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.

Thursday, April 14, 2016

Dodd and Frank Should Be Ashamed

In 2003, both Senator Christopher Dodd and Congressman Barney Frank pressured Congress not to hold FNM and FMC accountable to reasonable lending standards.  Frank was famously quoted as saying: "I'd like to roll the dice.."  As late as the summer of 2008, Dodd claimed FNM and FMC were on sound financial footing.  Within two months of Dodd's fatuous claim, both FNM and FMC were put into receivership and bailed out by the US taxpayer.

So, who were FNM and FMC?  FNM is known as "Fannie Mae."  FNM were created in 1938 for the sole purpose of using the credit of the American taxpayer to buy residential mortgages that met FHA (Federal Housing Agency) lending standards.  FMC was created in the 1970s for the sole purpose of buying residential mortgages from thrifts and savings and loans.  By 2007, half of all residential mortgages in America were owned by FNM and FMC.

So, what happened in 2003.  In 2003, both Dodd and Frank pushed FNM and FMC to lower the lending standards of purchased mortgages.  This pushed the mortgage originators to lower their standards as well.  The result: subprime and alt-a mortgages that had little chance of solvency if housing prices fell, became the norm.

Thanks, Chris Dodd and Barney Frank.  It wasn't the mortgage lenders or the banks that caused the disaster of 2008.  You guys deserve full credit for the disaster, by forcing the taxpayer to fund a quasi-government agency to buy substandard mortgages and spur the most dangerous housing boom in American history.

Of course, after 2008, Dodd and Frank ran the Senate and House Banking committees and switched course.  These two blamed the banks for the problem that they alone created.  By forcing FNM and FMC to buy sub-standard mortgages, Dodd and Frank triggered the bubble in housing that ultimately collapsed in disaster in 2008.

Then what?

Dodd and Frank co-authored the most punitive financial legislation in US history and all but guaranteed that the US would be unable to truly recover from the 2008 disaster.  Dodd-Frank shifted the blame for the 2008 collapse onto the banks and away from themselves -- the real culprits.  The average American has paid an enormous price for the perfidy of Chris Dodd and Barney Frank.

If your main purpose was to seriously damage the great American economic engine, you could not have done a better job than Chris Dodd and Barney Frank.

As the Wall Street Journal notes today, in a detailed review of Dodd-Frank regulations and their trials in court, the Dodd-Frank laws are an unmitigated disaster of questionable constitutionality.

Dodd-Frank and Obamacare will go down in history as two of the biggest legislative and economic blunders in American history.  As always, the average American is the victim.  Chris Dodd and Barney Frank are wealthy elitists, living a life of luxury and glory, while the average American struggles to get a job and a mortgage loan.

Tuesday, April 12, 2016

Watch Bank Earnings!

Commercial banking in the US is a dying industry.  Stripped by law of most of their most profitable businesses and drowned in paperwork with what remains, commercial bank shares are trading at multiples that seem to surprise Wall Street analysts. 

There is not much mystery here.  The overreach of the Dodd-Frank legislation and its accompanying 60,000 plus new regulations imposed on the banking community has all but eliminated most of the traditional profit centers for banks.  As a by-product, commercial lending has grown at a snails pace since the 2007-08 debacle, which is one of the key reasons that economic growth has been so meager.

Jamie Dimon, the CEO of JP Morgan commented last year that his firm has hired more than 30,000 new compliance officers since 2008, thanks to Dodd-Frank.  Meanwhile, JP Morgan's profitability has suffered.  When the leading employment gains are in compliance officers, you know the business is in trouble.  And, indeed it is.

What will happen is that all of the businesses that used to be performed in commercial banks will move to other venues -- after all, there is still a need for these businesses.  Additionally, many of those businesses will move offshore to more hospitable regulatory climates. 

America has become a tough place to do business.  The new frontier is likely to be Asia, as the western countries slide into irrelevance.

Sunday, April 10, 2016

Upside Down Economics

Everyone should read Adam Smith's "Wealth of Nations."   Smith's main point is that individuals, using only local information and acting to pursue their own interests, are the main wealth creators in every society.  Government's role in Smith's classic is mainly to stay out of the way.

History has proven Smith to be amazingly accurate.  The economic miracle of the19th century created the middle classes of Europe and the US, leading ultimately to the enormous economic boom in the quarter century that followed the conclusion of the second world war.

