I was awakened to the potential philosophical benefits of space colonization by President Trump’s welcoming speech to King Charles III last week, where he remarked:

“Here on a wild and untamed continent, they set loose the ancient English love of liberty and the Great Britain’s distinctive sense of glory, destiny and pride.”

The (mostly English, but many Dutch and other Europeans) colonists who set sail for North America were trying to build a society different from those they had left behind. Religiously, most of them did not wish to submit to the control of the Church of England (though their alternative, at least in Boston, was far more authoritarian).

Politically, as evidenced by the 1619 creation of the Virginia House of Burgesses, they sought a system different from the absolute monarchies that still dominated Europe, at least before 1642. Their voyage across the stormy Atlantic was undertaken, not for the joys of digging an unforgiving uncultivated soil and fighting off marauding Native Americans, but to give themselves a new life free from the political constraints and norms of their home countries.

In today’s world, there no longer exists the possibility of finding a new and virgin land which we can colonize according to our own beliefs. The world is full, and we can only choose from the governments available, by and large a pretty sorry lot. For one like myself who values free speech, free markets and property rights, there are really only two alternatives today: Donald Trump’s America and Sanae Takaichi’s Japan (which would not let me in anyway!) There is no longer a European country that is not subject to grotesque over-regulation in the interests of “net zero” or some other chimaera, while free speech in the EU is conspicuous by its absence.

We are not even secure against backsliding in the United States (apart from the dread possibility of a Democrat victory in 2028). The Trump administration is considering whether to institute compulsory government vetting of AI models – as AI becomes more and more central to the economy and society, it is not difficult to see the harm that could be done by such regulation in the wrong hands. Government is the last institution to trust in the regulation of anything important, because it is always in danger of subversion by leftist cranks, against whom ordinary citizens have no practical recourse.

The philosophical need is thus approaching to find a new home that is not subject to the ever-tightening global consensus against freedom and property. In 17th century Europe, even Galileo Galilei would have benefited from a colonizing trip to North America. The same need to escape the deadening miasma of leftist consensus is almost upon us today.

The questions are: how and where? There are two technologies needed for a substantial colonization of other planets to take place: fusion power and advanced genetic engineering.

Fusion power is needed to transport the huge payloads of colonization across interplanetary distances. Conventional rocket engines, such as we have been using since the 1950s, require a vast multiple of their payload in fuel and fuel tanks when undertaking an interplanetary journey. Given that rockets cannot be infinitely scaled up, the payload that such rockets can carry is only sufficient to carry a few colonists on each trip, and the energy costs for those trips are gigantic. In addition, since conventional rockets are limited in their speed, a trip even to Mars requires several months, exposing voyagers to damaging amounts of radiation. Fusion power when available will avoid these limitations, allowing larger groups of colonists to be sent and permitting trips even to the outer planets and their satellites in a reasonable space of time, say a couple of months.

All the planets other than Earth offer pretty hostile environments for human life over the long-term. To some extent, technology can overcome this. The Florida peninsula was considered to be more or less uninhabitable when the U.S. acquired it in 1819; the main interest was in the Panhandle – but air conditioning has allowed luxurious human life to exist even in Miami in August. Thus, while the Moon cannot have an atmosphere retrofitted – its gravity is too low – something may be possible on Mars, and other Solar System bodies, such as Saturn’s moon Titan, may also be inhabitable with geoengineering. Like the means of transport, geoengineering will require nuclear fusion or some equivalent power source, since it will be extremely power-intensive.

However, even with geoengineering and even picking target planets carefully, human beings as currently constituted will have a hard time living there. We are optimized for a dense atmosphere, a quite strong gravity and a fairly narrow range of ambient temperatures. Even a “terraformed” Mars, given currently practical limits, will be much smaller than Earth, have a gravity about 40% of Earth’s and will suffer temperatures far below Earth average simply because of the lesser supply of solar radiation and the thin atmosphere. Human beings will be highly suboptimal for such an environment. While Mother Nature would produce a redesigned human being in a few thousand years of Mars residence, those few thousand years would be thoroughly miserable.

Accordingly, for mass settlement of Mars we must tweak the human genome so that it can survive happily on lower gravity, a thin atmosphere and a cold average temperature. We are quite close to having this capability currently; it should be well within our grasp within a couple of decades, when we have fusion power and other necessities for colonization.

Once we have genetic engineering, there is no need to restrict ourselves to Mars. Other planets will require more severe terraforming and genetic engineering, either because they are too cold, (Titan) too hot (Venus) or have excessive gravity (Jupiter). Jupiter is the most attractive real estate in the Solar System, because it is so big, but to live there we must create a form of humanity that can deal with an ammonia/hydrogen atmosphere, much more powerful gravity and an ability to swim, since there is no solid surface. A tough ask, probably producing a kind of human jellyfish! However, there are several planets with atmospheres dense enough to support some form of life, and a re-engineered humanity and a certain amount of terraforming should multiply our potential habitats.

Beyond the technology of colonization, there is the question of its political and economic structure. Here, we are at a disadvantage to the Jamestown settlers and the Pilgrim Fathers: our communications are too good. Even if we settled on Neptune, or on the partner of Pluto with a newly discovered atmosphere, both audio and video communication will be possible with a signal delay of only about 4 hours. If an authoritarian world government or group of national governments, such as seems very possible to appear, wanted to control its colonial outposts it would be perfectly able to do so logistically, provided the outposts did not declare Independence, at which point a General John Burgoyne would have to be sent out.

That would vitiate the purpose of colonization. If the Pilgrim Fathers had known that through modern communication they could be forced to listen weekly to sermons from Archbishop William Laud, they would never have bothered to leave England. We therefore need to ensure that any colonization is carried out by agreement with some suitably eccentric trillionaire, with no government involved at any stage of the process. With such a sponsorship, a Mars, Titan or Neptune colony would be self-governing from the start, with every colonist subscribing to an Ayn Randized U.S. Constitution “with the errors and ambiguities left out.” (Of course, if hardline Marxists or theocrats wanted to colonize somewhere they would be free to do so – and the best of British luck to them!)

Olaf Stapledon, a writer whom Lewis did not care for because of his atheism, in Last and First Men (1930) created a future history covering 2 billion years in which humanity genetically engineers itself into 18 different species, moving inwards to Venus when the Sun shrinks into dwarf status and outward to Neptune when it goes nova. By this evolution, human civilization reaches heights far above anything imaginable to us First Men. We are now close to the technology to make Stapledon’s dream (hopefully with Lewis’s ethical system) a reality, and in far less than 2 billion years.

A mixture of Lewis’s aethereal eldils and Stapledon’s Fourth Men Great Brains, solving the problems of the universe in their almost immortal concrete bunkers, is probably ideal.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Out of the Noisy Planet appeared first on True Blue Will Never Stain.

To begin with an asset class not normally thought of as part of the capital market, student loans. Since a disgraceful Obama-era piece of legislation of 2010, these have been issued directly by the government. (This was only the last of a succession of disgraceful pieces of legislation in this area, the worst of which was the Bush-era 2005 Higher Education Act, extending government-guaranteed loans to graduate and professional students, thus raising the amounts of debt incurred per student to infinity with the rise of the perpetual student – a folly extended by the 2007 College Cost Reduction and Access Act, which allowed income-based repayments, thus removing the incentive for borrowers to get a proper job on graduation.) Of the $1.7 trillion of student loans currently outstanding, only 30% are being serviced according to their terms, making them lower quality assets than all but the most grotesque subprime mortgages or automobile loans.

This is not entirely the fault of the students concerned. If you were going to college from 2010 on, it was almost impossible not to incur a student loan—they were pushed hard even to students whose families did not need the money. However, the real reason for the program’s high default rates was the utter dishonesty of the Biden administration, which extended a payments moratorium far beyond the period when it was justified during the COVID epidemic. This payment moratorium caused the accrued interest on student loans to pile up. Biden then dishonestly proposed all kinds of “relief” schemes for student debt, none of which had any chance of being legally authorized by Congress. Such schemes, being subsidies from ordinary people without college to rich kids with useless degrees, were morally utterly repugnant and economically damaging.

In those circumstances, borrowers who suddenly did not have to pay their student debt monthly, naturally found the extra $500 per month (say) would allow them to lease a fancy automobile even though their income was modest and likely to remain so. This was unsound finance of course, but in what educational institution, even business schools which teach the joys of leveraged buyouts, are young Americans now taught the principles of sound finance?

The amount eventually lost in student loan defaults will probably be around $1 trillion of the $1.7 trillion now outstanding, which amount will be added to the Federal debt. That is not staggering, but as Senator Everett M. Dirksen (R.-IL) did not say (because he was dealing with mere billions) “a trillion here, a trillion there, and soon you’re talking real money.” There will also be a painful but necessary reform needed to stop this systemic bleeding in the future; ideally this should involve closing down about three quarters of the nation’s colleges, forcing the rest to cut back their wasteful expenditure sharply, and sending only around 15% of the population rather than the current 60% to suffer the wasteful indoctrinations of college.

