Wednesday, May 4, 2016

Donald Trump --Really?

Seeing Donald Trump triumphantly blovating his way to the Republican Presidential nomination is like waking up from a bad dream.  If arrogance and bombastic rhetoric was an improvement over common sense, Trump would be just what the doctor ordered.  But is this really what the doctor ordered?

The American economy is sick and getting worse.  Culturally, vast numbers of Americans have bought into the idea that capitalism is just a game for the rich.  So, Donald Trump is the answer?

Trump has demagogued the trade issue, feeding off the ignorance of many Americans, whose job insecurities underlie much of the current angst.  Bad deals with China have nothing to do with the moribund US economy.  The US economy has been strangled by over-regulation -- not bad fiscal or monetary policy or bad trade policy.

How to get the American economy back to the 3 1/2 to 4 percent growth of its pre-2000 history?  That is pretty simple.  Get back to the regulatory environment in which the US economy thrived from 1865 until 1970.  That environment produced an America that was the wealthiest country pre capita in the world and where the middle class consistently gained ground. 

Look at the American health care system.  Costs are surging, unnecessary procedures proliferate and the poor and lower incomes find their health care availability disappearing.  This is what happens when government takes over the health care system, as it has in the US.

What's Trump's answer to the health care system's travails?  Go to a single payer system.  What does that mean?  It means turn the entire health care system into one more government bureaucracy, effectively destroying the historic doctor-patient relationship in the US and ushering in a system guaranteed to decline in quality, much like American public schools -- also run by an uncaring, unfeeling bureaucracy, whose main purpose seems to prop up jobs and incomes for sub-standard employees.

Sounds pretty bad, doesn't it?  Until you look at what is happening in the Democratic Party nomination race.  Hillary Clinton?  Bernie Sanders?  These two would embarrass Hugo Chavez with their demands for more and more wealth redistribution and government largesse.  Sanders is more than a socialist.  He gave evidence of his love for the old Soviet regime when he spent his honeymoon worshiping at the Moscow tomb of Vladimir Lenin.

Clinton is less of an idealogue.  Clinton is mainly about gaining personal money and power.  She could just as easily put on the cloak of conservatism as the cloak of liberalism.  Ideas really don't matter much to Clinton, as her constantly shifting views on every subject provide testament.

But there are two things that Clinton supports -- more regulation of business by government and arbitrary decrees by the executive without consultation with Congress. She is publicly on board for both of these Obama-Clinton programs.  These are the very things that have destroyed American economic growth and led to declining real income for middle-class Americans.

So, who would be a better president?  That's easy.  Trump is a far, far, better choice than either Clinton or Sanders.  But, it's a shame that it has come to this.

Monday, May 2, 2016

Let Puerto Rico Go Into Bankruptcy

Puerto Rico has $ 70 billion worth of debt that they cannot pay now or ever.  They should declare bankruptcy and sit down and work out some kind of deal with their creditors.  Trying to get Puerto Rico to pay their debts in full is stupid.  They can't do it.

Some Republicans are insisting that bond holders be repaid in full.  Why?  They knew the risks when they bought Puerto Rico bonds, whose yields were substantially higher than other, better quality, bonds.  Why should a group of hedge funds and sharpies be saved from their own stupid speculation?

Those owning these bonds should suffer. Period.  That is the right answer.  Keep the American taxpayer out of this.  They didn't spend the money that the bonds raised.

The Puerto Rico situation is the first shoe to fall.  Next up to the plate is the city of Chicago, followed shortly by the state of Illinois.  They, also, should go bankrupt and bondholders should be the losers, not taxpayers.  Eventually almost every state and large city in America will be forced to do a "debt workout" of some kind.  No way, these folks can pay off their debts.  It is just not possible.

The market can't work if lenders don't pay the price when they make bad loans.  Bankruptcy is the right answer and the lenders should get, deservedly, hosed.

Welcome to the American version of the Greek crisis.  This is the first act of along running play.

Buffet's Annual Shareholder Meeting

Warren Buffet is center stage this week and, as he is wont to do, he devoted a lot of time to taking pot shots at capitalism.  Buffet's view of capitalism is pretty simple:  everything that Buffet does is legitimate capitalism, but activities of others are either criminal or non-productive. This is typical Buffet.

When asked about money management generally, Buffet lambasted money managers as "creating no value." He encouraged average investors to invest in index funds.  I agree with that, but how does he defend himself.  He made his original stake, aside from the silver spoon at birth as the son of a United State senator, by charging huge fees -- much, much larger than the hedge fund fees that he complains about today.  He seems to have forgotten that episode.  But then, the rules that apply to others never seem to apply to Buffet.

