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Submitted by Mark Glennon of Wirepoints

Illinois Treasurer Michael Frerichs and a group of 29 other state financial officials recently sent letters to six of the nation’s largest private sector money managers in a transparently partisan attempt to bully them out of supporting Republicans.

The effort is a misuse of the power that adheres to managing billions of dollars of taxpayer money and sets a dangerous precedent that might well invite retaliation in the same form by Republicans holding similar offices or from a Republican successor to Frerichs. It’s an attempt by incumbent officeholders to control much of the money that controls politics.

Unfortunately, the effort got no scrutiny and only a few articles in the national media, including these in The Washington Post and Bloomberg.

Frerichs oversees the investment of some $35 billion of Illinoisan’s money. Together with the other treasurers, public fiduciaries and pension trustees who signed the letter, over a trillion dollars of public money is represented.

Their letter went in substantially identical form, one of which is here, to BlackRock Inc., Vanguard Group, JPMorgan Chase & Co., Fidelity Investments, State Street Corp. and Bank of New York Mellon Corp.

The letter purports to be mainly about transparency and political contributions to members of Congress who voted against certification of election results that came in from the states. On January 6, 147 Congressional Republicans voted against certification, which was well over half of the Republican members of Congress.

That, the letter says, made its writers worried about returns on their investments. “A functioning democracy is foundational to a stable economy,” the letter says, “and we rely on economic and political stability in order to generate consistent investment returns on behalf of our beneficiaries.”

Nothing political at all, the officials are claiming, they are just doing their best to maximize financial returns.

Take a closer look to see if that’s believable.

One implicit threat about contributions to those candidates is clear in the first sentence of the letters. “[With] assets under management of over $1 trillion,” Frerichs and the others wrote, “we are frequently asked to evaluate asset allocations to asset managers.”

And they ask in the letter, “Will [you] forswear corporate political spending (direct or indirect) to the 147 members of Congress who voted to overturn the results of a free and fair democratic election on January 6th, 2021?”

In other words, change your political contributions or, well, they didn’t need to spell it out.

There’s much more to it. The letters are a broad attempt to bully the money managers into partisan changes in their political activity.

You can’t even get past the letterhead, shown here, to see that broader, partisan agenda. It’s brazen, carrying the names of Service Employees International Union and Majority Action.

It’s so brazen you have to wonder what they were thinking.

SEIU is one of the largest public unions in the nation and huge Democratic benefactor. It is listed among Frerichs’ ten biggest campaign contributors in 2018, the last time he ran.

Majority Action, which spearheaded the effort behind the letter, is a progressive outfit focused on publicly shaming corporations into supporting like-minded causes, particularly on global warming.

Why are SEIU and Majority Action on the letterhead if not to signal general support for them as well?

As you would expect, it’s an entirely partisan group that signed the letter. Every one of the elected officials who signed it are Democrats. And each of the unelected officials who signed it are, from all I could find, active progressives and presumably also Democrats.

Are the letter writers sincere when claiming they are only concerned about their investment returns and election certification?

Objections to presidential vote certifications are not uncommon. Democrats have objected to all three certifications of Republican wins since 2000 – Donald Trump in 2016 and George W. Bush in both 2000 and 2004. When Sen. Barbara Boxer objected to certification of Bush’s Ohio certification in 2004, Illinois Sen. Dick Durbin said on the Senate floor, “I thank her for doing that because it gives members an opportunity once again on a bipartisan basis to look at a challenge that we face not just in the last election in one State but in many States.”

Durbin’s point was fair, and Democrats had every right to make those objections. The letter writers undoubtedly didn’t object, nor are we aware of any objections they had to any of countless elected officials who stood silent and sometimes encouraged the political violence we saw over the summer.

There’s another oddity about the letter. Among its signers is Aaron Ammons as trustee of SURS, one of Illinois’ pensions, the State University Retirement System.

SURS, like most Illinois pensions, is among the walking dead in actuarial terms, being only 39% funded. Does anybody really think that saving democracy from insurrectionists is what SURS trustees should be focused on?