Student loans are only one source of future catastrophic debt losses. According to a recent Allysia Finley piece in the Wall Street Journal, the percentage of Federal Housing Administration loans where debt payments to income exceed 43% — generally considered risky – has risen to 64% in 2024 compared with only 36% in 2007, the year the subprime mortgage crash occurred. About 1 in 7 FHA loans originated between 2022 and 2025 defaulted within a year. Under the Biden administration, the taxpayer’s interests as creditor were grossly neglected in every area they could be; the property rights of ordinary taxpayers are always vulnerable under Democrat administrations, but the Biden administration was extreme.

As in 2007, there is thus a glut of government-sponsored bad debt just waiting to land on the economy. In this sector, Wall Street is less involved than in 2007, but there is, in addition, a plethora of subprime automobile loans, of perhaps $400 billion, since lending standards for auto loans were lowered and maturities lengthened after 2009 (many especially toxic auto loans have of course been incurred by those given a payment holiday on their student debt). Since this is largely independent of mainstream Wall Street, you can add it to the 2007-type debt default pile.

Wall Street itself has created far more dodgy assets than in any past bubble – even 2000 and 1929 pale by comparison. It has a mechanism to do so that was absent in 1929 and relatively small in 2000: the private equity fund and its brother the private debt fund. The managers of these organizations are generally paid a fee, typically 2% for private equity, on the assets they collect and may in addition earn a “carried interest” bonus of typically 20% of any profits, which are calculated with assets “marked to market” by “experts” in a way that may bear no relation to their true value. At the very least, this gives them a huge incentive to collect assets from the dozier pension funds and college endowments and a much smaller incentive to manage the assets properly, which requires knowing all the mundane and technical details of their investee company’s operations.

Boosting the fund’s net asset value by hugely leveraged “recapitalizations” of investee companies is a much easier way to declare returns, requires no understanding of the underlying businesses, and allows your auditor to sign off on profits, of which you receive 20%. Establishing a “private debt” fund to buy the debt created by such recapitalizations is another nice way to keep it all in house. If the company stubbornly refuses to increase in value, you can always sell it at an inflated price to a “continuation vehicle” new fund you have set up.

As you will have spotted, very little of all this requires the private equity investor to add value. The only problem with it is that, based on the law of supply and demand, which works as well in investing as in everything else, the gigantic flood of new money into this sector has depressed the returns to private equity investors well below those on the Standard & Poor’s 500 stock index, so private equity managers are being paid “2 and 20” to underperform a simple index fund.

Some investors have noticed this; the idiotic “Yale Model” of investment by which college endowments put all their assets into private equity, private debt and timberland, has now been thoroughly exploded by the grossly inferior returns achieved by the largest college endowments in recent years. You would think, with all that intelligence available, the Ivy League colleges could themselves invest better than Wall Street, but apparently not.

At some point, even the high pressure sales techniques of private equity managers will fail to attract new money into this sector, which needs a large flow of new money each year to maintain values. That is why, in the deregulatory Trump administration, ordinary retail investors have now been allowed into private equity — you can bet this would not have happened if the returns were still tolerable. You should avoid these investments like the plague; not only will they on average produce inferior returns, but as a supposedly “unsophisticated” retail investor with no important “contacts” you will be offered only the worst and most overpriced deals. As for private debt funds, they should be avoided even more firmly; they do not have even the theoretical upside potential of private equity investments. In the words of the famous question to J.P. Morgan, NONE of the customers-investors in private debt funds have yachts!

The public stock market is also overvalued, partly because of the appalling fashion for stock repurchases, which are simply a scam rewarding management with stock options at the expense of ordinary investors. However, the fashions for Artificial Intelligence and its associated “data centers” have created an additional bubble of their own, very similar to the “fiber-optic cable” overcapacity of 2000.

Not only are data centers fashionable, but the “Big Beautiful Bill” of last July allowed big companies to write off 100% of their capital investment in them. Since corporate behemoths are not allowed to pay negative tax, there has been a vigorous market in selling data center tax benefits to companies that still have tax capacity. That is why U.S. corporate tax receipts fell by 27% in the 6 months to March 2026 – with state and local tax incentives as well, a grotesque glut of data centers is being created. In theory excess data centers will come in useful in the long run, just as did fiber optic capacity, in huge glut in 2001 causing several bankruptcies, but filling up its capacity by 2010. However, there is one difference: ten-year old fiber optic capacity is almost as valuable as brand-new capacity, so a glut can be worked off over time. Conversely, ten-year old data centers are at least a couple of “Moore’s Law” generations out of date, so about as useful as a ten-year old laptop. Thus, the data center glut will have much less long-term value than did the 2000 fiber optic glut.

Ludwig von Mises explained in the 1920s what must happen when there is a glut of investment: it must be liquidated, sold for a tiny fraction of its cost or bulldozed, and huge amounts of money, both debt and equity, must be written off. That will almost certainly bring us a “triple-whammy” version of the 1930s. One can only hope that the global political reaction to the slump this time around will be less disastrous than that of the 1930s, which brought FDR but also Hitler. Even in the best case however Elon Musk can have little hope of being treated better than his 1920s/30s equivalent Andrew Mellon, who was hounded into his 1937 grave by the IRS.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: The Asset Price Distortion Bubble appeared first on True Blue Will Never Stain.

Warsh’s desire to cut the Fed down to size is wholly admirable. Total staffing at the 12 regional banks is a staggering 24,000, with 3,000 at the Board of Governors in Washington DC. This is far more than is required to implement and design monetary policy, although to be fair the overstaffing goes back a long way – total staffing of the System peaked at around 30,000 in the early 1970s – presumably there were football-pitch-sized rooms full of “comptometer girls” solving the complex monetary equations dictated by Keynesian theorists.

Nevertheless, the grotesque $3 billion cost of what is supposed to be a mere “renovation” of the Fed’s main building indicates that bureaucratic bloat has got entirely out of hand. The Fed is supposed to be “self-financing” but the $200 billion accumulated deficit resulting from the Fed’s oversized balance sheet and its inept management of monetary policy suggests that these Pharaonic additional burdens should not be imposed on long-suffering U.S. taxpayers.

There is a more important structural problem. When the Federal Reserve was created in 1913, its Board of Governors was placed in Washington, as part of the Woodrow Wilsonian Progressive urge to enlarge the Federal government and bring all possible activities under its wing. Initially, this structure proved thoroughly artificial; the power through the 1920s rested with the head of the New York Fed (Benjamin Strong until his death in 1928) who took responsibility for dealing with the money markets, then as now domiciled in New York. Only after the New Deal did Fed power truly become centered in Washington, initially subordinated to the Treasury, but from 1951 a fully independent agency.

This presents an immense cultural problem. Washington DC votes overwhelmingly Democrat, by 90.3% in the Harris/Trump contest of 2024, and the inner suburbs of Montgomery and Arlington Counties are little better. (Fairfax County, Virginia was marginally Republican when I moved there in 2000, but it soon swung overwhelmingly Democrat, to the great detriment of my son’s secondary education, as the Federal bureaucracy and its lobbying and NGO nexus expanded under the leftist Presidencies of George W. Bush and Barack Obama.) As a result, the cultural and social miasma forcing even top-level Fed officials to the Left is overwhelming, and difficult for them to resist, especially under a feeble Chairman like Powell.

The 0.50% interest rate cut in September 2024 was a grave example of this. The markets did not expect any more than a 0.25% cut, if that, as inflation was still well above the Fed’s absurd 2% target. There was thus neither economic justification nor market demand for the larger cut, which can only have been made to goose the markets and provide a better economic environment for the November election of President Biden’s successor Kamala Harris.

A stronger Fed Chairman like Warsh might be able to resist such pressures, but with 3,000 staff the blizzard of leftist muttering and media leaks around the building if he did so would make life very difficult (and the other Fed Governors would not necessarily be so strong-minded). The solution is to move the Fed Board of Governors to one of the outlying Federal Reserve Banks whose politics are not perverted by location in a big-city ghetto. Kansas City, host of the Jackson Hole annual gathering and home until recently of the admirable President Esther George, would seem ideal, but there are also arguments for St. Louis, home of the best Fed collection of economic statistics.

In such a location, there would be no pressure on local staff to adhere to the Left, so Fed monetary policy decisions would be taken with political impartiality, as they should be. Staffing would not be a problem; those wishing to make a career with the Fed would find Kansas City restaurants and amenities perfectly adequate and real estate costs and commuting times much lower than in Washington – their children’s education would also be much improved. The separation of the Fed Board from the political nexus would further its independence from bullying by the President or Congress, while it would be little more remote from the money markets of New York than it is currently; in any case air travel and modern telecommunications have shrunk intra-U.S. distances and journey times to a trivial level.

Turning to monetary policy, Warsh has already expressed his wish to cut down the size of the Fed’s balance sheet. There is no advantage whatever in the Fed’s recently renewed program of quantitative easing; it monetizes the Federal budget deficit by laundering it into risk-free deposits with the Fed by the big banks. It also makes it far too easy for the slobs in Congress to carry on spending. The interest-bearing dross on the big banks’ balance sheets is easy risk-free money, therefore a direct subsidy to doing no corporate lending, which vitiates the banks’ purpose for existence.