Then, on to the subject of middle class angst in America.  What was Buffet's opinion.  He trotted out the stale and incorrect view that Americans are mostly unhappy because no one went to jail in 2009.  Hey wake up, Warren!   It's 2016.  People want jobs and higher living standards, something that became little more than a pipedream for a huge swath of the American middle class.  Why!  You, Warren, you and your friends!

Why are health care costs going through the roof?  I suspect that bothers people a lot more than the Buffet narrative that bubbles are caused by Wall Street bankers.  Stagnant incomes in a stagnant economy thanks to Buffet and his favorite politician, Barrack Obama. 

Now, Buffet, who seems to think the current economy is great, is backing Hillary Clinton.  If you liked the last eight years, you'll love the next eight under Clinton.  But, if your name is not Buffet and you are in the middle class, you better get prepared for declining disposable income, higher health care costs, pension fund bankruptcies, and public monies siphoned off into friends of Bill and Hillary.

Just who is it that should have been put in jail?  How about Buffet himself?  Goodness knows, he is every bit as greedy as any Wall Streeter. 

Buffet enjoys his status as one of the two or three wealthiest Americans and he will do whatever it takes to maintain that status, even if American's middle class is saddled with economic roadblocks imposed by his political sidekicks.

Meanwhile, Buffet maintains his folksy pose as he jets and limousines from place to place to hang out with the beautiful people that he seems to need to hold close so desperately.   Too bad if you are an average American.  Buffet's not your guy.

Friday, April 29, 2016

Some Consistent Themes

It is now widely acknowledged that economic growth is a thing of the past in western nations. 
Absent economic growth, living standards for average citizens must deteriorate.  Why? Because the various mandated employer benefits are ultimately paid by the labor force, not by employers.  This means a steady erosion in the disposable real income for the average citizen, because the costs of these mandates have no upper limit. On top of this, the expected dramatic tax increases that lie ahead will fall mostly on the backs of average citizens, further reducing disposable incomes and lifestyles.

Meanwhile, the bureaucratic classes -- government employees at all level, academics and public school teachers, employees of taxpayer funded foundations, employees of international bodies like the World Bank, the IMF -- will continue to get ever higher compensation and benefits. There has been no deterioration in the real disposable income and lifestyle of the bureaucratic classes.  And there won't be, as long as the political classes force ordinary taxpayers to provide the funding for bureaucratic largesse.

So, what is the latest siren song of the big government loyalists:  Time for fiscal policy. 

The pundits and the left are singing the tune that monetary policy no longer works.  No kidding.  When did monetary policy work?  Has something really changed?  Or just the official rhetoric?

The new tune is that it is time for fiscal policy.  That means more spending. Is the argument that spending hasn't been tried?  Has anyone noticed that the only thing growing in the US economy is the national debt?  Time for fiscal policy is leftspeak for higher and higher deficits.  It used to be said that when debt reaches 70% of GDP, it becomes unsustainable.  We are way past that, thanks to the last eight years.  So, now is the time for more spending and debt?  That's the ticket?

Over the past half century, there has been a steady but certain legislative onslaught outlawing various free market activities.  This onslaught increased dramatically in the last eight years. 

It is now illegal for the free market to operate in the health care sector.  The result:  massive increases in costs imposed on average Americans and a decline in health care availability. 

It is now illegal for investment banks to make markets in securities.  The result:  illiquidity and volatility in financial markets and the absence of stock market returns since the end 2014; the shrinking of investment banks with the resulting loss of jobs and shifting of the financial center of the world away from New York in the direction of London, Tokyo, Hong Kong, and Beijing.

It is now a crime in several states for anyone with a skill set of less than $ 25 per hour to have a job.  The result: large numbers of lowly skilled workers, rather than face a prison term, are increasingly turning to welfare in order to survive.  The future for these folks, at the bottom of the US economic pile, is increasingly bleak with the new laws that effectively make it illegal for them to gain the skills necessary to enter the US work force.  Hillary Clinton proposes to  expand this ban to the entire country, if elected.

It is now illegal for a commercial bank to make a mortgage loan unless it complies with rules designed by bureaucrats who think mortgages should be doled out on a political, not economic, basis.  The result:  millions of Americans have given up the dream of home ownership, since they are effectively denied access to the mortgage lending market.