Ammons, too, is a progressive Democrat. He’s a former chapter president of SEIU. Appointed by Gov. JB Pritzker, he was elected Champaign County Clerk in 2018 and co-founded the Champaign Urbana Citizens for Peace & Justice. He is married to Democratic State Representative Carol Ammons.

The letter isn’t entirely focused on campaign contributions to those who voted against the vote certification. It addresses campaign donations in general and asks what broader reforms the letter’s recipients will undertake to rigorously reassess their “corporate political spending and evaluate whether payments serve to advance the company’s business objectives and a stable democracy.”

But that’s an entirely political judgement that neither Frerichs, Ammons nor the other signers are charged with imposing. Even if they are sincere in their claims about what’s good for rates of return in the long run, suffice it to say that opinions vary.

Those broader topics and questions belie the letter’s real purpose, which is to tell the big money folks to toe the party line — or else. From the letterhead down, its recipients would be fools to miss that full message. It’s not about maximizing returns, it’s about telling them where to use their financial clout politically.

We are fortunate that, at least so far, public officials with different political views than the letter writers haven’t tried the same tactic. They well might, as might a Republican successor to Frerichs.

A bad precedent has been set. Money, unfortunately, already controls much of government. But if this precedent is followed, we would have incumbent politicians effectively controlling much of the money that controls politics, pushing and pulling in different directions.

The letter is the most recent on a list of ways Frerichs has misused the public’s money for partisan purposes. Those stories and some on Frerichs’ other doings are in our articles linked below.

Authored by Charles Hugh Smith via OfTwoMinds blog,

How much energy, water and food will the "money" created out of thin air in the future buy?

Finance is often cloaked in arcane terminology and math, but the one dynamic that governs the future is actually very simple.

Here it is: all debt is borrowed against future supplies of affordable hydrocarbons (oil, coal and natural gas). Since global economic activity is ultimately dependent on a continued abundance of affordable energy, it follows that all money borrowed against future income is actually being borrowed against future supplies of affordable energy.

Many people believe that alternative "green" energy will soon replace most or all hydrocarbon energy sources, but the chart below shows why this belief is not realistic: all the "renewable" energy sources are about 3% of all energy consumed, with hydropower providing another few percent.

There are unavoidable headwinds to this appealing fantasy:

1. All "renewable" energy is actually "replaceable" energy, per analyst Nate Hagens: every 15-25 years (or less) much or all of the alt-energy systems and structures have to be replaced, and little of the necessary mining, manufacturing and transport can be performed with the "renewable" electricity these sources generate. Virtually all the heavy lifting of these processes require hydrocarbons and especially oil.

2. Wind and solar "renewable" energy is intermittent and therefore requires changes in behavior (no clothes dryers or electric ovens used after dark, etc.) or battery storage on a scale that isn't practical in terms of the materials required.

3. Batteries are also "replaceable" and don't last very long. The percentage of lithium-ion batteries being recycled globally is near-zero, so all batteries end up as costly, toxic landfill.

4. Battery technologies are limited by the physics of energy storage and materials. Moving whiz-bang exotic technologies from the lab to global scales of production is non-trivial.

5. The material and energy resources required to build alt-energy sources that replace hydrocarbon energy and replace all the alt-energy which has broken down or reached the end of its life exceeds the affordable reserves of materials and energy available on the planet.

6. Externalized costs of alt-energy are not being included in the cost. Nobody's adding the immense cost of the environmental damage caused by lithium mines to the price of the lithium batteries. Once the full external costs are included, the cost is no longer as affordable as promoters claim.

7. None of the so-called "green" "replaceable" energy has actually replaced hydrocarbons; all the alt-energy has done is increase total energy consumption. This is Jevons Paradox: every increase in efficiency or energy production only increases consumption.

Here's a real-world example: building another freeway doesn't actually reduce congestion in the old freeway; it simply encourages people to drive more, so both freeways are soon congested.

Setting aside the impracticalities of replacing most or all hydrocarbons with "replaceable" energy, the real issue is all debt service / repayment is ultimately funded by future energy.

