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Current Events, Recent Posts

My Open Letter to Commandant Berger

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Okay gang, here it is, read, enjoy or not, and PLEASE give me your comments — I am not thin skinned. What a sad commentary to have to write, but I had to!

Dear Commandant Berger,

Sir, I pen this open letter to you, not as any form of disrespect, but only one of disagreement—albeit a rather loud and harsh disagreement. I have followed with keen interest much of what you have been carrying out as our 38th Commandant. I have hesitated writing to you since I know there is nothing I or any of my fellow retirees can do to change your mind. We have been watching and reading with much dismay your actions aimed in only one direction—you know, and we know where that is.

Firstly, you are surely wondering who this seemingly brash retiree is writing me? Well succinctly, I am a retired Marine just short of thirty-six years—ten enlisted and twenty-six as an officer. Having received a combat commission as a Sgt during my first tour in Vietnam, I eventually retired October 1993, so I was into my 23rd year when you were commissioned in 1981. I also note from you biography we are fellow Marylanders, you in Woodbine, me in Inverness.

In 1982 I was—as a senior Major—assigned as CO of the Corp’s then largest recruiting station—Chicago. I went in as a “fireman,” my predecessor had been fired. Chicago had ninety-two canvassing recruiters; the only station close to us was Los Angeles with seventy-eight. These two stations required a LtCol as CO because they needed an Assistant Operations Officer to help manage a pool that numbered into the thousands at any given time. If my memory serves me correctly, we annually shipped around 4,000 recruits to MCRD, San Diego.

I knew nothing about recruiting when assigned to this command. However, I was blessed to have a Deputy Director, an ADPP, and two Recruiter Instructors who were recruiting SME’s in every respect—they taught this Grunt Major how to spell recruiting.

With the help of many outstanding Marines, both canvassing recruiters and “A” billets, Chicago slowly rose from a failing station to be the top station for nineteen consecutive months. Because of the mentoring I had by so many experts, including the LtCol running MRRE at HQ, I believe by the time I was reassigned three years later, I was among the select few of the most knowledgeable 8402 officers in the Corps. It was the toughest assignment I ever had during my career—including combat. I learned much about the heritage, values, and the respect Americans had for the word Marine—and about myself as a leader.

So, why am I telling you all this? It isn’t meant to be boastful for I am certain any dedicated Marine would have been able to do the same with such expert mentoring and hardworking recruiters. No, I tell you because recruiting is in my veins. I bleed recruiting. I understand it better than most—including your general running the recruiting command. I think about it often. I have visited RS’s, spoke at poolee functions, and I started and ran a National Young Marine unit in IL for years. So your new “plan”—so cagily named “Semper Fi”—where your recruiting general has asked all veterans to be “faithful” to their Corps and assist in the recruiting effort—which I know is not doing well—really “woke” me up. Pun intended. The sheer audacity of such a request is unbelievable. Do you really think the retired community is going to take up that challenge? If you do, you sir have lost touch with your retired Marines.

I communicate regularly with 100’s of Marines, former, active, and especially retired—the entire non-active Marine force are in agreement that you are destroying “our” Corps. Sadly, I can longer speak with recruiters or poolees without lying, and I will not do that.

I say this with a heavy heart, but I have recently talked to one of our super stars from the Young Marine unit out of joining the Corps. That’s all he wanted to do when he graduated; he wanted to be like me. I even gave him some of my uniforms to wear in the unit. My conscience and respect for him would not allow him to do that—he was too good for that. So he took my advice and went on to college in hopes that by the time he graduates in four years you will not have totally destroyed our Corps. Maybe, just maybe, someone will come along and right all your wrongs.

Your actions are—as you state—”in the interest of bringing our Corps into the modern society” are contrary to everything our Corps has stood for since its birth. Your push for sexual preferences for women, unisex uniforms, women in the combat arms, allowing transgenders, relaxed female grooming standards and acceptance of despicable tattoos, fraternization at all levels, the vapid attacks on the very culture of the Corps, and its alleged racist/sexist heritage is unacceptable to those who have worn the EGA. I have not mentioned the draconian reduction or elimination of combat units and equipment, the destruction of the MAGTF, or your latest thoughts on recruiting cyber experts at elevated ranks without having to attend boot camp or OCS

Enlisting high tech people without having to go through boot camp or OCS? Having never been enlisted, you cannot “feel” the rage your Marines will experience. Those two “initiations” have always been the key ingredient that banded us together and made us a family forever i.e., earning that sacred EGA for life. I spent tours as a DI at Parris Island, and a Sgt Instructor at OCS—I know the intensity with which Marines hold that honor. I took part in instilling it.

