Negative Interest Rates: A Brilliant Concept!

Editor’s note: This article first appeared at Forbes.com.

I have to admit that initially I was uninterested, even close-minded, about the negative yield being offered on a growing share of European sovereign debt. “It must be a short-term aberration,” I thought at first. “Completely nutso,” I sniffed dismissively as the phenomenon spread. “Who in their right mind would invest in a financial instrument that would guarantee a loss of principal?” Upon calmer reflection, I would shrug and think, “Well, to each his own, but none of those topsy-turvy debt instruments for me.”

More recently, I have taken a more tolerant attitude toward negative-yield debt. As I teach my Econ 101 students, the key to success in the economic marketplace is to set aside your own preconceptions and preferences and to acknowledge that the consumer is always right. If some of my fellow human beings want investment products that repay them less than their principal, who am I to find fault?

In fact, the more I think about it, I find myself attracted to the idea of offering such a service to satisfy this unfathomable consumer appetite for negative yields. Maybe I should announce that anybody out there who would like to send me money on the condition that I return less than all of it to them in the future is free to do so (as long as they include payment for any incidental transaction costs). From that perspective, negative interest rates are quite ingenious.

Actually, (I’m going to attempt to be serious now) what really got me thinking about the growing phenomenon of negative-yield debt was how to explain the concept to my 101 students. The traditional introduction to interest rates involves three basic components. The first is the “originary” rate of interest—the time preference between the present and the future. In years of teaching economics, I’ve never yet had a student express a preference for a hundred dollars next year over the same amount today; and I doubt I would get a different response if I lowered the payoff in the future to $99.90. Conclusion: The time preference of humans doesn’t account for the increasingly common negative-yield phenomenon.

Perhaps, then, we can solve the mystery by examining the second component of interest rates—the risk factor. Students readily grasp the rationality of lenders adding a risk premium to interest rates to compensate for lending to higher-risk borrowers. Traditionally, the primary function of financial intermediation has been to assess the creditworthiness of borrowers. That isn’t always the case at present, with government citing “disparate impact” and penalizing lenders who dare to consider risk before issuing loans. I can get my head around a risk premium of zero for government debt, since central banks can use QE and other techniques to ensure that governments have unlimited ability to return to its creditors however many monetary units it has borrowed. But a negative yield? One could certainly argue that nongovernmental borrowers, not having their own central banks, can’t give 100 percent guarantees that they’ll be able to repay what they borrow, while governments do; therefore, some creditors feel safer contracting for a negative yield from a government than a positive yield from a private entity. The problem with this line of thinking, though, is that creditors could lock cash in secure storage and know that they would get all of it back, rather than paying government to borrow their money.

The third component of interest rates is the inflation premium, which creditors sometimes demand to protect against currency depreciation. The late Franz Pick used to call bonds “guaranteed certificates of confiscation” because, between depreciation of the monetary unit and government taxation of interest income, bondholders’ purchasing power was systematically and ruthlessly transferred to government. Even today, in the bizarro world of central banks trying to “achieve” positive inflation (i.e., currency depreciation), one would think that creditors would insist on an inflation premium to offset the targeted depreciation. Instead, we have the spectacle of widespread acceptance of a nominally negative return on paper denominated in a currency that the relevant central bank is actively trying to depreciate.

In sum, elementary interest rate theory doesn’t solve the puzzle of why there are negative-yield instruments, so we need to look elsewhere. Perhaps the holders of negative-yield sovereign debt instruments anticipate earning capital gains due to increased demand for negative-yield securities in the future. This seems like a bet on the “greater fool theory” with central banks playing the part of the “fool.” I suppose it’s possible that in our strange new world of unlimited QE, chronic ZIRP, negative interest rates, etc., yields may become even more negative in the future, thereby rewarding those who solved earliest this counterintuitive riddle. Such a race deeper into the rabbit hole of negative yields may happen, but timid (blind?) little me won’t be on the buy side of those deals.