After 1970, things changed.  Politics intruded and economic growth, except during the Reagan and Thatcher years, disappeared both for Europe and for the US.

The period of "political activism" and the corruption of basic economics began in the 1970s.

What led to all of this is unclear.  It might have been the long period of anti-war agitation connected to the Vietnam war.  Who knows?

What we do know is that, even as Reagan was swept into office with a conservative, free-market, agenda, there was a growing movement of Americans becoming addicted to the government-knows-best model.  Today, half of Democratic voters support an avowed socialist, who, after reaching adulthood, thought communist-controlled Moscow was the best place to take his honeymoon in the 1970s. 

Today, the news media, excepting a single media outlet, leans closer to old style Soviet dogma than to the views of Adam Smith.  Absurd notions like making it a crime for the poor to work in New York and California are applauded by the media and young, usually wealthy, elitists. Destroying entire industries and uprooting millions of families, the coal industry comes to mind, is cheered by these anti-free market brigades.

The ideas that supply and demand should determine price and that consumer decisions should rule are being abandoned in favor of having the country produce what a small elite wants produced.  What is this model?  What happens to economic growth when what is produced is not what consumers want and when individuals are forbidden by law to work, if their skills are at the lower end of the spectrum?

In academe, increasingly, science is being replaced by political dogma.  New ideas and free speech are increasingly vanishing from the elite colleges and universities.  Admission to elite schools is now narrowly confined to the wealthiest Americans and those who are chosen on mostly political grounds to occupy the remaining few seats.  The monopoly position of academics, protected by absurd tenure rules, guarantees their status as one-percenters, while average Americans are frozen out of this locked system.

So, the next time you hear an "economist" opining on some topic or other, be on your guard. It is less and less about economics these days and more about what is politically correct in an environment that grows daily more hostile to free ideas.  This is turning economics on its head.

Friday, April 8, 2016

More Regulations -- Less GDP -- More Inequality

The Obama Administration is set to release more regulations in a few days.  Every regulation lowers GDP -- the question is not whether, but how much.  As the American economy continues to stagnate and economic growth seems a distant memory, the wealthy, elite left who dominate this administration are poring over new rules and regulations to further strangle the American economy.

On almost every front, the governments at all levels are straining to kill off the American economy.  States and cities are raising minimum wages, restricting land use, and adding to onerous licensing requirements.  The Obama administration is promulgating ever-burdensome, often unconstitutional, regulations in what seems to be a clear effort to destroy the American business community.

Who will be the big loser?  That's an easy one.  The losers, as always, will be the poor, the minorities, the disenfranchised.  They will be slaughtered economically by these regulations and obtrusive rules, designed to eliminate free markets and opportunities for those with less.

Obama and Jack Lew are destined to live a life of leisure and wealth, but that will not be the case for the victims of their policies.  Inequality will grow, as it has during every year of this overbearing administration.

Wednesday, April 6, 2016

Even WaPo Retreats

Read today's Washington Post editorial on the $ 15 minimum wage.  They are against it.  They don't seem to mind outlawing jobs for the poorest Americans, but, Geeze, $15 might impact their own children.  It must be stopped.

I would go the other way.  If $ 15 is a good idea, why not $ 100.  Let's let this absurd law apply to the majority of Americans, not just poor people.  Then maybe the elite left would begin to understand how they are undermining the life prospects of poor people.  It is not clear how they will ever understand otherwise.

The hypocricy of the Washington Post is amazing.  What's good for the goose is apparently not good for the gander.

Tuesday, April 5, 2016

NY and California Slam the Poor

Making it illegal for someone to take a job that pays less than $ 15 an hour doesn't affect graduates from elite colleges.  Indeed, such a requirement does not likely effect anyone with average or above skills.

Outlawing jobs for people with low skills simply makes certain that millions of poor people will have no job at all and no way to gain the skills necessary to compete for a job.

Most folks learn skills on the job.  Those lacking wealth and college degrees usually have only one way of learning skills -- working for next to nothing while developing the skills necessary to move up the ladder.

That ladder has now been sawed off by liberal elites and those who know no economics.

The poor and lowly skilled are the main victims of laws that cynically forbids them access to the work force.