Eighteen months of maternity leave. Sounds great—the female gender love it. May I asked which Marine, male or female, will do her job while she is home with her newborn for one and half years? Let’s be honest and ask of what value is this Woman Marine to the Corps? Joins for three years and spends one half of her enlistment on maternity leave. Considering recruit training, MCT, and then MOS training, you may have her for a year or even less. Bad move general.

Allowing a Sikh Major to wear his religious head garb and go unshaven? (Update: Doing more research after a call from a dear brother, it appears this dirt bag is a selected captain, not  a major. I can’t find where I got it that he was a selected major? I highlighted and expanded the pic of him and sure enough he is wearing 1st Lt bars. Sorry.) Are you kidding me? Do you have any idea what other Marines are thinking when they see him? No, I’m sure you don’t, and you obviously don’t care. Your changes are all directed towards pleasing every minority and the hell with everyone else. Is that what you mean about bringing the Corps into the “modern society?” General, that is your modern society, not mine or that of the retired community.

You are watering down our Corps, so we look like everyone else. We never looked like everyone else—we never wanted to look like everyone else. Remember the ad, If everyone could be a Marine, it wouldn’t be the Marines. America doesn’t need a second Army, America has always loved her Marine Corps, but that is slowly changing—some look at us as victims now. It’s amazing the questions I get from knowledgeable people when I am out and about wearing my Marine ball cap. You think America isn’t watching? Guess again general.

And what’s this about your comments concerning the Army National Guard recruiting our discharged Marines? Of course they do, why not? They are trained, disciplined, and understand honor, integrity, and commitment. Plus the ANG are not going woke like the Armed Forces. Another of my super stars in the Young Marine unit, a female, could not get into the PLC program at her college, so she went ROTC and is having the time of her life, getting rapid promotions employing the leadership principles she learned in the Young Marines. Remember them general, there are eleven of them in case you never learned them or forgot them.

Moreover, you complain about the other services recruiting our prior service Marines. Again, why not? But you say some of them are disappointed and are asking to come back into the fold. Did any of your recruiting gurus dig into what it was they were dissatisfied with the branch they chose? Probably not. My bet is they missed what the Corps had to offer such as pride, honor, being part of something great, and of course wearing the hard earned EGA. I will watch this action closely for I believe if you allow them a “streamlined” method of coming back, they will find themselves again disappointed by all the changes you have made to the Corps they remembered and loved.

Are we soon to become obsolete and folded into the Army? I mean they have artillery, so we didn’t need them. Is that your plan—we think so. Look above you general—what is the service of your bosses? I am sure they applaud your actions as it falls right in with their desires.

Finally, recruiting older Marines, not 18–20 year old’s as they haven’t achieved full maturity yet —so you say. Tell that to those of us who served in WW I or II, Korea, Vietnam, or the Sandbox. I know and I would “think” your generals would know what type of young man seeks out the Corps. The one we have always—to use the new PC term—vetted and made him a Marine for life. Now you don’t want him. You want the misanthropes, the gender confused, the lost souls, the weak minded, and those we know are poorly suited to the battlefield.

In closing, it appears your changes are destroying everything the United States Marine Corps has stood for in 246 years—the very fabric of the Corps. What happened to “We don’t promise you a rose garden,” or “The Few, The Proud, The Marines?” Now it appears it’s, “Come Join Our diverse organization, all are welcome.”

As I said at the beginning, I mean no disrespect to you general. I know I speak for the vast majority of the retired community when I disagree with all you are doing to “our” Corps. It seems you just don’t know how to say “No” to anything unless it is to diminish our traditional values. How dare you call our heritage racist and sexist. Tell that to four of the last six Sergeants Major of the Marine Corps who were black. My mantra was always, “Mission, Men, Myself.” Having read your Bio and watched intensely what you have done and are doing to our Marine Corps, I must place you in the category of a term I learned long ago as a PFC—Cocker Spaniel Marine! If you are unfamiliar with that term perhaps you need to read my book, We’ll All Die as Marines.”