At the very least, Warsh should resume the program of quantitative tightening that was abandoned last December, selling $40-50 billion of bonds per month into the market to reduce the Fed’s balance sheet from its current $6.9 trillion. To reduce further the drag from the Fed’s past QE, he should also reduce the interest paid on bank deposits with the Fed to no more than 2%, even while he keeps the official Federal Funds rate at its current level. That will please Trump’s desire for lower interest rates, while ensuring that the rate lowering does nothing to feed inflation but merely reduces an unnecessary subsidy to big banks.

Even more important than reducing the Fed’s balance sheet, however, is changing its inflation target to zero. As this column has frequently reiterated, the current 2% inflation target doubles prices every 35 years and prevents ordinary savers from planning their long-term futures. This is especially the case if, as at present, the Fed frequently misses its target on the upside and then makes no attempt to recapture the excess inflation it has created. Even President Trump’s eccentric objective of lower nominal interest rates would be assisted by the Fed having an inflation target of zero, since nominal rates would decline over a year or two to the current level of long-term real rates in the TIPS market, i.e. 2.6%-2.7% compared to the current 10-year Treasury yield of about 4.3%. The 2% inflation target resulted from Fed Chairman Ben Bernanke’s absurd phobia of deflation, which rested on ignoring the healthily deflating U.S. economy of the 1880s, which saw sharply rising living standards and excellent economic growth. The irrational and damaging manias of past Fed Chairmen must be swept into the trash where they belong.

There are other Warsh reforms that make sense. He wants to eliminate the published “dot-plot” forecast of short-term interest rates made by FOMC members. This is a sensible reform, because the dot-plot shows FOMC members to be absolutely lousy interest rate forecasters, which you would expect but monetary magic requires should not be advertised.

Outside monetary policy, Warsh is absolutely correct that the Fed should have no role in regulating “climate change” or in managing the Consumer Financial Protection Bureau, currently under its responsibility. It is also not very good at banking regulation, which can be left to the Office of the Comptroller of the Currency and the FDIC – having three separate agencies regulating banks is asking for trouble, and removing duplication will also reduce costs.

As for the newly refurbished Fed building, it can be sold for condominium development, turned into convenient downtown luxury residences for Washington’s army of lobbyists – preferably overpriced, to reduce unearned lobbyist wealth.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: An Agenda for Kevin Warsh appeared first on True Blue Will Never Stain.

The Iran war is currently estimated to have cost some $60 billion over its 50-day life, but its long-term costs would be at least double that, even if it were to end tomorrow. Not only does very expensive U.S. armament and ammunition have to be replaced, but the pensions, veterans’ benefits and disability costs of the soldiers and support staff will add a tail of long-term costs that will double the up-front costs of their deployment. $100 billion is thus almost certainly too low as an estimate of the 50 days of war’s total costs, although $200 billion is probably too high.

If the war drags on, it can be expected to add some $20-40 billion in cost every ten days, with a truly prolonged deployment pushing towards the higher end of that range as additional “rush” orders for ammunition will be needed, and some equipment will be destroyed and must be replaced immediately, rather than on the normal schedule, which will add greatly to its cost.

If the U.S. were running close to a balanced budget, this would not be a major problem – even $400 billion is only about 9% of the year’s Federal revenue, or 1.3% of GDP, so could be easily financed, as were regional wars in past eras. The problem is that according to recent Treasury figures for the October-March period, the Budget deficit for the first half of the year to September 2026 was $1.17 trillion, lower than in the last months of the profligate Biden era but suggesting that the full year’s deficit will be at least $2 trillion, yet another year, the fifth in the last six where it has run close to or above this dangerous level.

On the revenue side, decent economic performance has increased personal income taxes, and tariffs are making a very significant contribution, $167 billion in the six months, or probably around $350 billion in a full year. The problem is corporate taxes, which in a year of solid growth and record corporate profits were down by 28% from the previous year, a shortfall of $45 billion for the six months or close to $100 billion in a full year. Contrary to the whining in the liberal press, the One Big Beautiful Bill Act last summer did not give too much away on individual taxes (the individual income tax yield was up a healthy 9% from the previous year) but it allowed the corporate lobbyists to get away with murder. In particular, they were given immediate expensing of capital equipment (such as the ubiquitous data centers, whose tax breaks are almost certainly leading to massive overbuilding) that economically lasts for 5 years or longer, and should be depreciated over its useful life, as we were all taught in business school.

The lobbyists for big corporations always see a Republican administration as a license to exercise their prerogative of unlimited and unjustified greed. One had hoped that the arrival of an intelligently populist second Trump administration would counter this, but as in the 2017 tax act the greed of big corporations has been allowed to override the need to balance the budget or the burdens on more modestly remunerated companies and citizens.

In the year to September 1996, corporate taxes totaled $172 billion, 11.8% of total government receipts or 2.1% of 1996 GDP of $8.2 trillion. This year corporate taxes will yield only 4.9% of total tax receipts or about 0.7% of 2026 GDP. Corporate profits are higher in real terms now than they were in 1996; it is thus a disgrace that large corporations have been allowed to get away with sloughing off about two thirds of their appropriate tax liability on the long-suffering public or their smaller brethren. Dozy Republican legislators pass these grotesque handouts to the giant monopolistic multinationals and then wonder why their “tax cutting” budgets are not better rewarded by the hard-pressed electorate.

With deficits already far too large, public debt soaring rapidly past 120% of GDP and the “Social Security Trust Fund” emptying around 2033, the strain on the U.S. fiscal position is great and another $400 billion from a medium sized war will make it even greater. The cost of this will not come in immediate default, but in an increasing cost and difficulty of the U.S. Treasury raising new debt, especially with a long-term maturity. At some point, the succession of deficits will cause the U.S. fiscal position to enter a “death spiral” of higher borrowing costs and restricted investor appetite, leading to inevitable default and destruction.

The Fed is attempting to prevent this happening, by starting a new round of “quantitative easing” bond purchases of $40 billion per month in December 2025. These purchases artificially hold down long-term yields, albeit at the cost of stoking inflation and restricting bank lending to small businesses, since the purchases are funded by massive deposits with the Fed from the banking system. The Fed’s balance sheet, currently around $6.5 trillion, is also blown up by these purchases; when the inevitable inflationary surge occurs and the bond market raises interest rates to counter it, the Fed will suffer yet more huge losses on its bond holdings on top of the $210 billion already accumulated, which will form yet another burden on unfortunate U.S. taxpayers.

The current game of the Fed balancing the bond market against the effect of huge budget deficits by buying long-term Treasuries (totally contrary to all sound principles of central banking) cannot last forever and its vulnerability is already indicated by the behavior of the TIPS (Treasury Inflation Protected Securities) market. Here the yield on long-term TIPS, with maturities of 2048 or later, is consistently above 2.6% and on many days reaches 2.7%. That is a much higher yield than has ever been seen in the history of this market (at least, for the last 25 years since the market has been mature) – for most of the 2012-22 period market yields here were well below 1%, as the Fed was buying aggressively here, too.

Such high yields have serious implications for the cost of financing U.S. debt in the future, since they represent real yields, the nearest we have to a “Gold Standard” bond yield. There is also a notable yield curve; bonds with maturities of 10 years or less yield at most 1.8%. This suggests the high yields at the long end of the curve reflect a substantial default risk – the market thinks there is little chance of the U.S. Treasury defaulting before 2036, but a much higher chance of a default by 2048 or later.

Since nominal 30-year bonds yield only 4.85%, the assumed rate of inflation over the next 30 years is a mere 2.2% — with the Fed inflation target at 2% and the misses being all on the high inflation side, this is far too low a level. Once the Fed stops buying bonds (which it should do as soon as possible), the true expected rate of inflation and the true expectation of default will be built into long-term rates, pushing the 30-year Treasury yield to around 6%, even if the temporary blip in inflation produced by the Iran War has not embedded itself into the system. The budgetary implications for such high financing costs are dire.

There are several things the Treasury can do to alleviate this problem, put U.S. government debt on a sound long-term basis, and remove the default risk from long-term Treasuries. It can avoid both excessive defense spending and new wars. It can fight fraud and waste aggressively, making sure that last year’s defunding of USAID and Planned Parenthood is held in place and reaming out the Medicaid and food stamps programs. It can codify tariffs into the revenue base, so that they yield a steady and increasing $400 billion a year – the Treasury needs the money and it is monstrous that individuals should be expected to bear more and more of the burden of the state’s profligacy. (In this context, the Supreme Court forcing the government to refund Trump’s initial tariffs to large multinationals but not to consumers is yet another grotesque bias of the system in favor of the politically powerful and against ordinary people.) In this context, Treasury should also return corporate tax to around its 1996 level, in terms of GDP – an annual yield from large corporations of $650 billion rather than $200 billion will make a very useful dent in the deficit.