On the face of it, future income is used to pay back borrowed money, but all future income is nothing more than a claim on future energy.

"Money" without access to affordable energy is worthless.

Imagine being air-dropped into the Sahara desert with a backpack of gold and $100 bills. You're wealthy in terms of "money" but if there's no water, food and transport to buy with your money, you'll die. The point is that "money" is only valuable if the essentials of life are available at affordable prices.

Right now the average fulltime wage in the U.S. is about $19/hour, and the average cost of a gallon of gasoline is $2.25. So a mere 7 minutes of (pretax) labor will buy a gallon of gasoline.

But what happens if inflation increases the cost of oil but wages continue stagnating? What happens to the economy if it takes one hour of labor to buy a gallon of gasoline instead of 7 minutes?

Economics claims that cheaper substitutes will appear to replace whatever is expensive, so cheap electricity will replace costly oil, or transport will switch to cheap natural gas, etc.

But these proposed transitions are not cost-free. The cost of replacing 100 million internal combustion engine (ICE) vehicles is non-trivial, as is building the "replaceable" energy infrastructure needed to power all these vehicles.

The true costs of "replaceable" energy have been fudged by not counting external costs or replacement costs; the full lifecycle costs of "replaceable" energy are much higher than promoters are claiming.

There are supply constraints that are also not included. For example, all the plastic in the world is still derived from oil, not electricity. (Note that each electric vehicle contains hundreds of pounds of plastic.)

As I explained in a previous post, energy in any form is not magically pliable. Just as we can't turn electricity into jet fuel, we can't turn a barrel of oil into only diesel fuel. Coal can be turned into liquid fuel but the process is non-trivial.

All of which is to say that the cost of energy in hours of labor is likely to increase, possibly by more than the global economy can afford.

There may also be supply constraints, situations where the energy people want and need is not available in sufficient quantities to meet demand at any price.

As "software eats the world" and automation replaces costly human labor, it's also likely that the erosion in the purchasing power of labor that's been a trend for 20 years will continue and accelerate.

Analyst Gail Tverberg has done an excellent job of explaining that it's not just the availability of energy that matters, it's the affordability of that energy to the bottom 90% of consumers. 2021: More troubles likely.

"Money" is nothing but a claim on future energy, because energy is the foundation of the global economy. Without energy, we're all stranded in the desert and all our "money" is worthless because it can no longer buy what we need to live.

Central banks can print infinite amounts of currency but they can't print energy, and so all central banks can do is add zeroes to the currency. They can't make energy more affordable, or guarantee that a day's labor will buy more than a fraction of the energy that labor can buy today.

The global financial system has played a game in which "money" is either printed or borrowed into existence, on the theory that energy will be more abundant and more affordable in the future. If this theory turns out to be incorrect, the "money" used in the future to pay back debts incurred today will have near-zero value.

The question is: how much energy, water and food will the "money" created out of thin air in the future buy?

If the lender can only buy a tiny sliver of the energy, water and food that the "money" could have bought at the time the "money" was borrowed, then it won't really matter how many zeroes the "money" will have. What matters is how much purchasing power of essentials the "money" retains.

Borrowing trillions of dollars euros, yen and yuan every year expands the claims on future energy at a rate that far exceeds the actual expansion of energy in any form.

This has created an illusion that we can always create money out of thin air and it will magically hold its current purchasing power for ever greater amounts of energy, food and water.

The monumental asymmetry between the staggering rate of expansion of "money"--claims on future energy-- and the stagnant supply of energy means this illusion is only temporary.

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Authored by Tom Ozimek via The Epoch Times,

President Joe Biden’s plans to raise the corporate tax rate would have a chilling effect on economic growth, depress wages, and lead to job losses, according to the Tax Foundation, a tax policy nonprofit.

Biden and congressional lawmakers have proposed several changes to the tax code, including raising the corporate tax rate to 28 percent from the current 21 percent - the level that the Trump administration brought it down to from 35 percent.