Semper Fi General (if you can be),
Jim Bathurst
Col, USMC (Ret)
1958–1993

Postscript. You will probably never see this letter, but maybe, just maybe, someone will read it and find a way to get it on your desk. I hope so!

Originally posted 2021-12-05 16:31:52.

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The Corps Part VI

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Here is more of CMC’s “Talent Management Plan.” There is that word “Management” again. Seems there are many more “things” attached to this plan than meets the eye. This one will surely shake up the retired community even more than Parts I-V. Read on and cry Marines.

Marine Corps plan calls for some future Marines to skip boot camp.

By Jeff Schogol from Task and Purpose

“We Make Marines,” proclaims a banner at Marine Corps Recruit of  Depot Parris Island, South Carolina, summarizing the service’s ethos that recruits have to prove they have the mental and physical toughness to serve in the Corps by surviving boot camp. By the time men and women receive their Eagle, Globe, and Anchor, they have proven that they have the physical and mental toughness to earn the coveted title of “Marine.”

But Marine Corps Commandant Gen. David Berger wants “exceptionally talented Americans” to be able to bypass the Corps’ traditional rites of passage and begin serving “at a rank appropriate to their education, experience, and ability.”

Berger’s radical new Talent Management plan calls for allowing civilians with critical skills to be able to join the Marine Corps “laterally” as opposed to starting at the very bottom as new recruits.

“As a result of the significant lead time necessary to build expertise, we are unable to respond quickly to changes in the security environment that demand urgent course corrections,” Berger wrote in his plan, which was first made public on Nov. 3. “The rapid rise in importance of the cyber domain, for instance, has challenged us to find creative ways to quickly build critical skills at mid-career and senior levels. Unless we find a means to quickly infuse expertise into the force – at the right ranks – I am concerned that advances in artificial intelligence and robotics, among other fields where the speed of technological change is exponential, will force us into a reactive posture.”

Berger made clear that this option would be limited to certain military occupational specialties, adding it would be “difficult to imagine a scenario” in which a civilian could skip boot camp in order to join a combat arms field like infantry or artillery.

He also wrote that Marines no longer on active duty who now have “critical career experience” should be able to return to service at a higher rank.

“For example, I can envision a Marine who left active duty as a captain or corporal rejoining our ranks as a lieutenant colonel or gunnery sergeant, respectively, after spending 5-7 years working in a cyber or IT field where the service currently lacks capacity,” Berger wrote. “With the right education and experience, that same corporal might also be eligible to return as a mid-grade or senior officer.”

The new talent management plan could involve a “cultural shift” in how the Marine Corps attracts the best possible people, said Lt. Gen. David Ottignon, deputy commandant for Manpower and Reserve Affairs.

For example, how will Marines who have gone through The Crucible at Parris Island or San Diego respond to the idea of allowing civilians to bypass boot camp to become Marine Corps cyber experts? Ottignon pondered with reporters on Monday.

“How does that line up to a culture of a Marine Corps at roughly 180,000 Marines that go through this exacting training that makes us all one in the same – uniformity in what we do?” Ottignon said. “That’s a cultural thing that we’re going to have to work through.”

The Marine Corps has been here before. Former Commandant Gen. Robert Neller initially considered allowing civilians with cyber skills to become Marines without going through boot camp in 2017.

But Neller faced a conundrum: He did not want to bring in people who did not meet Marine Corps grooming standards.

Then-Marine Brig. Gen Loretta Reynolds, who led Marine Corps Forces Cyberspace Command at the time, recalled in 2016 that Neller once asked her: “Do I have to start letting guys with purple hair and earrings in?”

Ultimately, the Marine Corps decided to establish a Cyber Auxiliary division of civilian volunteers, not Marines. “You can have purple hair, too, but no EGA [Eagle, Globe, and Anchor],” Neller said in 2019.

The question of whether cyber experts who bypass boot camp can hold the title of Marine has not gone away.

“That’s clearly what the commandant has laid out as something to discover and analyze,” Ottignon said on Monday. “And I don’t know the answer to it yet. I don’t think the commandant knows the answer to it yet – other than we know there’s exquisite talent out there.”

That’s why Ottignon’s team is coming up with various options for exactly how the Marine Corps can attract people with the skills that the Corps needs most, he said.