Finally, the Treasury can remove all the tax benefits currently received by the odious “nonprofit” sector, which currently represents around 6% of GDP — the charitable tax deductions for billionaires are an especially noxious loophole in the system and tax relief for non-profits is a huge subsidy to the destructive Left. Drastically shrinking the non-profit sector will greatly sweeten our political dialogue and increase the productivity of the economy, as well as yielding some $450 billion (25% of 6% of GDP) annually to the Treasury. Together with tariffs and proper corporate taxes, it will go a long way to closing the Budget deficits that imperil the future of us all.

The Iran War was a mistake; we all make them. Using the crisis in U.S. finances which it will exacerbate to solve the fiscal problem once and for all will enable the U.S. to prosper greatly and achieve a strength that makes further such wars utterly unnecessary.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: The Costs of Prolonged War appeared first on True Blue Will Never Stain.

In theory, higher defense spending provides the spender with greater security in a naughty world. In a bipolar world, where the other pole is controlled by a regime with a lunatic and self-destructive notion of economics, this worked well. President Reagan’s defense buildup in the 1980s, in particular his foundational work on the defensive Strategic Defense Initiative, nicknamed “Star Wars” by the Left who were as destructive as ever, was highly effective, because Russia could not economically afford to match it. The Soviet economy, even on its official and overstated figures, had by the 1980s fallen far behind the United States, and a hyper-expensive new weapon system that would need to be spread over the vast area of the U.S.S.R. was completely unaffordable. Accordingly, even the beginning of Reagan’s U.S. defense build-up brought the U.S.S.R. to the negotiating table and eventually brought about its economic collapse through the non-viability of its economic system.

We are not today in such a world. China is economically becoming quite comparable to the United States (albeit less strong than it claims). China’s economic system, while very inefficient, cannot realistically be called Communist and does not have many of the defects of that despicable doctrine – the EU with its infinite layers of regulation is much closer to the classic command-and-control approach. Indeed, the EU is already almost completely useless as an ally and is likely to become more so, as its irrational obsession with “net zero,” which it obdurately refuses to relinquish, hollows out what remains of its manufacturing capability.

In defense procurement, the United States has developed an incredibly inefficient system, only different from the Communism of the Leonid Brezhnev era in that it lacks the Brezhnev U.S.S.R.’s cost controls and sense of urgency. In an all-out arms build-up race between the U.S. and China, my betting money would be on China, especially if I could get even modest odds.

The U.S. economy is nominally capitalist, but how capitalist can its military procurement be when major military contractors such as Boeing (NYSE:BA) have for many years lacked any capital and still lack tangible capital, because their greedy managements repurchased shares at a massive premium to their current price until the company’s shareholders’ equity fell below zero? In such a situation China’s nominally centrally planned military, many of whose supplying companies are privately owned and have balance sheets that are not mere figments of the imagination, may well have an advantage.

An arms race with more than one potential participant capable of winning is something we have seen before: it was the world of roughly 1897-1914, as exemplified by the board game “Diplomacy.” All the major powers began building up their armaments roughly simultaneously in the late 1890s. Over time, the global concert of powers, which had previously arranged itself in a kaleidoscope of alliances, became organized into two opposing blocs, with Germany, Austria-Hungary and Turkey on one side and France, Russia and later Britain on the other. Italy was initially neutral, the United States was independent, but over time inclining to Britain, while Japan was driven towards Britain by its desire to resist the Asian expansionist ambitions of Russia, which it did in the Russo-Japanese War of 1904-05.

From 1905, Europe suffered from a series of crises – Morocco, Bosnia, Agadir, the Balkan Wars – each of which ratcheted up the tensions between the Great Powers and caused them to raise defense spending further, tightening the terms of conscription and building turbine-powered “Dreadnought” battleships. Apart from bloating government, weakening economic growth and creating corruption, this strengthened the political position of the military, especially in Germany, Austria-Hungary and Russia, where constitutional government was weak. Generals like the younger Helmuth von Moltke (1848-1916) in Germany and Conrad von Hötzendorf (1852-1925) in Austria grew overmighty, while in Russia the assassination of the capable Pyotr Stolypin (1862-1911) threw government largely back into the hands of the inept Tsar Nicholas II. The only rational Russian anti-war voice in the 1914 crisis was Tsarina Alexandra’s mystic Grigori Rasputin (1869-1916), who had a much better idea than the Tsar and his ministers of opinion among the rural masses and knew the danger of making them suffer through a European conflict.

The blame for war in 1914 was widespread – Germany was less to blame than most, although von Moltke wrongly saw it as a golden German opportunity. France, thirsting for revenge for 1871, and Russia, appallingly run and needing to mobilize before everyone else because its railways were so inefficient, should bear far more of the blame than they have normally received. So too should Britain’s Foreign Secretary Sir Edward Grey, a slow-witted and idle man who disliked foreigners in general and sat supinely in London while crisis loomed.

However, the most aggressive Great War instigator was Hötzendorf, the Sen. Lindsey Graham (R.-S.C.) of his day, who had attempted to start a war with Serbia 25 times over the previous decade and saw Archduke Franz Ferdinand’s Serb-instigated assassination as a golden opportunity to do so. Like most neocons, Hötzendorf was inept at actually fighting the war, dithering over whether to send most troops to Serbia or to Galicia to hold off the Russians, so that a third of the Austro-Hungarian army meandered on months-long railway journeys between the two fronts and were no use to either, resulting in Austro-Hungarian defeats everywhere.

As the above outline shows, none of the statesmen of July 1914 wanted to precipitate World War I; they would have been insane to have done so, since most of their regimes would be destroyed by it. That illustrates the chief danger of high armaments spending and the increased probability of wars to which it leads: the “tail risks” of disaster that such policies entail.

The U.S. involvement in Vietnam demonstrated this. At each stage, from Eisenhower’s initial deployment of advisers in 1960 to Lyndon Johnson’s manipulation of Congress’s “Tonkin Gulf” resolution in 1964, the nominal decision being taken was for only a modest additional commitment to the Vietnam conflict beyond what was already in place. Yet each U.S. commitment made it more difficult, militarily and politically, for the U.S. to withdraw, and increased the probability of an additional more costly commitment being required later. Hence even Eisenhower’s small first commitment had large “tail risks” of massive U.S. costs and losses that appeared initially to have a low probability. Proper analysis would have greatly increased the expected costs of the apparently modest decision being taken and would perhaps have reversed it.

The current Iran conflict shows many of the same “tail risk” characteristics, which is why I was doubtful about President Trump’s decision to enter it. The nature of the government that runs Iran is of little importance to the United States, which does not depend on Middle East oil, and the “tail risks” of a prolonged conflict are truly frightening – including simply the downside risk of handing the United States back to the Democrats electorally before they have learned their lesson as they did in 1981-93, so that they will not repeat their catastrophic policies of 2021-25. The one big advantage we have in the Iran conflict is Trump’s blessed ability to “TACO out” and cut his losses, as his predecessors notably did not do in Iraq, Afghanistan and indeed Vietnam.

A massive increase in defense spending will encourage the Hötzendorfs that infest current U.S. political life, especially in the Bush neocon anti-Trump wing of the Republican party. It will also bring equivalent increases in defense spending in China, Russia, India, the EU and other potential adversaries, thereby greatly increasing the risk of further wars, as in 1897-1914. No, thank you!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: The true costs of a $1.5 trillion defense budget appeared first on True Blue Will Never Stain.

Big cities have never been paradise, yet they are necessary for many activities that require intense personal interaction between high-level service providers. Thus, the largest banks, investment banks, top-level consultancies and film producers (for example, among others) have most of their staff in big cities, and people who wish to make careers in those well-remunerated sectors are forced to live in those cities in their early working years, thereby greatly compromising their lifestyles. The junior staff who work 100-hour weeks in investment banking are physically unable to spend much of their time commuting, and so must live in the megalopolis where their investment bank is located.

In past decades, this was only a moderate hardship. Rents and real estate prices were excessive, but not so excessive as to be completely unaffordable for those in good careers. Domestic services were abominable, because the service providers could not afford to live anywhere near the customers, but a certain amount of domestic squalor was an accepted part of a yuppie lifestyle until he or she became successful enough to throw money at the problem. The tradeoff between rapid career advancement and domestic comfort was clear. Once you settled down and started a family, you moved to the suburbs or into the country and sold your now finely honed skills to a non-megalopolis entity that would pay less but allow you a suburban or rural location and a decent lifestyle.

Cities themselves were better managed before 2000. In London, between 1986 and 2000 there was no central authority, which offered multiple advantages that I will discuss below. In Paris, a central Mayor was instituted only in 1977, but for the first 18 years the Mayor was the conservative Jacques Chirac, and it was only in 2001 that the socialists took over. In New York, the city came close to bankruptcy, squalor even worse than today’s and mass exodus in the mid-1970s, but real costs then were much lower than today. After January 1978 the capable and apolitical Mayor Ed Koch was quickly followed by the superbly reforming Rudy Giuliani and the only modestly backsliding (if overspending) Mike Bloomberg, so only in 2014 did the city resume its decay, this time with an infinitely higher level of costs.