One other possible explanation for the phenomenon of negative interest rates is that central banks are trying to make their currency less attractive in currency exchanges. This is what makes the most sense to me—central bankers hope that negative interest rates will be an effective tool of currency manipulation in a world of competitive devaluations.

Negative interest rates are a weird and alarming symptom of profound economic dysfunction. In a healthy economy, interest rates coordinate production between the present and the future according to people’s composite time preferences. Today, those vitally important market signals are mangled, broken, shattered. Maybe negative-yield instruments will pay off in ways I don’t yet perceive, but I’m content to keep my distance from them and let others play that bizarre game. I’d rather preserve my sanity.

This post originally appeared on Western Journalism – Equipping You With The Truth

A Salute To Fathers Who Are REAL Men

This isn’t going to be one of those sentimental Father’s Day articles, even though that is what I would prefer. This article will have a bit of an edge to it. Please excuse my bluntness, but fatherhood is serious business; and for me to sugarcoat or evade the truth about it would benefit nobody.

Here goes: What does my peculiar title mean? Aren’t all fathers men? No, they are not. All fathers are male, but not all fathers are men. Maleness is a biological identity, a physical reality, a matter of hormones and organs. Manliness, on the other hand, is a matter of character, an intangible quality, a demonstrated achievement of maturity that not all adult males attain.

Several years ago, I wrote about an appalling situation in our country—the fact that the second leading cause of death of pregnant women in the U.S. is homicide, usually perpetrated by the father of the unborn child. Some males are so selfish and antisocial that they reduce their lover to an object that they will destroy, rather than allow her to give birth to the precious life that they have conceived together.

It is a socioeconomic fact that one of the two leading causes of long-term poverty in America is for women to bear children out of wedlock. (The other leading cause is failing to complete high school.) For a male to use a lover for a few moments of pleasure and then abandon her to a lifetime of poverty because he doesn’t want the responsibilities of fatherhood is cruelly selfish. Don’t do it, fellows.

Fatherhood is one of life’s most momentous choices. Males can become men by accepting the responsibilities of fatherhood, by marrying and committing themselves to full-time partnership in raising, teaching, and financially supporting their offspring. Alternatively, males can opt for bachelorhood–“freedom” (from responsibility)–and let their lover bear the psychological and financial cost of intimacy.

Let us salute the fathers who are men—those who have accepted the responsibilities of raising their children. These are the men who become genuine dads to their children—loving them, spending their hard-earned pay on them, and most importantly of all, being there for them both in times of joy and times of need.

I can vouch for the irreplaceable role a dad plays in a child’s life. “Pop,” my uncle, gave my mother and me a home in the absence of my biological father. Pop was a man in the fullest sense of the word—hardworking, unselfish, and always willing to serve above and beyond the call of duty. In addition to giving more than a decade of his life in hazardous military and military-related service to his country (no desk jobs for Pop!), he also committed himself to raising me. Many males would have balked at raising another man’s son. Pop’s thought process would have been this (he never told me, but I know how he thought): Here’s a boy who, through no fault of his own, doesn’t have a father. His mother, my sister-in-law, even though we don’t get along, has neither the income nor skill set nor emotional capability to raise him by herself. Ergo, they’ll live with us; and I’ll help raise the boy.

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The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

The Ultimate Sacrifice: Remembering American Heroes

Last year on Memorial Day, my wife, daughter, and I were touring Cambridge, England. We took a bus ride three miles out of the city to the U.S. military cemetery there–one of 25 American burial grounds administered by the U.S. government on foreign territory. Cambridge University showed their deep gratitude for their American ally in World War II by donating 30 acres to serve as a final resting place for 3,812 Americans stationed in England who lost their lives in the war.

There is also a wall in this cemetery. Inscribed on it are the names of 5,126 additional American servicemen whose bodies were never recovered, including President Kennedy’s older brother, Joseph Jr., and the famous American bandleader, Glenn Miller.