“We think – we could be wrong – you could take a young man or woman, let’s say out of George Mason University that works in cybersecurity and sees opportunities in government; and we show them: Look, no kidding, you’re going to be on an offensive/defensive team and get skill sets; that might be attractive to them. His [Berger’s] point is: How do you do that; and that’s the cultural piece that I offered to you.”
Jeff Schogol

Jeff Schogol is the senior Pentagon reporter for Task & Purpose. He has covered the military for 15 years. You can email him at schogol@taskandpurpose.com, direct message @JeffSchogol on Twitter, or reach him on WhatsApp and Signal at 703-909-6488. Contact the author here.

Perhaps unknown to many we do have people serving in the Corps today and have been for many years who never went through boot camp. They are part of the Marine Corps Band i.e., “The President’s Own” at Marine Barracks, 8th & I, Washington, D.C.  They are recruited annually, contracted for four years, enter as E-6’s, and wear a harp in their chevrons vice cross riffles. I recall when at RS, Chicago, we were given an annual quota to recruit musicians and set them up for a specific date when someone from the Band would come and give them an audition. If my memory serves me correctly we did have a few during my three years who were accepted.

Of course, there are also actual full-fledged Marines serving in the Band. They came from Bands and D&B’s throughout the Corps. Of course they come in at whatever rank they are and they do wear cross rifles in the chevrons. A very good friend of mine, GySgt D B Wright with whom I served at the Barracks was a member of the Band for several years having been recruited from the Barracks’ D&B. I am certain DB will comment on this post.

There is, of course, a reason for needing these members. They are seriously accomplished musicians and some play instruments not found in a normal Marine Band or D&B. The President’s Own plays at all White House presidential events and must be capable of providing peculiar groups depending on the event and who is the guest of honor e.g., a string quartet capable of playing tunes from different countries all over the world.

They are; however, never deployed anywhere in the world, will never ever see combat or anything thing similar. In fact, the president, I believe, actually owns this Band, not the CO, MB Washington, D.C.

Why would an accomplished musician take  four year hitch starting out as an E-6 you ask? Think of the impact on one’s resume having played for presidents  at the White House in the famous Marine Corps Band. That’s huge.

So, does this set a precedent for CMC to bring in folks without the requisite boot camp and MCT. As far as this Marine goes . . . absolutely NOT!

Originally posted 2021-11-29 08:28:39.

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You Will Not Believe this!

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But then again, of course you will because anything that POS president does is no surprise anymore. We LOVE our Gov!

DeSantis On Biden Flying Illegal Aliens Into Florida: ‘I Will Send Them To Delaware On Buses.”

Photo: Florida Governor’s Office

Florida Governor Ron DeSantis (R) unloaded on Democrat President Joe Biden during a press conference on Thursday over reports that the Biden administration has used contractors to fly dozens of planes into the state of Florida carrying illegal aliens.

DeSantis’ remarks come after an illegal alien who posed as a minor, but was really in his early twenties, illegally entered the U.S. at the southern border. It’s not clear how he arrived in Florida, but once there, he allegedly murdered a father-of-four.

“There’s no notification to the state of Florida,” DeSantis said as he described the process of how the Biden administration sends illegal aliens into his state. “These are done mostly in the middle of the night. And it’s clandestine. And we really have no say into it. … I know when we initially got wind of this, it wasn’t through normal channels, it’s people in the federal government who are effectively leaking this to us so that we have a heads up on it.”

DeSantis lambasted Biden over separate reports that the administration was preparing to pay illegal aliens potentially up to hundreds of thousands of dollars each if they were separated at the border from their families under the previous administration.

“The President has said that basically, they want to even pay reparations to people who came illegally, just think about that,” DeSantis said. “You as an American, you get higher gas prices, you get higher grocery bills, you get told basically, to just grin and bear it, someone breaks the law, comes illegally, and they’re going to cut him a check for hundreds of thousands of dollars. That is just unbelievable. But that’s what we’re dealing with.”

DeSantis said that the flights started back in May and that Florida law enforcement agencies are engaged on the matter. DeSantis said that he would like to put the illegal aliens that Biden drops into Florida on buses and ship them to Biden’s home state of Delaware.