The Tax Foundation said in a new report released Feb. 24 that the Biden administration’s plans to hike the tax rate for corporations would eliminate 159,000 jobs, depress wages by 0.7 percent, and reduce long-run economic output by 0.8 percent.

A more modest corporate tax increase to 25 percent would lead to 84,200 job losses, see wages fall by 0.4 percent, and squeeze gross domestic product by 0.4 percent, the report found.

On the campaign trail, Biden also said he would seek a new 15 percent minimum book tax on corporations with more than $100 million in book income, in addition to imposing tax penalties for some types of offshoring activity.

Tax Foundation Senior Policy Analyst Garrett Watson and Vice President of Federal Tax and Economic Policy William McBride argued in the report that the minimum book tax would complicate and distort the tax code while generating little revenue.

McBride and Watson estimated that the minimum tax—in combination with all of Biden’s other tax proposals—would reduce long-run economic output by about 0.21 percent.

“President Biden’s proposed tax hike would reduce American economic output during a time when we need to maximize economic growth to reach our country’s pre-pandemic growth trend and return to full employment,” McBride and Watson said in the report.

Prior to 2017, when then-President Donald Trump enacted the Tax Cuts and Jobs Act (TCJA), the United States was suffering a slowdown in economic growth, including historically low growth in wages and productivity, and new business formation in retreat. Meanwhile, a significant body of research suggested that the pre-2017 corporate tax level of 35 percent was a drag on growth.

“Lowering the corporate tax rate to 21 percent brought the U.S. closer to the OECD average, reduced the incentive for corporations to invert or shift profits, and increased investment incentives that lead to a higher growth rate,” McBride and Watson said in their report.

“Increasing the corporate income tax would undermine the progress policymakers made four years ago,” the pair argued, noting that raising the corporate tax rate to 28 percent would raise the federal-state combined corporate tax rate in the United States to 32.34 percent, the highest such rate out of all 37 member countries of the Organization for Economic Cooperation and Development (OECD).

McBride and Watson argued that a high corporate tax rate relative to other OECD countries would encourage profit shifting abroad and, more generally, out of the U.S. corporate sector.

“As the U.S. bounces back from intertwined public health and economic crises in 2021, avoiding harmful tax increases and pursuing reform opportunities in corporate taxation should be the areas of focus,” McBride and Watson argued.

The call to avoid raising the corporate tax rate was also made by the U.S. Chamber of Commerce, which hailed the TCJA for driving job growth and other benefits.

“We worked for 31 years before finally achieving tax reform that, among other things, lowered the corporate tax rate to a level that made us not only competitive in the global economy, but made it attractive to do business here,” said Caroline Harris, vice president of tax policy and economic development at the Chamber of Commerce, in a recent statement.

“It is imperative that we preserve this competitive rate, which was enacted to enable American businesses to compete successfully in the global economy, to attract foreign investment to the United States, to increase capital for investment, and to drive job creation in the United States.”

Authored by James Howard Kunstler via The Daily Reckoning blog,

The absence of the big orange You-Know-Who at center stage of American life has changed the mood of the scene from a five-alarm fire to just another day in a collapsing civilization.

As long as he remains healthy, and evades assassin’s bullets, Mr. Trump will go after his antagonists in Congress like a mad dog toward the 2022 midterm. But now he can only watch from the sidelines and throw stink bombs.

About that collapsing civilization I mentioned a second ago…

Texas went medieval after an ice storm took the power down for millions, with ramifications building by the hour — especially the countless burst water pipes that will take forever to repair. (How many plumbers are there in San Antonio?)

Food went scarce overnight. People died in their cars. The political blowback has barely registered yet, except for Senator Ted Cruz slinking back home from a luxury resort in Cancun, whoops, and Beto O’Rourke shooting his mouth off like a cholo with a Saturday night special at a low-rider parade on Cinco de Mayo.

Meanwhile, Covid-19 cases are going down fast across the country. If it actually goes away, imagine the giant hole left in the national narrative. No more arguments over lockdowns, kids could go back to school, and Americans could see each other’s faces again.