There is nothing quite like the solemnity and unique peacefulness that pervades the atmosphere of military cemeteries. These hallowed places, consecrated to the memory of fallen soldiers, sailors, and airmen, touch the soul. These military cemeteries elicit the same otherworldly feeling, whether in the English countryside or at Arlington National Cemetery across the river from Washington. I have never visited the vast cemetery at Normandy, France, where 9,387 Americans are buried; but friends who have were moved to tears there.

Over the course of our country’s history, tens of thousands of Americans–most of them young and with decades of life still ahead of them–made the ultimate sacrifice. Some were killed by enemy fire; others, tragically, by friendly fire. Some succumbed to accidents, such as a young man who was in boot camp with my Pop in 1923: He was joking around; mockingly jumping to attention, he jammed the butt of his rifle to the ground, and the rifle discharged a fatal bullet into his head. Many others perished from diseases, most notably the masses of doughboys killed by typhus in the trenches of World War I.

As we remember all those premature deaths resulting from service to their country, we must ask ourselves the inevitable questions about military service: Why? Or, more specifically: For what and whom?

First, the “what for”: In a word, liberty. As articulated in the immortal words of founding father Patrick Henry, “Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take, but as for me, give me liberty or give me death!” This is the value system that millions of Americans have shared.

Millions who have served in the U.S. military have at least glimpsed that if there is nothing worth dying for, then there isn’t much worth living for. None of pagan philosopher Bertrand Russell’s cowardly cynicism “better red than dead” has befogged the hearts and minds of America’s heroes. From the Revolutionary War, through the problematic era of westward expansion and “manifest destiny,” through the bloody 20th century conflicts in which Americans fought to help French, British, Korean, and Indochinese people resist tyranny, liberty has been the animating principle, the raison d’être, of America’s armed services.

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The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

Teacher Appreciation Week: Lunch With Mr. Walters

Last fall, I described the apparently miraculous way in which I located the one person in the world I was searching for—my seventh and eighth grade English teacher, Mr. Ted Walters, the man who taught me how to write and think, and thereby launched my professional career. Now, during Teacher Appreciation Week, I’d like to share with you the story of my happy reunion with Mr. Walters. I hope it encourages you to reconnect with a teacher who made an impact on your life.

Mr. Walters and I exchanged several happy emails between October and December. I had to get used to addressing him as “Ted,” just as former students of mine who are now professional colleagues have had to get used to calling me “Mark.”

One thing I learned from our correspondence was that Mr. Walters had not heard from any of the other young people he had taught during his eight years as a teacher. (Yes, only eight years. Like other highly skilled young teachers a half-century ago, Mr. Walters felt compelled to move on to greener financial pastures in order to support his family.) I pointed out to Mr. Walters that that was par for the course for junior high school teachers because, at that often-tumultuous stage of life, we are so preoccupied with ourselves that school and teachers tend to be forgotten the instant a school year is over.

After several emails, we set a date for a rendezvous: December 21. Mr. Walters and his wife, Pat, would drive an hour north; I and my wife, Eileen, would drive about an hour south. We would meet at noon at the Olive Garden restaurant in Cranberry Township, Pa. I looked forward to our reunion with keen anticipation.

Eileen and I arrived right at noon. As soon as we opened the front door of the restaurant, Ted and Pat were facing us. I recognized him immediately. The passage of nearly five decades since I had last seen him had not changed him much. His countenance and mind remain bright and youthful.

Our table server was clearly touched when I informed her that I was having a reunion lunch with my English teacher from 50 years before. Indeed, I confess I suppressed an urge to stand up and offer a public toast to my great teacher and cite him as a representative of the many great teachers in our country.