“You know, my view would be, why don’t we, if they’re going to come here, you know, we’ll provide buses,” DeSantis said, “I will send them to Delaware and do that. I mean, if he’s not going to support the border being secured, then he should be able to have everyone there. So, we will do whatever we can in that regard. And we are absolutely going to do everything we can.”

DeSantis said that Florida was looking at ways of going after the contractors that the Biden administration was using to fly the illegal aliens into the state, saying, “we should be able to have consequences for those contractors and your ability to do business in Florida I should absolutely be curtailed based on whether or not you’re bringing problems or not bringing problems.”

DeSantis further noted that even though Florida is suing the Biden administration in court, that doesn’t mean that the administration will listen to the courts.

“But even then, you saw what happened with the OSHA decision,” DeSantis said. “It was stayed by the Fifth Circuit Court of Appeals, meaning not in effect, and what did the Biden administration say to businesses? Ignore the court and follow our rule anyways. And so, I think that they basically said, ‘No, to hell with these court decisions,’ they’re going to do whatever they feel like doing. And so that’s something that’s problematic, because we can even win in court, and they may disregard guard that.”

WATCH:  https://www.dailywire.com/news/desantis-on-biden-flying-illegal-aliens-into-florida-i-will-send-them-to-delaware-on-buses?itm_source=parsely-api?utm_source=cnemail&utm_medium=email&utm_content=111121-news&utm_campaign=position1

The Daily Wire is one of America’s fastest-growing conservative media companies and counter-cultural outlets for news, opinion, and entertainment. Get inside access to The Daily Wire by becoming a member.

What the hell happened to States Rights? Who does this POS think he is? This is a Republic, States have rights, but this imbecile doesn;t know it, mor if he does, he really doesn’t care. He’s simply a puppet.

Give him hell Ron!!!

Originally posted 2021-11-13 11:53:09.

Current Events, Recent Posts

Marines VS Marines

6 Comments

Marines, beware, you are not going to like this story — trust me. We are more worried about wokeness and evicting extremists from our ranks. And we got our asses handed to us because we no longer train to fight and win. I find myself speechless. I have no idea what I will say tomorrow night in Phoenix. Help me Lord

Trounced on home turf: British Royal Marine commandos force US Marines into humiliating surrender halfway through five-day war training exercise in Mojave desert

  • British forces took part in a five-day mock battle at the US Marine Corps’ Twenty nine Palms base in California
  • Combatants used training ammunition along with hi-tech simulators for heavier firepower like artillery
  • Seeing no opportunity for victory, American combatants asked for the exercise to be ‘reset’ halfway through

By HENRY MARTIN FOR MAILONLINE

PUBLISHED: | UPDATED: 

Royal Marines commandos ‘dominated’ US troops and forced them into a humiliating surrender just days into a mass training exercise in the Mojave desert, it has been revealed today.

British forces took part in a five-day mock battle at the US Marine Corps’ Twenty Nine Palms base in southern California, one of the largest military training areas in the world, and achieved a decisive victory against their American counterparts.

The Royal Marines, along with allied forces from Canada, the Netherlands and the UAE, destroyed or rendered inoperable nearly every US asset and finished the exercise holding more than 65 per cent of the training area, after beginning with less than 20 per cent.

Combatants used paintball-style training ammunition, which fires with reduced pressure and velocity, along with hi-tech simulators for heavier firepower like artillery, and live ammo on expansive ranges.

Seeing no opportunity for victory, American combatants asked for the exercise to be ‘reset’ halfway through the five-day exercise, having taken significant casualties from British commandos.

Troops from 3 Commando Brigade and Taunton-based 40 Commando had spent the last two months in the Mojave Desert preparing for deployments next year.

 Their time in the US culminated with the five-day simulated conflict Green Dagger, which is designed to test the US Marine Corps prior to units deploying overseas.

The mock battlefield covers more than 3,500 square kilometers of mountainous and desert terrain, including urban settings where actors, who are not following a script, play civilians who can choose to help or hinder the military forces.

The Royal Marines trained with counterparts from the US, Canada, UAE and the Netherlands in the weeks before the main exercise.

The British forces achieved their victory by targeting the American headquarters and equipment, severely hampering the ability of US combatants to launch counter-attacks.

Artillery units also concentrated on eliminating vehicles and opposing artillery.

A long-range commando assault with fighter jet support eventually defeated the American forces, who had launched a last-minute attack but were repelled.