The poisonous interaction between real estate costs and excess immigration is responsible for much of these cities’ decline. “Funny money” interest rates – the attempt by the Ben Bernankes of this world to suppress debt costs far below where they would settle in a free market – inevitably cause an endless spiral of real estate prices that pushes big city dwellings far beyond the means of ordinary people. The follies of globalization ensure that innumerable foreign predators with stolen billions enter the local real estate markets to push top-end prices up still further.

At the low end, grossly excessive legal and illegal immigration, mostly poor quality, both wreck the supply/demand balance for real estate and cause the crime, filth and other social pathologies of big cities to soar. With poor control of illegal voting, the entering riff-raff rig big-city elections perpetually in favor of the left, which causes the “salt of the earth” blue collar workers to leave the cities and move to somewhere else less expensive and more civilized – unlike an investment banker, a plumber has no employment reason to continue battling the pathologies of New York, London or Paris. The result is a death spiral, steadily worsening and irreversible without structural reform.

There are some solutions available to alleviate the problem. De-globalization will reduce the wealth of international criminals and shysters, leaving them only enough to ruin their own countries. Higher interest rates will reduce top-end real estate prices and crash stock markets, thereby redressing the balance between capital costs and wage income that has become so artificially distorted in recent years. As the Trump administration is blessedly proving, solid immigration enforcement with rejection of the leftist special interest bleating and lawsuits will reduce population pressures and crime problems. (Reducing excessive legal immigration, for example by abolishing the U.S. H1B/H2B visa programs, would both increase wages and reduce demand for big city real estate, further lessening the structural cost problem.)

There is however an additional political step that must be taken, more important than all the others, and that is to remove the central administration of the big cities and devolve them into their component parts, which can then compete with each other to improve services and reduce costs for their voter-residents. Centralization of city government under a single “Mayor” allows leftist tyrants to become embedded, building their empires of excess bureaucracy and imposing additional levies upon voters in the form of “congestion charges” and fines for politically disfavored behavior.

In London, for example, after centuries of local self-government, a central body, the London County Council was created in 1889; in 1894 the great Lord Salisbury described it as “the place where Collectivist and Socialistic experiments are tried; the place where a new revolutionary spirit finds its instruments and collects its arms.” In one of her finest acts of statesmanship, Margaret Thatcher abolished its successor body, the Greater London Council, by the Local Government Act, 1985. From then until 2000, London grew in prosperity as it never previously had since 1889, while crime and social pathologies steadily declined.

Alas, Tony Blair could not forbear to meddle, as he did everywhere else, so in 2000 a new Mayor of London was created, supposedly with very few powers, the first being the ineffectual leftist Ken Livingstone. Needless to say, once the Mayor existed, he found ways to increase his power and revenues, until now Sadiq Khan, hard-left Mayor since 2016, is arguably more important than the feeble Keir Starmer, and has found infinite ways to add illegal immigrant voting fodder to London’s welfare rolls and drain the wealth from its remaining productive citizens.

Paris acquired a Mayor only in 1977, before which it had been controlled directly by the central government, with each of its 20 arrondissements having its own mayor and handling local matters. Only for periods of less than six months in 1848 and 1870-71 and five years in 1789-94 did a Mayor of Paris exist. In 1789-94 the office was a poisoned chalice, with three of its five incumbents dying violently, two by the guillotine and one by suicide to avoid it – presumably after 1794 they could not find anyone to take the job. As in London, devolution to the 20 arrondissements is thus entirely feasible, and not without historical precedent.

New York is the most difficult case of the three, since the five boroughs were amalgamated as long ago as 1898. Nevertheless, the fact that the world’s richest city was close to bankruptcy in the 1970s is a strong indication that centralized government has worked little better in New York than in London or Paris.

In all three cities, the best administrative solution is to remove the centralized superstructure with its politician Mayor and devolve administration to the local level. That would give 20 arrondissements governments in Paris, each with its own Mayor, possibly with a few centralized authorities for strictly limited shared facilities such as transportation. Similarly, London could administratively be divided into 32 boroughs plus the small “City of London” financial district, as between 1985 and 2000, with the Lord Mayor of London having jurisdiction only over the City of London, but acting as ceremonial representative of the other boroughs for the Lord Mayor’s Show, presenting the Freedom of the City to foreign dignitaries, etc.

In New York, devolving into five boroughs leaves each unit administratively too large, and would allow Manhattan to dominate the other units, economically and governmentally, since most of the city’s wealth would be generated there. Instead, a split should be devised to give each neighborhood self-government, perhaps into about 20 divisions, as in Paris. Given its economic importance, Manhattan might have 8-9 divisions, while Staten Island on the other hand might be unitary (since it is politically fairly homogenous, and distinct from the rest of New York). Within Manhattan, the Wall Street financial district might be separate, like the City of London, since its population is limited and its financial strength great, while the other districts’ boundaries would be roughly equal in size and distinctive in political/social composition. The other boroughs would be divided similarly, perhaps 5 divisions for Queens and 3 each for Brooklyn and the Bronx.

With the cities so subdivided, it would become impossible for leftist central authorities to impose damaging economic and social policies on the entire city. Instead, each individual division would formulate its own policies, and they would quickly become distinctive. In Paris, the 19th, containing the Boulevard Stalingrad, would follow the strict Marxist principles of the Soviet Union’s terrible heyday, while the 16th, containing Avenue Foch, would be a “paradise” of gentry liberalism. Somewhere among the other arrondissements, havens would grow up both for young careerists and for blue-collar social traditionalists, none of whom would have to leave the city to find an arrondissement it liked.

Similarly in London, Islington would be a paradigm of gentry liberalism, while Bromley would retain its traditional middle class outlook on life, with much lower taxes and no congestion zones. If the Islington government wished to attract legal and illegal immigrants aggressively, it could do so, albeit at the cost of repelling the local upwardly-mobile professional class.

In New York, the various Manhattan districts would sort themselves politically, probably mostly following the general views of current Mayor Zohran Mamdani. The Bronx, Brooklyn and Queens would sort themselves into a wild variety of ethnic groups and policies, with upwardly-mobile career professionals finding several alternatives, even within the city of New York, where mildly progressive policies would be combined with varying levels of tax and regulations. As for Staten Island, it would become a refuge for New York’s blue-collar population and the cleverest of the young professionals, who would find the modest commute to Wall Street on the Staten Island Ferry a small price to pay for social conservatism, low taxes, better services and affordable real estate.

In all three cities, taking a job with the most exciting large employers would no longer mean subjecting oneself to a lifestyle Devil’s Island, as it does today. Except for a few Leninist ghettoes, those cities would flourish as they have not for the last quarter-century, providing the rest of their countries and the world with the blessings of their wealth and enterprise.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: The filthy Hellholes of the Left appeared first on True Blue Will Never Stain.

Before 1914, there was no generally agreed rule prohibiting aggression against small and medium sized states, although if a small state had a Great Power protector, it was wise to warn that protector before undertaking such aggression. Thus, Austria’s ultimatum and subsequent aggression against Serbia in 1914 was entirely permissible, given the Serbian-backed assassination of Archduke Franz Ferdinand. Under the unwritten rules of that period, Russia grossly overreacted to Austria’s actions.

When Russia invaded Ukraine in 2022, a global chorus of bleating appeared, claiming that such aggression was unprecedented, and the subsequent Western overreaction was ferocious. Intellectually, that made no sense; the United States had invaded Afghanistan in 2001, Iraq in 2003, Libya in 2011 and Syria in 2014 and was to invade two more countries, Venezuela and Iran, within two months in 2026. Thus, there was no case in principle for deeming Russia’s action improper.

Ukraine’s 2022 borders had been set by Kaiser Wilhelm II at the Treaty of Brest-Litovsk in 1918, pushing the Ukraine/Russia frontier eastward as far as possible in order to weaken Russia, the Kaiser’s primary objective. For the next seven decades, this did not matter because the eastern frontier of Ukraine had no international significance, being merely an internal border deep within the Soviet Union. The Eastern third of Ukraine was primarily Russian-speaking and had very different economic and social characteristics to the Western part of the country. In Western Ukraine, there was also a significant divide between the parts centered on Kyiv and Odessa, part of the Russian Empire since at least the 18th century and the part centered on Lviv/Lemberg, historically part of the lost civilization of Austria-Hungary.

When I first wrote on Ukraine in 2007, long before there was any conflict, I noted that Eastern Ukraine was politically very different from the rest, being a staunch supporter of neo-Communists, as one would expect given its heavy industry heritage. Consequently, as the decade after 2004 showed, it was impossible for Ukraine to develop a stable reformist government, as indeed was demonstrated by the free election of 2010, which the neo-Communist Viktor Yanukovych won, promptly imprisoning his leading opponent, the reformist Yulia Tymoshenko.

