Wednesday, September 20, 2017

Why Now? The Question the Fed Won't Answer

Why is the Fed considering reducing its absurdly large balance sheet?  Why now?

It is hard to find any rationale at all for Fed policies these days.  Is this proposed "reduction in the Fed balance sheet" meant to be a "tightening move?"  If so, why?  What about the current economic performance of the US requires a "tightening move?"

Why was the balance sheet expanded to these levels in the first place?  No one knows, except Bernanke.  But, he's not telling.

Fed policy is adrift.   Yellen says that her models predict higher inflation in the next year or two.  But, that's what Fed models have been predicting for a decade.  And, such models have proven to be consistently wrong.  Inflation has gone nowhere.

The Fed balance sheet should never have been expanded to the ridiculous levels that we currently observe.  Nothing in the current economic data cries out for any Fed action at all, as it didn't back then.

Is this just all politics?  Yellen is a liberal democrat and democrats are not in office.  Maybe Yellen hopes that reducing the Fed balance sheet and raising rates will crush the Republicans and help elect Democrats. 

Other than that rationale, it is difficult to see any other purpose for Yellen's Fed policies.

Monday, September 11, 2017

Was Sarbanes-Oxley Needed?

There is a truly bizarre article in today's NYTimes by Gretchen Morgenson, originally published on September 7th.  The point of the article is that the "Sarbanes-Oxley" regulations that currently strangle America's financial system are good for investors.  Did investors need help?

The average investor has earned over 12 percent returns for the past 120 years.  That means you double your money, on average, every seven years.  Pretty spectacular!

So, was there a need for a change?  Is 12 percent not good enough?  Citing Worldcom and Enron, Morgenson says that investors needed protection.  From what?  Stock market gains?

Even with the problems of Worldcom and Enron, investors did terrifically by owning diversified stock portfolios that roared upward, even those containing Worldcom and Enron.  So, what's the point of punishing every other stock because one or two had criminal activity (which was exposed and dealt with under the existing law, without any need for Sarbanes-Oxley's madness).

When Worldcom and Enron were exposed, the Dow Jones was trading at 10,000.  Today, seventeen years later, the Dow is trading at 22,000.  So, how exactly were investors hurt by Worldcom and Enron?

Sarbanes-Oxley has had a debilitating effect on the economy and led to a shrinkage of public companies.  Today, there are fewer public companies for investors to own than there were prior to Sarbanes-Oxley and the economy has endured the slowest economic recovery in its history.  Thank you, Sarbanes-Oxley and Dodd-Frank!

"Don't fix what ain't broke" goes the old saying.  If you don't like a century of 12 percent average returns, then kill the goose that lays the golden egg.  That's what excessive regulation does.

We have endured the crash of the 1930s and the 2008-2009 financial collapse.  Stocks are still much, much higher than they have ever been.  It is not possible to have lost one cent on a diversified portfolio of stocks if you still own them today.

But, the left cannot resist.  They never met a regulation that they didn't love.  Sarbanes-Oxley and Dodd-Frank threaten a century of good stock returns by regulatory overkill.

Seems to me 12 percent was a pretty good track record.  Why destroy it?

Thursday, September 7, 2017

Tax Reform is not Really Tax Reform

No doubt, President Trump's tax reform will be an improvement over the current state of the tax system.  But, will it matter much.   The answer is a resounding "no."

The only thing that will really help taxpayers is a cut in spending and that is not on the table.

All the hoopla about tax cuts "for the rich" is just so much baloney.  Rich folks choose how much to pay in taxes, regardless of tax rates, because they can control, with precision, their "taxable income."
Folks like Warren Buffett pays a miniscule amount of taxes, not because rates are low, but because Buffett can choose to show a very low level of taxable income (He could just borrow and live off of that and not even file a tax return).  So, what does Buffett care if tax rates go to 100 percent.  It won't affect him or any other rich person.

Watch out for all the nonsense about to be said about tax reform.  This is pretty much a side issue, both for the economy at large and for the average taxpayer.

The only hope for the average taxpayer is to eliminate the "entitlement state" and that's not happening.

Tuesday, September 5, 2017

More Evidence That the Fed and ECB are Unmoored

Increasingly, the data shows continued weak economic growth in the Eurozone and in the United States.  US job growth slipped to 155,000 for August, while earlier months were revised downward.  The Eurozone, celebrating recent growth blips, is now facing its usual reality of no growth and very, very high unemployment.

Meanwhile, there is no hint of inflation pressures in either the Eurozone or the United States.  The data shows that inflation is actually declining in both economic zones.

So, why are the Fed and ECB considering "tightening" measures to reduce economic activity and slow inflation -- what activity and inflation are they concerned about?

The absurdity of Fed and ECB policies is apparent in the total lack of justification of their current policy initiatives.  What, in the data, suggests that now is an appropriate time for "Fed tightening?"

The answer is obvious -- nothing.  Fed and ECB actions are purely political and reflect a bureaucracy that no longer has any rationale for its existence.

Saturday, September 2, 2017

Anti-Trump Media Means News No Longer Matters

Trump is no peach.  Admittedly.  But there is nothing worse than today's media outlets.  They are so anti-Trump, that instead of reporting the news, they devote themselves to castigating Donald Trump.  They even make Trump look good by contrast to their absurd Trump bashing.

The media should draw a breath.  There is literally almost nowhere left, maybe Fox, to get real news anymore.  Any resort to print news sources or major network news sources means all one gets is a one-sided, hate-filled attack on the President.

How is this useful?

Economic Growth Solves Most Problems

Today's Wall Street Journal has an article with an interesting headline: "Tight Labor Market Eases Disparities."  What does that mean?  The key sentence in the article is the following: " the labor market tightens, minority workers are now making some of the fastest gains."

Just as the lack of economic growth punishes the bottom half of the wealth and income distribution, faster economic growth lifts under-water boats the most.

If you care about economic inequality, then economic growth should be your ticket.  Unfortunately, those who decry economic inequality push policies that guarantee permanent income inequality -- policies that provide for slower economic growth.

Every single policy initiative of the left reduces real and potential economic growth.   There are no exceptions.  This means that the rich and the protected bureaucrats will flourish under the policies of the left (as they did in Soviet Russia, modern day Cuba and Venezuela).  The victims of the policies of the left are poor people, minorities and other defenseless folks.

You don't see poor people pushing for leftist policies.  It is no accident that the wealthiest Congressional districts in the US elect folks like Nancy Pelosi.  Lower middle income districts gave Trump his victory.  These folks are victims of slow-growth policies pursued by Pelosi and her like-minded plutocrats.

If you want to help poor people and minorities, stop pushing policies that undermine their chances.  Bureaucracy and regulation help the protected and privileged.  These policies harm the average or below average wealth and income groups in our society.  Only free markets deliver for poor people.  Only free markets have ever delivered for poor people.  The rich and the bureaucrats have always done well and always will in no-growth economies.  The poor and the disenfranchised must have economic growth in order to prosper.

Friday, September 1, 2017

Houston Will Surprise You

The devastation that occurred in Houston has everyone speculating about how long it will take for Houston to recover.  The answer: not long.

Houston is one of the least bureacratized cities in the country.  This city will rebuild quickly and with enthusiasm.  This is still one of the few remaining frontiers of free markets.

Don't worry about Houston -- my home town incidentally -- it will be back and soon!