British forces were trailing the new Littoral Response Group (LRG) structure, which will be the new template for commandos – who are to become more flexible and mobile under reforms directed by First Sea Lord, Admiral Sir Tony Radakin.

LRGs are Royal Navy task groups centered around commando forces and set up to respond to world events.

Following the restructuring of the Marines, NATO’s northern and Baltic flanks will be covered by the UK-based LRG (North).

LRG (South), built around Taunton-based 40 Commando, will be based around Oman’s port of Duqm, operating with a focus on British military activity in the Indo-Pacific.

Each LRG will be capable of working with the carrier strike group to assemble an expeditionary strike force which can operate anywhere in the world.

The exercise focused around three urban sprawls which were defended by allied forces, the largest of which consisting of 1,200 buildings purpose built for military testing.

The Marines won decisive battles early on and gained ground from their enemy, but amid a US Marines counter-attack, commandos carried out raids behind enemy lines.

The exercise concluded with a last-minute assault by US forces, which was repelled.

‘Our success has proved the new commando force concept is more lethal and sophisticated than ever before and I am immensely proud of every member of the LRG and their vital contributions,’ said Lieutenant Colonel Andy Dow, Commanding Officer of 40 Commando.

‘Operating alongside our partners from the USA, Netherlands, Canada and the UAE gives us a fantastic opportunity to test, integrate and continue to push our capabilities in new and innovative directions.

‘Throughout this deployment our focus has been on integrating game-changing capabilities from across the commando force to deliver disproportional effect in the face of a free-thinking peer adversary.’

 

There is so much more to this story should you want to peruse it along with lots of photos taken during the exercise. Of course this article was obviously written by a Brit (spelling), and he made some errors e.g. we were born in 1884. The Corps has come out and rebuffed this article, but one would expect that. Please go to::

https://www.dailymail.co.uk/news/article-10159949/Royal-Marines-commandos-force-troops-humiliating-surrender-training-exercise.html

It’s hilarious what you will find in the comments if you go to the story. Marines trying to justify this disgrace with historical  quotes that don’t  mean squat in this day and age. Get real Marines, we are losing our edge, or perhaps we have already lost it?

Originally posted 2021-11-05 09:36:25.

Current Events, Recent Posts

Train Wreck in Slow Motion.

3 Comments

I know some of you are probably tired of my posting these sort of comments as they are somewhat hard to understand and follow without some education in that confusing world of Economics; however, I love it. Read carefully and try to get a grasp of what he is saying and showing you in the charts. Chart #7 is an eye opener of me. As he says, we are about to watch a train wreck in slow motion. I agree with his advice, keeping that money in your bank or under your mattress is not the way to get through this perfect storm we are about to experience. Hard assets will always win out.

Good luck Brothers and Sisters.

Calafia Beach Pundit
Monetary policy is a slow-motion train wreck

Posted: 13 Oct 2021 06:32 PM PDT

There is no shortage of things to worry about. 

That’s a phrase I have used several times over the past decade. I used it as a foil to argue that since the market was quite cautious (and nervous), then a surprise downturn or selloff wasn’t a serious risk. Recessions usually happen when nearly everyone is feeling optimistic. Today there again is no shortage of things to worry about, and the market is within inches of its all-time high. Most disturbing, however, is that neither the Fed nor the administration nor Congress nor the bond market are very worried about inflation. Inflation and all its nasty consequences are, arguably, big things to worry about today.

Fed policy, as laid out in today’s FOMC minutes, is amazingly blasé about the risks of higher inflation. The Fed currently plans to begin “tapering” its purchases of Treasuries and mortgages sometime next month, and to finish tapering by mid-2022. That’s not a tightening of monetary policy; it’s only making policy less accommodative over a prolonged period. Actual tightening—which would consist of draining reserves (i.e., selling bonds) and/or raising the interest rate it pays on reserves (i.e., higher short-term interest rates)—won’t begin until sometime late next year.

The market has apparently agreed that this is a sensible course of action. Inflation expectations embedded in bond prices are somewhat high, but still a relatively tame 2.75% per year (average) over the next 5 years. The bond market is currently pricing in one or two 25 bps “tightenings” by the end of next year (i.e., short-term interest rates of roughly 0.4% to 0.5%), and a 1.5% fed funds rate 3 years from now. By any standard, that would be a supremely gradual pace of monetary tightening. But at a time when inflation is at levels not seen in over 30 years?

