into the weeds of Wall Street (i.e., normal, smart and conscientious investors), what they may not know is this: The Fed has other tricks up its liquidity sleeve than just “QE.”

Stated otherwise, the taper fears as well as taper debate may not be as central to the central bank debate as one might think.


Hidden Liquidity Tricks and More Central Bank Fire Hoses

Because hidden within the backwash of the deliberately murky and mysterious (i.e., toxic) love affair between Wall Street and the Fed, lies unmarked little islands of hidden liquidity powers known as the Standard Repo Facility (SRF).

Specifically, we’re referring to the Reverse Repo Program (RRP) for domestic use and the FIMA swap lines (for foreign creditors) which allows the Fed to keep dumping liquidity into the system even during a QE “taper.”

The RRP program, for example, allows the Fed to help commercial banks avoid (i.e., cheat on) those otherwise laudable Basel 3 rules, thereby giving our seemingly immortal banks the hidden power to circumvent Basel 3’s reserve requirements.

Without diving too deep into this intentionally complex arena, RRP programs technically reduce liquidity, but the program’s fine print effectively allows increasingly less “liquid” commercial banks to sidestep Basel 3, which means they are not forced to become “less liquid” in actual practice—just more dangerous.

As we warned months ago, as debt conditions worsen, so too does transparency and truth; far more importantly, centralized control over (and support for) an otherwise grossly distorted banking system (and risk asset bubble) continues to rise behind the headlines.

In short, if investors are wondering why or how markets can and could climb despite “taper” headlines, the answer is hidden in plain yet deliberately complex sight. After all, distortion loves to hide behind complexity.

Like inflation, the real truth behind Basel 3 and the taper-debate is hidden behind deliberate obfuscation and mis-reporting—what normal folks call, well…lies.

This means, taper or no taper, the dollar liquidity will keep pumping within the fantasy islands of the RRP archipelago and hence the liquidity needed to help “inflate away” otherwise unconscionable and mathematically growth-killing sovereign debt will and can continue.

Such liquidity trends, of course, just mean the further debasement of fiat/paper money.

Reason 2: The IMF Signals More Liquidity

But if you think the Fed is the only monetary body growing more desperate and hence liquidity-clever by the day, let’s not forget those Wunderkinder at the IMF nor Forest Gump’s reminder that when it comes to dumping more paper money onto an already unsustainable debt pile, “stupid is as stupid does.”

Just one month ago, the IMF’s board of governors approved an allocation (its first since 2009) of Special Drawing Rights (SDR) to the tune of $650B (456B in SDR) in order to stimulate, you guessed it, more global liquidity.

And as the graph below confirms, this latest allocation is an historical doozy, even for the IMF.

Aside from confirming desperation, the foregoing SDR allocation facts have a direct implication on that “barbarous relic” otherwise known as gold, which has been consolidating above last year’s breakout.

That is, whenever SDRs are issued (and they just issued a lot of them), that basket of global paper money (USD, JPY, EUR, CNY, GBP and JPY) tends to go on a shopping spree for gold.

Of course, that’s just another tailwind for precious metals, but the CNY (i.e., Chinese) component of those SDR’s won’t be the only demand-driven tailwind for gold.

As Brazil’s gold reserves skyrocketed by 100% in recent months, it’s worth noting who has been buying the bulk of those precious rather than “barbaric” metals.

Here’s a hint, the buyers are Brazil’s biggest trading partner—i.e., China.

But the plot thickens.

China is buying gold (as well as soybeans, steel, corn and oil) from Brazil for a reason

Like Russia, the Chinese can buy and sell those Brazilian products in CNY yet settle prices in gold which floats in price (as well as back into Brazil’s gold-thirsty central bank) based on each currency, thereby slowly but surely ignoring that increasingly discredited and distrusted world reserve currency known as the U.S. dollar.

Reason 3: The World Reserve Currency—Not So Exceptional

But as for such declining trust, political gaslighting and dollar-debasing trends, we can thank our so-called “experts” rather than the Chinese or Russians, who are calmly playing financial chess while Powell, Lagarde and others struggle comically to master checkers.