Given the decades-long lack of negotiation with Russia over the inexorable expansion of NATO and the ostracism the Obama administration and the EU placed on Russia after the invasion of Crimea (historically always a Russian territory) it is not surprising that Vladimir Putin grew weary of Western shillyshallying and obfuscation, with the carefully negotiated 2014-15 Minsk Agreements never implemented, and invaded Ukraine in 2022. The West then extraordinarily over-reacted, pouring armaments into Ukraine to combat what Putin had intended to be a limited incursion –he had devoted only 100,000 men to it initially and he attempted to reach a peace agreement within a month.

As well as fostering an Eastern European re-run of World War I, the West violated the property rights both of the Russian people, whose dollar central bank reserves were stolen and those of foreign investors in Russia, whose holdings (including modest positions of my own) were thrown into a black hole. Most important, foreign companies that had invested in Russia, such as the Austrian Raiffeisen Bank, which had built up an excellent position as the strongest foreign bank in Russia, were forced to sell out.

The priority now must be to end a war that should never have started. It appears that Ukrainian dictator Volodymyr Zelenskyy is the principal obstacle to this; accordingly, he must be removed, by whatever means necessary, so that the fearful slaughter can be ended forthwith and eastern Ukraine put under Russia’s protection. Once that is done, properly supervised elections should forthwith be held in the remainder of Ukraine, so that a President can be elected with proper legitimacy – clowns and comedians should automatically be disqualified from running, as they will like Zelenskyy be stooges of the neo-Communists.

The truth is that the Western governments which took those statist, draconian and ill-judged actions in 2022 were further from the liberal democratic ideal than is Putin’s Russia. The EU is no longer a bastion of democracy; (at the center, it never was) it steals elections in Romania and elsewhere when it doesn’t like a particular candidate. Most EU governments now imprison private citizens who express views they don’t like, as disgracefully in view of that country’s traditions does the UK – most other European countries have a tradition of free speech that is less than a century old and was interrupted by its total negation in World War II, but Britain’s goes back to 1695 and was foundational in the creation of the United States. Most important, while the Russian economy remains more or less a free market (albeit with an erratic government and absurd amounts of corruption) EU countries, almost equally corrupt, are slaves to fanatic regulators and environmentalists who have no compunction in destroying their countrymen’s property rights and living standards.

The enthusiasm of the EU for regulations has had the expected effect on its economies; with the exception of the Eastern European countries whose living standards were pulling themselves up from Communism, the union has had effectively no increase in living standards since 2007. Given the uncontrolled Third World immigration from which the union suffers, which increases all kinds of social pathologies and draws massively on social benefits without contributing much to the economy, and the tax increases that has caused, the native populations of the western EU have been growing steadily poorer – and the eastern EU will now be joining them in stagnation, as the arbitrage effect of its low labor costs ebbs away.

Stagnation at a relatively high standard of living is not the worst fate for a population, but unfortunately economic stagnation is unstable. With no obvious benefits to voters from the free market and solid property rights, while endless bureaucratic attacks of further regulation swarm in, living standards decline and conflict between the native population and the new arrivals begins to increase. Voters are seduced by leftist dreams, as with the election of the inexperienced Marxist Muslim Zohran Mamdani as Mayor of New York. With no effective guardrails for property rights and the rule of law, and governments assuming the right to censor and imprison their political opponents, it is easy to see how an economic death spiral can occur, more damaging to the lives of the population than all but the most devastating of wars.

Unlike in 1914, there are several dangerous ideologies that might bring destruction, some of which as in Czarist Russia are endemic in the education system and among the intellectual classes. The least dangerous of these is Islam, albeit mixed with a poisonous brand of anti-Semitism that as in Czarist Russia and the Third Reich exacerbates other ideological ills. Islam itself is well understood and not especially dangerous. As it moves through the 15th Century of its calendar, it can be compared with Christianity at the equivalent epoch, no longer inspiring mass Crusades but still capable of vastly damaging and bloody internal schisms.

More dangerous than Islam is socialism, not the mild rationalist version of the British Fabian Society and the German Social Democrats, but the intensely anti-capitalist mania of Leon Trotsky and Rosa Luxemburg. This has been incubated in Western universities, which in the last 30 years have lost their ideological diversity and have become bastions of left-groupthink, buttressed by their comfortable salaries and academic tenure from any untoward market influences.

The pathetic belief of the 1990s that Communism had been discredited forever by the failures of the Soviet empire has now been utterly exploded. Pressure-cooked in the most prestigious universities, we have now generated a cadre of young people, especially women, whose jobs depend very little on market institutions – the pernicious nonprofit sector, growing like a cancer through its unwarranted and excessive tax privileges, is a prime incubator of this civilization-destroying bacillus.

If civilization wishes to survive, it must impose draconian punishments on those who finance its destruction e.g., the Soros family and similar. Only by doing so will civilization fight its enemies, such as this week’s UN resolution demanding reparations from Britain but not the Arab countries for slavery. Capturing institutions with apparent legitimacy like the UN and the international courts and through them leveraging weak liberal guilt has been a favorite tactic of revolutionaries since Trotsky.

However, the most destructive ideology prevalent today is environmentalism, especially in its “climate change” garb, utterly impervious as it is to rational refutation. To some extent, environmentalism is merely the tool of socialists, who use it very much as Rosa Luxemburg used the general strike, to foment economic destruction and thereby advance revolution. While some statesmen are coming to realize the nature of this scam, like German Chancellor Friedrich Merz, who has now admitted the closure of German nuclear power stations, ordered by his apparatchik predecessor Angela Merkel, was a “serious strategic mistake” the majority are still besotted by “climate change.” Britain’s Ed Miliband, in the interest of achieving “net zero” by 2050, refuses to allow drilling for oil and gas either onshore or offshore, even though Britain’s power supply arrangements are otherwise laughably inadequate, especially given disruption in the Strait of Hormuz. The difference between socialism and environmentalism is this: as the Soviet bloc showed in 1989-91, socialism can be reversed, while environmentalism requires the destruction of politically disfavored equipment, and hence may well be impossible to recover from.

As well as global war, probably fairly unlikely at least while President Trump is in office, there are several current threats that would destroy our civilization far more completely than World War I. We can thus envy our ancestors of 1914, who only through utter ineptitude ended the greatest century of progress that Humanity has ever known.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: The true dangers to our happy future appeared first on True Blue Will Never Stain.

“The Population Bomb” was not ill-timed. The greatest rates of annual human population increase in history occurred between 1955 and 1975, when global population increased by 1.8% per year. As Ehrlich outlined, this imposed extraordinary costs on the global economy, especially in terms of education, infrastructure and housing, the provision for which in poor countries fell hopelessly short of their explosive population growth.

No amount of flim-flam can eliminate this reality; a population that is growing as quickly as that (let alone the 3%, 4% or 5% rates seen in many poor countries) will spend excessive amounts of its wealth merely to stand still in housing provision, and will produce a succeeding generation of uneducated louts whose most likely fate is involvement in terrorism or at best the illicit drug trade or prostitution.

Where Ehrlich went wrong was to identify food as the constraint that would first produce explosively unpleasant worldwide results. The same year Ehrlich published, Norman Borlaug’s (1914-2009) Green Revolution was officially christened — Borlaug’s Nobel Prize came two years later. Borlaug had begun applying high-yield seeds, modern artificial fertilizers and modern pesticides to agriculture in Mexico from 1944, building on techniques and seed varieties developed by Vice President Henry A. Wallace (1888-1965) and his company Pioneer Hi-Bred International. Within a few years Mexico had ceased to be a food importer for the first time since the fall of Porfirio Diaz in 1911; alas, its excessive population growth made it slip back into being an importer of staples in the 1990s globalization mania. In the 1960s, funded by the Rockefeller Foundation, Borlaug introduced his techniques to the Indian subcontinent, where they were equally successful and were thereafter spread worldwide. Global deaths by famine have fallen since 1980 to a small fraction of the 1960s level.

In this area, Ehrlich has been proved definitively wrong. The advances in agricultural technology have made the world more capable of feeding 8.3 billion people today than it was of feeding 3.4 billion people in 1968 – the average calorie intake worldwide today is considerably higher. In the same way, the Industrial Revolution, already well under way in England in 1798, proved Thomas Malthus’ predictions of starvation generally incorrect, since new techniques of production and transportation increased output sufficiently to make 3.4 billion people on average enjoy far higher standards of living in 1968 than the world’s population of 1 billion enjoyed when Malthus wrote.

The disadvantages of population growth, however, spread far beyond food availability. This column in 2013 looked at Egypt, a country that has been economically declining relative to the world ever since Cleopatra left, and compared its state in 1912, with 12 million people to that in 2012, with 85 million people (its population in 2026 is 116 million – even with good government under President Abdel Fattah El-Sisi its problems have got worse). Egypt was historically one of the world’s great granaries, but however good the agricultural technology, its thin fertile strip down the Nile is inadequate to feed its grossly excessive population, although it is still able to avoid famine through imports. In 2013, I suggested that Egypt represented the world’s 22nd century future; if we ignore Ehrlich’s wisdom it very well might do so.