This is almost certainly an unsustainable situation. The Fed and the bond market are almost certainly underestimating the risks of higher-than-expected inflation.

How do I know this? It’s all about incentives. Today, the incentives to borrow are huge. Short-term interest rates are below the current level of inflation and will likely remain so for at least the next year. (Even 30-yr fixed rate mortgages are lower than the rate of inflation.) Smart investors and consumers won’t find it hard to arbitrage these variables. In fact, the process is already underway. You simply borrow money and buy anything that is a productive asset and which also has roots in the nominal economy (e.g., commodities, equities, farms, factories, cars). Leverage is your friend and ally in a high-inflation, low-interest-rate world.

How does one place a bet on an asset (in this case the dollar) that is expected to decline in value (because of inflation eroding its purchasing power)? You sell it if you own it, or you sell it short (you borrow it and then sell it). You buy it back when inflation settles back down and/or interest rates rise to a level that is greater than inflation. One way to “short” the dollar is to simply borrow dollars. And a common way to do that is to get a loan from a bank. And when the bank lends you money, the bank can actually create the money it lends you, which in turn expands the money supply. Banks are uniquely able to create money, provided they have sufficient reserves on hand to collateralize their deposits. Since the banking system currently has upwards of $3 trillion in “excess” reserves, thanks to the Fed’s gargantuan purchases of notes and bonds, banks have an almost unlimited ability to increase their lending.

So it’s not surprising that the M2 money supply has expanded at an unprecedented rate over the past 18 months, a time in which the Fed has bought almost $3 trillion of notes and bonds and bank deposits have swelled by some $5 trillion. And it’s also not surprising that in the past six months consumer price inflation has posted a 6-7% annualized rate of growth—a rate last seen in late 1990.

As for Biden, his approval rating is now down to an abysmal 38%. His administration has committed a series of blunders, most notably with the Afghanistan withdrawal. His top priority now is to pass two bills chock full of new social spending and new taxes which he preposterously claims will cost the economy “zero.” Meanwhile, inflation has risen to multi-decade highs, yet both the administration and the Fed keep insisting it’s just transitory. Things will almost certainly get worse if trillions of new taxes and spending, additional layers of bureaucracy, and hundreds of billions of dollars of new handouts and subsidies get lavished on the middle class. My good friend and talented artist Nuni Cademartori sums it up in this cartoon:

As the battle in Congress over Biden’s “Build Back Better” agenda rages, I would urge everyone who thinks this agenda will actually help the economy grow and prosper to read the recently released study by the Texas Public Policy Foundation in collaboration with my good friend, Steve Moore of the Committee to Unleash Prosperity.

The key findings:

• The cost of the Biden Build Back Better plan spread across two bills will reach $6.2 trillion over the next decade.

• The higher tax rates on corporate income, small business income, capital gains, and so on will raise the cost of capital and reduce national investment and the capital stock.

• Compared to baseline growth, the negative impact of these taxes over the next decade will result in 5.3 million fewer jobs, $3.7 trillion less in GDP, $1.2 trillion less in income, and $4.5 trillion in new debt.

While I’m on the subject of Steve Moore, whom I’ve known since the mid-1980s, I will once again recommend you read and subscribe to the Committee to Unleash Prosperity’s free daily newsletter. I read it every day, as do more than 100,000 citizens and Washington policymakers. (One of his recent issues featured Nuni’s cartoon, and another featured some of my recent charts.)

In the study mentioned above you will find details on a plethora of Biden’s tax proposals (e.g., a 12.5% payroll tax on all income over $400K, a reduction in the estate tax exemption of $8 million, and an increase in the top marginal tax rate to 65%) and their likely negative impact on the economy and employment. It’s frightening to think that the people who came up with these proposals apparently believe that the overall impact of BBB will be stimulative. Have they no common sense? Here’s a fundamental supply-side truth: when you tax productive activity and success more, you will get less of it. And when the government borrows trillions only to redistribute the money to favored groups and industries, you get a weaker, less efficient economy. And you also risk boosting already-high inflation.