As DoubleLine’s Jeffrey Gundlach observed just last week, the U.S. is running its economy “like we’re not interested in maintaining global reserve currency status.”

Like the recent retreat from Afghanistan, U.S. monetary policy (and its dollar) is looking ever more embarrassing to the world at large.

We’re not suggesting that the U.S. Dollar’s “status” will change tomorrow, but we do believe strongly that owning real assets in general and precious metals in particular is simply commonsense realism in the backdrop of increasing currency fantasy spewing out of D.C.

Reason 4: Simple Math and the “Not-So-Crazy” of Rising Inflation & Deeper Negative Rates

A core aspect of that realism comes down to inflation now surging past “transitory” and morphing into just plain dangerous.

As repeated so many times, negative real rates (i.e., inflation outpacing sovereign bond yields) have extraordinary implications for rising gold price.

Last week, for example, we made a case for negative rates going as far down as -15%, which would require some pretty ghastly (but we feel deliberately engineered yet publicly denied) inflation ahead.

Toward that end, we reminded readers of prior moments in US debt history when rates fell that deep below zero as inflation rose to the sky—all deliberately allowed to get Uncle Sam out of a debt hole as he sucker-punches the public.

In case that -15% prognosis still seems “crazy” today, keep in mind that the official CPI measure of inflation itself, as reported out of DC, is simply another open CPI lie from the Bureau of Labor Statistics.

Deep down, we all know this.

Nevertheless, and if fantasy is officially accepted as a form of financial policy, the current inflation expectations (based upon the Fed’s 10-Year Breakeven Inflation Rate) of 2.3%, offset against the current 10YT yield of 1.3%, places real rates today at “just” negative 1% as of this writing.

As embarrassing as even negative 1% real rates may be, that’s hardly -15%, correct?

Reason to relax?

Not so fast.

Mathematical Reality vs. Policy Fantasy

The inflationary dangers become clearer once we dig deeper and factor in mathematical honesty rather than policy fantasy.

Even using the current year-over-year (July) CPI rate of 5.4% inflation against the 10YT yield, we arrive at a negative real rate figure of -4.1%.


But it gets worse.

That is, if we were to apply the Chapwood Index which accurately measures inflation by the more honest scale used by the U.S. in the 1970’s (i.e., before the inflationary CPI scale was conveniently “tweaked” to make paper money look more viable in the wake of Nixon’s closing of the gold window), actual inflation today is closer to what it feels like—namely 12%.

This means that when pitted against current 10YT yields, real rates today are negative to the tune of -10.7% right now. This very moment.

Which brings us back to the -15% figure we feel is coming.

Again, does it really seem that “crazy” to expect negative 15% rates in the next 4 years, 5 years, or 10 years when real, yet intentionally misreported rates, are already closer to negative 11% right now?



If gold shines brightest as real rates go deeper and faster into the negative, it’s our conviction, based upon honest math and genuine rather than doctored inflation figures or Fed-speak, that gold’s “golden era”has yet to even begin.

Whether more fiat money comes from: a 1) keyboard at a central bank; 2) the twisted fine print of the Reverse Repo Program; 3) the unprecedented fiscal deficits of mentally-mediocre policy makers seeking re-lection on COVID “concern”-signaling and tyrannical shutdowns, or 4) from the IMF’s SDR pool, the simple fact is that inflation follows the money supply, and today’s expanding money supply is literally off the charts.

The Fed, for now, can pretend to hide this liquidity-driven inflation behind double-speak or creative math, but eventually all truths (including inflation facts) float to the surface as real rates, like the paper money currency you own today, sink closer to the ocean floor.

But as every treasure hunter already knows, paper rots at such depths but gold never does—even after countless years of countless failed attempts by bankrupt regimes (from Rome to Yugoslavia) to pretend paper has value once the trust it has died.

But as Voltaire quipped, eventually all paper money reverts to intrinsic value: zero.

So, which asset do you want to own when the current fiat currency ship sinks like all who have come before it?