Ehrlich’s solution to his “Population Bomb” was to reduce global population growth to zero as quickly as possible. This could be done by putting contraceptives in the drinking water, imposing Draconian taxes on large families, and sex-selective abortion. Food aid would be cut off to those Third World countries whose population growth was too rapid, and for example Indian males with three or more children would be sterilized.

Most of Ehrlich’s methods of bringing the problem under control involve a level of state meddling which governments are altogether unfit to undertake. To be fair, one program that has been spectacularly successful on a national basis was China’s “One Child Policy”, adopted in 1979 only a few years after Ehrlich wrote, and successful in stabilizing China’s excessive population growth after decades of Maoist profligacy. One possibility that Ehrlich did not suggest was distribution of free contraceptives in the Third World. Another alternative was a program suggested in this column (which agreed with Ehrlich’s overall view) whereby rich countries would fund old age pensions for poor ones, thus eliminating the need for them to have large families to guard against destitution in old age.

To determine the strength of Ehrlich’s contention outside the narrow area of food availability, let us suppose that by some magical process the world’s population had been stabilized at its 1968 level of 3.4 billion, with the proportions between different societies as they were then, without the massive differences in fertility since that date that have outlandishly increased Third World population. Then, the world would be different in the following ways:

• We would be approximately twice as rich. The incremental 4.9 billion population that would not have come into existence was disproportionately poor, uneducated and without much understanding of modern industrial culture. There would also be more resources available per capita, so the massive real rises in oil prices would not have occurred and real estate in the major conurbations would be much cheaper. With environmentalists less powerful (see below) average living standards would be approximately double what they are today, even if the availability of food was only modestly improved.
• Global environmental threats such as climate change would be correspondingly reduced. With only 40% of the population, even if they enjoy better living standards, we would burn only 40% of the amount of fossil fuels and emit only 40% of the pollution. The “Club of Rome” style catastrophist predictions on climate and elsewhere would be completely non-credible and would probably not have been made.
• Without environmentalists, we would have far fewer regulations, and consequently greater productivity growth. Regulations are a direct drag on growth, as the EU and UK have demonstrated over the last 20 years and the United States showed by its sharp decline in productivity growth since 1973, when the EPA began work. Without population growth, environmental constraints would be trivial and environmentalists, having no political credibility, would have to find another line of work.
• We would lose very little in scientific and cultural achievement, since the missing 4.9 billion people, without being totally bereft of such achievements, produce far less of them per capita. With a higher percentage of scientists working on intellectually productive work rather than wokery and more money to support the arts through higher living standards, the differences would not be noticeable. William Shakespeare and Isaac Newton appeared within a century in rural areas in a country with a population of less than 5 million; the population glut of today adds almost nothing to the world’s achievements.
• With global population only 3.4 billion, cities would be far more livable, with fewer homeless, far less congestion and traffic that moved at a reasonable speed. The benefits of this would be seen most clearly in the Third World countries where population has grown most rapidly; a world without slum-infested, gridlocked, crime-ridden unproductive replicas of today’s Lagos is a better world.

In 1971, Ehrlich predicted that by 2000 the United Kingdom would be “a small group of impoverished islands, inhabited by some 70 million hungry people.” Again, he was early, but only by 25-30 years. Famously, in 1980 he bet with Julian Simon that five specified metals would rise in real value over the next decade; a 2022 study of that bet found that in 69 out of 102 possible 10-year bets between 1903 and 2015, he would have won – his mistake lay merely in making his bet at the 1980 peak of a commodities bubble.

If the world got back to the 1 billion population of Malthus’ time, with modern technology and robotics we could all live like 18th century country gentlemen, in beautiful Palladian houses surrounded by rolling parkland. By applying Ehrlich’s wisdom, this is a future we can strive for!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: We should have followed Paul Ehrlich appeared first on True Blue Will Never Stain.

The most important need for China is to remove the oppressive state control and cross-subsidization that has wildly distorted its economy. Ruchir Sharma’s article “China’s growth target is a global problem” in the Financial Times of March 9 sets out elegantly the difficulty with a government stressing the economy to produce an unrealistic 4.5%-5% growth target via subsidized exports that impoverish China’s neighbors and generate a gigantic Chinese trade surplus. The country’s “Belt and Road” investments in uncreditworthy countries over the past two decades are also producing huge losses and further straining China’s economy. The cost of China’s subsidies to exports and Third World investment is reflected in its overall debt, now 340% of GDP, used so inefficiently that it now takes $6 of additional debt to generate each $1 of additional GDP. With China’s workforce not growing, the government’s growth target would require productivity growth of 4.5%-5% per annum, which in China’s inefficient centrally-directed economy is economically impossible in all but the shortest run.

Instead, China must allow the price mechanism and profit motive full rein both domestically and internationally to determine which transactions are undertaken. Exports must no longer be pushed by the government even when they are made at below cost; instead export subsidies must be eliminated so that Chinese goods are sold abroad only when it is profitable for a Chinese company to do so, with no government subsidies involved. Overall, the public sector at both national and regional levels must be cut back; in particular, China must slim down its military spending, nominally 1.7% of GDP but in reality, far higher than that.

Liverpool, in his period in office after the Napoleonic Wars were won in 1815, did precisely this. He cut back the public sector rigorously, with the help of his much underrated Chancellor of the Exchequer Nicholas Vansittart (1766-1851) who made himself very unpopular and despised by intellectuals by his repeated public spending cuts, together with tax increases when they were needed to balance Britain’s distorted post-war Budget. British government expenditure, excluding debt service, fell by three quarters between 1815 and 1822, giving the private sector vastly more room to expand and after 1820 producing an unprecedented industrial boom that massively raised living standards.

Even more important than eliminating subsidies and cutting back the government’s size and control is the question of dealing with China’s mountain of government and private debt. Much of that represents malinvestment of the most egregious kind, such as apartment blocks that remain unfilled because the local citizenry cannot afford to pay an economic rent for them. The malinvestment must be dealt with, being sold at a price reflecting its value or in some cases, such as deteriorated residential housing or factories whose output is uneconomic, knocked down altogether. The Japanese example from 1991-2020 of what not to do is relevant here; allowing a mass of uneconomic assets and employment to continue ad infinitum merely diverts resources from more profitable uses and prevents economic growth and higher living standards from occurring.

Here the example of Liverpool’s government is highly relevant, not only in the innovative solution it found to a similar debt problem, but also in the extraordinarily beneficial result of that solution for the British economy in the long-term. Like China today, Britain in 1815 had a huge debt overhang of about 250% of GDP in government debt plus additional debt in the highly fragmented banking system and over-extended agriculture, both of which had grown excessively during 20 years of war, high grain prices and mild inflation. In 1815, large new debt issues for the Waterloo campaign had left British government debt a gigantic drag on the capital market, its huge size and doubts about its repayment keeping prices low and yields high and throttling other borrowing.

After 1945, the British government faced with a similar debt problem resorted to fiat currency, artificially low interest rates and inflation, reducing the burden of debt in relation to GDP at the expense of ordinary middle-class savers like my Great Aunt Nan, who had foolishly invested in War Loan trusting the government’s promises of sound money. That is similar to current Chinese policy; interest rates have been kept artificially low and debt has been serviced through the financial repression of China’s famously enthusiastic savers.

Liverpool’s solution was different. Instead of inflating the currency to reduce the real level of debt, he deflated it, announcing in advance an intention to return to the Gold Standard at the parity that had governed before 1797, when Britain had been forced to abandon it. By his 1819 legislation that accomplished this, Liverpool eliminated a gold price premium of about 30% over its parity that had existed in 1813-14, producing overall price deflation of about the same percentage over the 1814-24 decade. In response, the price of 3% Consols rose from about 55% of par in 1815 to 90% of par in 1824, producing a massive capital gain for savers who also benefited from the deflation, the opposite effect to that of Britain’s post-World War II policies.

To deflate in face of a huge debt overhang may seem counter-intuitive, but Liverpool’s policy established the pound for the next century as the universal reserve currency for world trade, bringing untold wealth to the City of London, which managed the sterling capital markets. The Gold Standard pound was universally trusted as a store of value and consequently became the instrument for almost all the world’s commerce.

China can achieve the same effect by announcing a Gold Standard for the yuan, especially easy to do currently with gold prices so high and both the Chinese government and private individuals having accumulated a large percentage of the world’s gold reserves. Whereas the yuan, despite China’s dominance in world trade, is currently distrusted by world markets, being a fiat currency of a Communist government, a gold yuan, with gold coins issued and circulating among ordinary people (like the pre-1914 Gold Standard and not the phony “Bretton Woods” standard of 1944-71) will have automatic credibility as both a unit of exchange and store of value.