I’ll wrap things up with some updated charts and commentary:

Chart #1

Nothing illustrates better the supply-chain bottlenecks that currently plague the global economy than Chart #1. Used car prices have literally skyrocketed; in inflation-adjusted terms, used car prices are higher than they have ever been. In nominal terms they are up over 50% since March ’20.

Chart #2

Chart #2 shows how almost half of small businesses in the US report paying higher prices. The last time this occurred was in the 1970s. It’s hard to escape a higher inflation Deja vu conclusion.

Chart #3

 

As Chart #3 shows, bank reserves are very near their all-time high. The vast majority of these reserves are “excess” reserves, meaning they are not required to collateralize bank deposits. Banks thus have enough reserves on hand to collateralize an ungodly increase in deposits via new lending (i.e, money creation). If the Fed doesn’t increase the interest rate it pays on these reserves by enough to make them more attractive, on a risk-adjusted basis, than the interest rate banks can expect to earn on new lending, bank lending will surely continue to expand, and that will fuel a prolonged expansion of the money supply and ever-higher inflation.

Chart #4

 

Chart #4 shows the 6-mo. annualized rate of growth of the CPI (including the ex-energy version). I think this is a fair way to measure what’s happening now, since we are well past all the distortions of last year and the turmoil earlier this year. Inflation by this measure hasn’t been this high since late 1990.

Chart #5

Chart #5 compares the year over year growth in the CPI (I’m being conservative with this) to the level of 5-yr Treasury yields. Yields haven’t been this low relative to inflation since the 1970s. Recall what happened back then: millions of households made a fortune borrowing money at fixed rates and buying houses. Negative real interest rates cannot be sustained for long, mainly because of the incentives they create to borrow and buy.

Chart #6

Chart #6 is an updated version of the one featured in Steve Moore’s newsletter. It’s important to note that the multi-decade trend rate of M2 growth is 6-7% per year. This has been blown away in the past 18 months. If the public tires of holding $3.8 trillion more in bank deposits than they normally would at this time, that’s a tsunami of money that could float higher prices for nearly everything in the next year or so. It’s also worth noting that M2 has been growing at a 10-11% annualized rate so far this year.

What worries me the most right now is how this all sorts out. The Fed seems determined to avoid even the semblance of tightening for the next 12 months. Yet if inflation turns out to not be transitory as they currently expect, how long will it be before policy becomes tight enough to threaten the economy’s health?

Chart #7 

Chart #7 provides some historical context which may help answer that question. Note that every recession on this chart (shaded bars), with the exception of the last, was preceded by 1) a flat or negatively-sloped Treasury yield curve, and 2) a very high real Fed funds rate. Both of those conditions confirm the existence of very tight monetary policy that was intended to keep inflation pressures at bay. Neither condition is in place today, however, which strongly suggests that monetary policy poses no threat to the economy at this time.

Past Fed tightenings, however, were different from what a tightening would look like today. To really tighten policy, the Fed would have to 1) start raising the interest rate it pays on reserves, and 2) start draining reserves by selling bonds. It might take years to get rid of all the excess reserves, however, and no one knows for sure how the economy will respond to higher short-term rates in the presence of abundant reserves—that’s never happened before. In the past, the Fed simply drained reserves until they were in such short supply that the banks were willing to pay ever-higher interest rates in order to acquire enough of them to collateralize their deposits. A scarcity of reserves led to a liquidity shortage, and high real borrowing costs led to bankruptcies and weak investment. Eventually, economic growth ceased, and the inflation cycle was broken.

The dilemma for investors: we might be years away from a return to these conditions, so selling risky assets right now might be premature. And, by the way, holding cash is a guaranteed way to lose money. But how long can you wait, knowing that another economic collapse looms on the horizon?

In the meantime, the prospects for Biden’s Build Back Better lollapaloosa are declining by the day, thankfully, and the spreading disarray in Washington only makes that more likely. I’m willing to bet that if any of his bills survive, it will be in greatly reduced form, and thus much less damaging to the economy. Just letting the economy sort things out on its own would be a great relief to everyone, in my view.

Nobody said investing was easy. There are a lot of things to worry about these days. But I wouldn’t panic just yet. The next year or so might be likened to watching a train wreck in slow motion.

Rik is a great friend and brother Marine with whom I served several times. Thanks Rik, I love this stuff. Give him a call .


 

 

Originally posted 2021-10-17 16:27:42.