It is now almost illegal to operate a coal business in America due to arbitrary rulings from the EPA designed to eliminate America's coal industry.  This is done in the name of carbon dioxide levels that today are 6 percent of the atmospheric CO2 levels reached in earlier geological eras.

At every level of government, new rules and laws designed to snuff out free markets and free enterprise are enacted daily. 

These things matter.  They eventually reach a tippling point.  Economies cannot grow in a regulatory climate this hostile.  Free people need free markets and they no longer have them.

So, fiscal policy is an absurd prescription for what ails us.  Free markets are the only prescription with any hope of lifting economic growth in the western economies. 

It is one of history's great ironies that a communist nation now provides a more hospitable climate for free markets than the US and Europe.  Time will show that China with free markets are more than a match for the stultified bureaucracies that hold sway in the West.

Sunday, April 24, 2016

Capitalism as Criminal

It is becoming more and more an accepted article of faith, especially among younger folks, that those who work hard, save their money, raise their families are little more than criminals.

Capitalism has become a dirty word.  Hypocrites like Warren Buffet have helped to fuel this phenomenon by arguing that the rich should pay more in taxes.  One wonders why, if Buffet believes this, he doesn't step up to the plate and pay more taxes himself.  There is a line on the tax form for folks to pay more than they legally owe and many folks do exactly that.  But not Buffet.  No, indeed.  He wishes to bask in the self adulation of those who say the "right thing," but do what they damn please, even if it is completely inconsistent with their stated views.

Hillary Clinton is another great example. The $ 300,000 speeches that Hillary gives are funded mainly by the taxpayer -- one way or another.  Either the conference takes a tax deduction for spending the money or, as in the case of University of California, the payer is directly the taxpayer, because she is speaking to a taxpayer-funded sponsor.  When has Hillary ever had a real job in the private sector?  Naturally, Hillary has nothing but contempt for the private sector.  She saves her concern for those who don't work hard, who don't save and who could care less what happens to their children.  These are the folks that Hillary champions.

The greed and self interest motivation of the Buffets and Clintons is absolutely astounding.  They say one thing and do another.  But, the one thing that they agree on is that capitalism is a loser.  They much prefer the government taking over our medical system, our financial system, our housing market, our labor markets, and on and on.  And, by and large, they are succeeding.

That's why the western economic engines have sputtered to a halt.  Buffet and Clinton are doing great, as did King Henry the VIII.  But, what about the rest of the country?   How are the folks out in middle America doing?  Not so good.  And it is not going to get any better.

The world has experienced government takeovers of the economy many, many times.  The results are always the same.  If you are following Venezuela's experience with big government, you know where it leads -- poverty, increasing crime, and hopelessness for the bulk of the population, while a small elite lives comfortably and spouts rhetoric about how much they care about the average citizen.

This was the old Soviet Union game plane.  Remember the "worker's paradise?"  And don't think there weren't many, many Americans that fell for this line, as millions of ordinary Russians were systematically being liquidated by the dictatorship of the proletariat.  The rhetoric was all about helping the working classes, as millions lost their lives and those that survived were reduced to subsistence living, while the elite lived in mansions and were chauferred around in limousines.

Bernie Sanders was so enamored of the Soviet Union that he chose to spend his honeymoon there -- not after the Fall of the iron curtain but during some of the worst excesses of Soviet slaughter.  He liked that regime apparently.  But, he hates capitalism, which is obvious every time he takes the podium.

When you watch contemporary television, what do you see?  Businessmen are always crooks, bent on despoiling the environment and poisoning their clients -- all for the mighty dollar.  Who writes this stuff?  Mainly folks who have never ventured into the private sector and spend the bulk of their time around the wealthy and the elite bureaucrats who live off this system.  The TV show "Billions" is written by the elitist Andrew Ross Sorkin, a TV star masquerading as a financial columnist.  He despises capitalism, as is obvious from his daily repartee on CNBC.

Meanwhile, folks who get up every day and trudge to work, look after their families -- the old and the young, save their money for a brighter day, are verbally bludgeoned regularly with accusations or racism, sexism, homophobism, and on and on.  They just don't get it.  The elite, who have protected bureaucratic jobs or tenured positions, lord over the average American and have nothing but contempt for the average American value system. Not having to compete for a living, these bureaucrats, like Jack Lew -- currently Secretary of the Treasury, blow up companies and jobs for the sheer fun of it.