Moreover, once the gold yuan has been adopted, China will be able to reduce its debt problem by issuing “consols” – irredeemable debt securities with a low interest rate that are universally accepted internationally, thereby greatly lowering debt service costs. Consols issued in a fiat currency are a simple rip-off of investors, which is why Britain was unable to continue issuing Consols or their later equivalent “War Loan” after going off the Gold Standard in 1931. Consols issued in a gold-backed currency are a reliable store of value for however many millennia they are held. If the U.S. Supreme Court in 1935 had not upheld the Roosevelt Administration’s grossly destructive retroactive abolition of already existing Gold Clauses, the U.S. could still have benefited from this, and the sad 2,274% inflation of 1935-2026 would have been greatly mitigated.

With a Gold Standard guarding the value of their money and ensuring a comfortable retirement, Chinese consumers will be able to plan their lives on a long-term basis. Another Liverpool policy, the Corn Laws, may usefully be adapted as “Rice Laws” to ensure that rural peasants receive decent prices for their farm crops and can also participate in the country’s rising living standards. China might also consider adopting yet another Liverpool policy, a limited form of democracy with votes for property owners; this would limit the propensity of fully democratic voting systems to produce governments that loot the propertied.

China’s fortunate demographic, with its population finally beginning to decline, will ensure that its greater domestic wealth is reflected in higher living standards for all, not just in the production of surplus vulgar and unattractive billionaires. There will no longer be a frothy market for “inflation-proof” shares because borrowers will pay a real cost for their money and there will be no possibility of inflation. As in 19th century Britain (albeit from a much higher starting level) industrial growth and prosperity will lead directly into better living standards, because savings will be protected and scams and leverage will result in bankruptcy, not wealth.

Chinese civilization delights in following the wisdom of ancient sages, such as Confucius. Economically, it should follow the wisdom of a sage from 200 years ago: Lord Liverpool.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: China needs Lord Liverpool’s strategy appeared first on True Blue Will Never Stain.

The United States’ Middle Eastern interventions have an unhappy history. In both Iraq and Afghanistan, the U.S. occupiers chose between possible “democratic” politicians and engineered for them to win elections. As a result, both countries indulged in an orgy of corruption as well as being wholly ineffectual against various terrorist groups that sought to remove U.S. domination. In the long run, both wars were lost, but only after the U.S. had spent trillions of dollars and thousands of U.S. lives, not to speak of hundreds of thousands of Iraqi and Afghan lives in a futile multi-decade occupation.

In Iraq, there was no alternative to this – other than staying out in 2003, which would almost certainly have produced a better outcome (or finishing the job in 1991, which would have opened up far more possibilities in a country then more recently downtrodden). The Iraqi King Faisal II had been killed in a 1958 coup and was the heir to a monarchy only 37 years old which had been imposed by the British using a Saudi chieftain – the ruling family had no connection to Iraq’s distinguished long-term history.

In Afghanistan, on the other hand, there was a clear and much better alternative available. Mohammad Zahir Shah (1914-2007), the King who had been deposed in 1973, had ruled for almost 40 years before his deposition and his reign was remembered as a period of peace and prosperity. He was also descended from the Barakzai dynasty that had ruled Afghanistan independently since 1823. Although in his late 80s when the U.S. invaded, he thus had both an excellent track record and full regal legitimacy. It was a crime against civilization that the loathsome George W. Bush administration was so besottedly committed to republicanism that it imposed fly-by-night, corrupt politicians over the only man who might have made a success of their occupation. Regrettably, such a restoration is growing ever more distant; Prince Ahmad Shah Khan, the King’s second son and oldest surviving male heir, died near Washington in 2024.

Mohammad Reza Pahlavi, (1919-80) Shah of Iran from 1941 to 1979 was a truly admirable ruler in a very unpleasant part of the world. Once he had got rid of the leftist coup-wannabe Mohammad Mossaddegh (1882-1967) in 1953, possibly with the help of the CIA, he embarked on a program of free-market economic reform, the “White Revolution” that trebled the living standards of his people, to a level far above the miserable secret police-ridden subsistence under which they have since suffered. He also positioned Iran deftly as a reliable ally of the West, yet one that worked to overthrow the cartel underpricing of oil that had persisted during the 1950s and 1960s through domination by the giant Seven Sisters oil companies, with their subservience to U.S. and European political wishes for cheap oil.

At its peak in March 1974, the global oil price rose to $12 per barrel, equivalent to a mere $82 today, based on U.S. inflation, only slightly below today’s elevated level, which has been reduced by the immense technological advance of fracking. In other words, the Shah, who was the principal force behind the 1973-74 rise, had restored an equilibrium to the world oil market that had been artificially suppressed by the greedy United States and Europe.

In the West at this stage, the Shah was regarded as an infinitely rich superman, an example of which is Punch’s pastiche job application by John Betjeman for the post of Iran’s Poet Laureate (by Ernest Sackville Turner (1909-2006) in the issue of March 27, 1974, still fondly remembered by me 52 years later):

Shahanshah! Anointed Reza! Prince upon the Peacock Throne!
Scourge of all the Grasping Nations! You can have me for your own!
Star of Shiraz! Lord of Meshed! Conquering Lion of Abadan!
If you need a new Court Poet, send at once for Betjeman!

Betjeman, the new Firdausi! Omar! Hafiz! Three in One!
Odes of every kind accepted, no commission left undone!
Mosques defended! Tombs befriended! References from Princess Anne –
Shahanshah, you won’t regret it. Give the job to Betjeman!

Betjeman (U.K. Poet Laureate, 1972-84) would probably have taken the Shah’s job; his annual fee for the U.K. Laureateship was £200 plus a butt of canary wine, thought good money by John Dryden (Laureate 1667-89) when he was appointed by Charles II, but sadly devalued by Betjeman’s time.

Inevitably the Shah overspent his country’s new riches on poorly managed infrastructure projects, the oil price fell back and by 1977-78 Iran was in crisis, with frequent violent demonstrations against the Shah’s rule. At that point U.S. President Jimmy Carter got involved; not only did he not back the Shah properly with U.S. military support, but he virtue signaled incessantly about human rights, and may well have conspired with the CIA to remove the Shah. Consequently, the Shah felt unable to subject the rebels to the “whiff of grapeshot” necessary to suppress them, but instead was forced out, to be replaced by Ayatollah Ruhollah Khomeini, (1900-89) who was welcomed by the New York Times with a fawning editorial “Trusting Khomeini” and named Time magazine’s “Man of the Year” in 1979. Ordinary Iranians have suffered ever since.

Democracy is a cultural construct. Even in the West, where it was invented, the one-man-one-vote version of it has a dreadful tendency to subject the populace to lengthy dark interludes of poverty, decline, repression or warfare when the electorate gets it wrong. In the Middle East, it has never worked, save as a fig-leaf of legitimacy for a lengthy period of authoritarian dictatorship such as that of Turkey’s Recep Erdogan (Prime Minister 2003-14, President, 2014 to today and counting). The U.S. attempts to impose democracy in Iraq and Afghanistan produced nightmares of corruption, bad governance and internal civil war. There is no reason to suppose that imposing a phony democracy on Iran would work any better, complete as it would be with corrupt “democratic” politicians with no legitimacy eager to steal their way to an early retirement.

Only where there is an active democratic tradition does it make sense to restore free elections. Even then, borderline cases such as Venezuela, where the only economically competent governments have been dictatorships, suggest that it is no automatic road to success. Venezuela’s economic management was atrocious well before Hugo Chavez was elected in 1998; its oil revenues provided endless slush funds for successive leftist governments and prevented a viable private sector from emerging (by making wage costs too high, for one thing).

Walter Bagehot (1823-77) in “The English Constitution” defined monarchy as the “dignified” part of the constitution, as distinct from the elected and administrative “efficient” part. That was not entirely true when Bagehot wrote it – Queen Victoria played a major “efficient” political role at several points in her reign – but it is truer now, although the British monarchy since Elizabeth II’s death has done its best to seem neither dignified nor efficient. In countries where the quality of government is lower, a monarch can play a more active role, training the elective politicians to serve the people rather than their offshore bank accounts. In terms of power, the ideal Third World monarch is a George III, politically very influential and able to dismiss unsatisfactory governments (such as the Fox/North coalition in 1783) but nowhere near absolutist.

In an ideal world, President Trump would restore the Crown Prince Reza Pahlavi to the Peacock Throne, helping him to design a constitution with a fairly strong but not absolute monarchy. Over time, the monarch could train the politicians, removing any that were damagingly socialist or super-corrupt, and then retreat to a more purely “dignified” status.

With the Persian/Iranian monarchy dating back under various dynasties to Cyrus the Great’s (600-530BC, Shahanshah 559-530BC) accession of power more than 2,500 years ago, it potentially has plenty of “dignity” to satisfy its populace. Like the British Royal Family, its history, buildings and pageantry can also provide a rich source of upmarket tourist revenue, a useful diversification from oil. (I wanted very much to go there in the 1970s, but alas revolution intervened before I became rich enough to afford the trip.)

The Iranian people should be allowed to grow rich and happy, and a restored monarchy is the best way to achieve this.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Bring Back the Peacock Throne! appeared first on True Blue Will Never Stain.