Other than the initial meeting, there was one other particularly special moment during our reunion. Shortly after we sat down, Mr. Walters cocked his head to the right. The effect on me was electric. I had completely forgotten about that distinctive mannerism of his—a sign that let us know that he was fully “locked in” on us. Once he did it, the previous half-century separating past from present instantly evaporated, as if those years had never happened. What remained was a blissful, abiding sense of timelessness, a glimpse of eternity in which we would always be friends. It’s amazing how the personal connection between teacher and pupil (now friend and exemplar) was completely re-established by one small movement.

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The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

One Powerful Christmas Lesson





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The entire country pauses on Dec. 25, as Christians commemorate the birth of Jesus of Nazareth, known to Christians as God’s Christ and Savior, and known to many as The Prince of Peace.

The impact of this one special life has reverberated through the centuries. Kingdoms and governments rise and fall; the celebrities of one generation are largely forgotten by the next; powerful institutions and organizations—from central banks to giant business enterprises to mighty armies—come and go, but the influence of Jesus of Nazareth endures.

From the very beginning, Jesus’ mission was misunderstood. Many of his own people had expected God to send them a mighty man of war, not a healer and teacher.

Today also, Christians often misunderstand their Savior, as when they invoke the New Testament as justification for government to forcibly redistribute wealth in the name of charity. The social gospel, social justice, and liberation theology strains of Christianity have overlooked one fundamental principle of Jesus’ life—one that should be especially obvious at this time of year when we think of Jesus as a tiny infant: He never used force to compel others to do good.

In Matthew 19, Jesus offered a rich young man a contract—his wealth to be given to the poor (demonstrating that he would not make an idol of his money and be willing to follow Christ fully) in exchange for eternal life—and he accepted the man’s decision to decline the offer. In Luke 12, he refused to get involved in a “redistribute the wealth dispute,” tacitly accepting the sanctity of property rights. In the parable of the Good Samaritan (Luke 10), Jesus illustrated genuine Christian charity. The Samaritan freely gave his own money and time to help the person in need. He most assuredly did not seize money from others to pay for the wounded man. Jesus shunned the use of force. He rejected the liberal temptation of using other people’s money to accomplish ostensibly charitable goals (what William Graham Sumner referred to as A and B deciding what C should do for D).

Adam Smith, the great moral philosopher, understood the difference between law and gospel better than many contemporary Christians do. In “The Theory of Moral Sentiments,” Smith cited prudence, justice, and beneficence as the three great social virtues. Christian charity—beneficence—was “the ornament which embellishes, not the foundation which supports [society].” Justice, by contrast, is “the main pillar that upholds the whole edifice” of society. Therefore, no person may compel another to give charity, for that would violate justice, the basis of society and law. While Jesus encouraged charity and beneficence in the clearest terms to his disciples, he did not view the gospel as abrogating the law protecting private property; hence his statement in the Sermon on the Mount, “Till heaven and earth pass, one jot or one tittle shall in no wise pass from the law.” (Matt. 5:18)

Just as the physician’s first principle is “do no harm,” so Jesus did harm to nobody. He did not believe in a zero-sum economy in which one person would benefit at the expense of another, but believed in freedom, voluntary contract, and mutual benefits. His life was the highest example of the non-aggression principle in practice. He never taught that it was legitimate to help one person by trespassing on the rights of another. He never taught that the key to heaven lay in compelling other people do good things. Instead, he healed, comforted, taught, and saved human beings, rescuing them from their sins, errors, diseases, and fallibility with a love so far above the normal human sense of love that we still are far from grasping its full import.

What we can grasp is the innocence and gentleness of the baby Jesus. Think of how blessed the world would be if that spirit governed mankind.

At Christmastime 2013, it’s worth pondering what Jesus would ask of us today. I imagine it would be profoundly simple and sublimely wise—something along the lines of: Whatever you do, don’t hurt anybody and, if you can find it in your heart, be willing to help somebody.

Merry Christmas everyone, and “on earth peace, good will toward man.” (Luke 2:14)