But, capitalism is what created jobs for all of these cynical bureacrats and, by destroying capitalism, they are destroying the wealth creation mechanism that permitted these folks to take power in the first place.  It is only a matter of time until they eat their own and we are already seeing that.  By turning his trade deal into an imposed social blueprint for the US and their trading partners, Obama has found that even his allies don't like international trade anymore.  The Republicans don't either.  The Republican Party is no more pro-capitalism, than it's Democratic counterpart.  The free market folks in both parties seem to have thrown in the towel.

Looking down the road, it is clear where the anti-capitalism plan takes you.  Greek politicians for the past six decades have decried the evils of capitalism.  They pretty much installed the entire Clinton-Sanders program four decades ago.  Now, they reap the fruits of their program.  Yes, everything is free in Greece, but in reality nothing is really available other than poverty, crime, the collapse of the health care system, the collapse of the government's finances and an economy that is shrinking.  So, Greece went from a thriving economy to disaster under the Clinton-Sanders-Chavez program.   But, the bureaucrats in Greece still live well to this day.  Meanwhile, the average Greek citizen lives a life of hopelessness and it won't get better soon.

So, while the youth of America join hands with cynical bureaucrats in arguing for free this and free that, the steady erosion of the values of thrift and hard work means the obliteration of economic growth.  What has happened since 2008 -- the worst economic recovery in American history -- will be viewed in retrospect as the good times.  Even 2 percent growth seems a pipe dream, given the growth of government and the relative decline in the private sector in the US.

Friday, April 22, 2016

Wall Street Becoming a Government Subsidiary

Today's Wall Street Journal reports that regulators now want to place stringent pay controls on Wall Street executives.  What's left?  Dodd-Frank eliminated the most profitable businesses in Wall Street by fiat and now wants to controll pay decisions, formerly left up to the company itself. The government has left little or nothing for Wall Street firms to control.

Once the government controls every aspect of what a company does, the company is nothing more than the government itself.

The irony of this is that Wall Street played a follow-the-leader role in the housing collapse of 2007-2008.  That collapse was engineered by politicians, interestingly named Chris Dodd and Barney Frank.  Those two luminaries forced Fannie and Freddie (the two big GSEs) to go off the deep end in the residential mortgage market, starting in 2003.  By 2007, Fannie and Freddie owned more than half of all the mortgages in the US.  This fueled the subprime housing market bubble and caused its subsequent collapse.  Wall Street was an innocent by-product of this government-led fiasco.

But, Wall Street is an easy target for the uninformed and is now a moribund arm of an ever growing government bureaucracy.  That doesn't bode well for future economic growth in the US.

Sunday, April 17, 2016

Remember Greece?

Greece is the bailout that keeps on taking.

Rather than simply let Greece go bankrupt, way back when the Greek national debt was relatively small and mostly owned by German and French banks and a smattering of hedge funds, the political leaders of the Eurozone decided it made more sense to "extend and pretend."

So, that they did.

So, where are we now, after seven years of pushing more Euros to the profligate Greek economy and extending a lifeline that gets more and more costly every day?

Predictably, the Greek economy is a disaster. The bailouts have done nothing to improve the economic lot of the Greek people.  Quite the contrary.  Incomes have collapsed, businesses have been destroyed, crime is rampant, the tourist industry is devastated.  Nothing good has come of the Greek bailout by its fellow Eurozoners.

What about Greek debt?  That is the only thing that has an uptick.  Greek debt, which at the time of the crisis was just about 100 percent of GDP is now more than 200 percent of GDP and rising.  Greece is in worse financial shape today than at the time of the initial bailout.

Germany's Angela Merkel is the main culprit in all of this.  Swinging Germany's mighty political clout behind the bailout schemes has made certain that they would take place.

Along, the way, the International Monetary Fund got involved.  The IMF is expressly forbidden by charter to get involved in bailouts.  But, of course, that they did.  Now, even the IMF is coming to the realization that they have thrown good money after bad.

This leads us to the current crisis, an annual affair these days.

Unless the IMF caves to Eurozone pressure, Greece will run out of money in July.  Hence, Merkel and company are busy pressuring the IMF to look the other way and give the broke Greek government more money.

If there is such a thing as a "bubble," this has got to be it.  Ever rising debt levels funded by foolish and pernicious European political leaders, with a backdrop of rising poverty in Greece, just goes up and away.  (This is Bernie Sanders' dream scenario for the US, as no one becomes responsible for anything.  Mysterious government bailout money carries the system endlessly into higher and higher debt levels).

We already know how this ends.  It's just a matter of time.  Not only will Greek end up going bankrupt, but so also will the Eurozone and once-mighty Germany.