The “progressives” in power would have to hunt up some new reasons to cancel the bill of rights. That shouldn’t be too difficult for a party adept at making things up. Right wing extremism would be my bet, even if Antifa and BLM go back to partying in the streets like it’s 2020 when the weather warms up.

The Stock Market’s Based on Bitcoin

What won’t go away is the nation’s fantastic economic mess. In just a few months since Thanksgiving, the financial system has gone through an epic shift, barely noticed by citizens preoccupied with unpaid bills, skipped rents, and empty refrigerators: the stock markets are now based on Bitcoin, which is to say, on less than nothing.

A whole new dynamic has emerged with publicly-held companies buying the stuff hand-over-fist. An outfit like Tesla, rumored to manufacture electric cars, invested $1.5 billion in the crypto-currency, which has shot up to over $50,000-a-coin in recent weeks.

The move was so splendidly shrewd that Tesla’s stock price also shot up, though they don’t make a profit on those cool cars. Of course, $1.5 billion is chump change for the charismatic Elon Musk, whose share of the American GDP can be seen from outer space, like the Great Wall of China.

Other companies are buying Bitcoin on margin, taking advantage of super-low interest rates to make a fast killing. What a great idea! Even better than borrowing to buy back your own company’s stock to jack-up the share value.

Don’t be surprised if half of the S&P jumps into the Bitcoin frenzy, bidding it up to six figures. Won’t that do wonders for US productivity and working-class wages? None of that will escape the attention of a “progressive” Congress, which will see a great opportunity to try to compensate for its fiscal profligacy by passing new taxes on “excess wealth” or “windfall profits.”

Then, watch the rush-to-the-exits by shareholders in those companies that loaded up on Bitcoin, aggravated by the margin calls on the dough they borrowed to buy the stuff… as well as Bitcoin itself plummeting back to its actual true value: around zero.

Guaranteed Basic Income

Meanwhile, Covid or no Covid, there is now a very large class of people across this land who either can’t or won’t earn a living, and we are seeing last year’s idle chat about “guaranteed basic income” (GBI) rapidly congeal into solid policy proposals to supply just that.

It’s insane, you know, having nothing to do with producing things of value, but such is the new faith in monetary techno-magic — of which Bitcoin is the exemplar — that the reigning grand princes and princesses of economics are unanimous that it’s actually possible to get something for nothing now.

I’m sure enough Republicans would go along with it - in terror of their broke and wrathful voters - to pass GBI.

The wild card, though, is how quickly we will destroy the value of the dollar as all this occurs, that is, provoke a king-hell inflation, so the people will get their GBI in worthless money.

Nobody believes it can happen after ten years of quantitative easing and other shucks-and-jives that seemed to hardly move the inflation needle (as officially measured), except on Wall Street.

But anyone who sets foot in a supermarket these days must feel a little shocked at food prices.

A dollar for one measly onion... eight bucks for a little flat of ground beef...? How do people with no jobs or lost businesses feed their families? Do they get a warm tingly feeling knowing that Tesla shares are also up? Or are they out in the old tool shed at midnight, sharpening the pitchforks and soaking rags in kerosene?

Unity?

Perhaps Ol’ Woke Joe Biden will explain where all this is going in his upcoming State of the Union Address scheduled for next Tuesday, according to the Associated Press. Oh, you didn’t know about that? I wouldn’t blame you. There is absolutely no buzz about it in the mainstream media, like, they’d rather not think about it.

Mr. Biden has been proclaiming the wish to “unite” the warring tribes of America. He may say so, but he doesn’t really mean it, not one little bit, and everybody knows it. His calls for unity are a dodge. Unity requires broad consensus.

Biden’s been signing executive orders like Pete Rose signing baseballs in a room full of fans. Every executive order he’s issued his first month on-the-job is designed as much as a slap in the face to more than half the country as it is an actual policy goal.

But going forward, the brutal facts of America’s crippled economy are crashing down on Biden and his Woke managers like the wrath of history. All the executive orders in the world won’t change that.

How long will it be before he just gets the hook?