Monday, October 31, 2016

TPP Is Not a Free Trade Deal

Don't confuse TPP with free trade.  Free trade is free trade, not massive protections for unions, special deals for environmentalists, and host of other restrictions that knee-bend to the mania of the left for politically correct issues.  Free trade is simply free trade.  TPP has nothing to do with that.

The British economy dominated the world during the 19th century for one main reason -- free trade.  The Repeal of the Corn Laws ushered in unprecedented growth in the British economy and the world economy.  This was free trade, not the absurd deal brokered by the Obama folks called TPP.

TPP is "Obama trade" -- a far cry from free trade.  There is no reason to support TPP or even encourage it.  It needs to be scrapped in favor for real free trade.

Sunday, October 30, 2016

The Gathering of the Perfect Storm

Rates are spiking up -- not only in the US but globally as well.  This has to be caused by either inflation fears, credit quality fears or both.  Meanwhile, economic weakness seems to be shutting down economic growth globally.  The world is entering a period of the perfect economic storm.

Even with the recent GDP growth estimates for the third quarter in the US, the overall US growth rate is sluggish and likely weakening.  Other data suggests the US economy may be slipping into recession that the data will confirm in 2017.  The likelihood of further economic strangulation from the political process suggest growth may be forced by the politicians further into negative territory.

The Fed is a growing joke.  As the economy slips and rates rise, the Fed is set to raise repo rates and the funds rate -- two rates that are increasingly irrelevant to the economy.  But, the Fed has to act soon, as other rates are skyrocketing, or the Fed itself will be exposed as irrelevant.  It will be interesting to see the Fed "raise rates" in the face of an economy entering a recession.  I suppose Janet Yellen will, later, explain this away by things she didn't anticipate.  She will have to come up with some rationale.

The growing calls for infrastructure spending bump against the reality of massive debt already plaguing every major economy in the world.  There is simply no room for more spending in any country's budget these days.  The massive transfer payments, subsidies, and rent-seeking programs built into western nations' budgets will prevent any money being available for even the most basic needs of government.  The idea of increasing infrastructure spending is laughable.

Meanwhile, politicians call for higher taxes on the rich.  This is a pipe-dream.  Under current law, Warren Buffett doesn't need to file a tax return or pay any taxes at all, regardless of what the rates are.  Rich people can adjust their taxable income at will.  Last year Buffett paid $ 1.6 million in taxes.  That suggests an income of $ 3 million.  That's a joke for someone worth $ 65 billion.

"Taxing the rich" will further remove incentives for entrepreneurs to increase employment and business formation.  This just further weakens an already weak economic environment.

Stocks have bumbled along as earnings continue to wither.  But, the stock market cannot continue to produce if the underlying economies are weakening.

Watch out!

Saturday, October 29, 2016

Soybeans Moves the Needle?

GDP growth was announced on Thursday to have increased 2.9 percent for the third quarter of2016(divide that number 4 to get the actual number).  Almost every component of GDP was pitiful.  The sole significant increase was a10 percent jump in exports.  Does anyone believe that?

Looking under the export numbers was a spike in soybean sales.  How the Commerce Department could put this out with a straight face is mind boggling. A soybean spike - really?

2.9 percent is weak at best, since it implies year-to-year growth of 1.5 percent - barely a pulse.

But look for revisions, after Clinton has been safely elected.  The Commerce Department is not a neutral bystander.

Thursday, October 27, 2016

Post Brexit

So, did Britain collapse after Brexit?  According to Paul Krugman and all of his left wing buddies like Barrack Obama, Britain's economy would suffer dramatically from Brexit.  Maybe.  But, so far the results are the exact opposite of the predictions of the doomsayers.

"The economy has continued to expand at a rate broadly similar to that seen since 2015 and there is little evidence of a pronounced effect in the immediate aftermath of the vote," said Joe Grice, Britain's chief economist of the Office of National Statistics, according to the Associated Press today.

Growth wasn't huge -- 2 percent at an annualized rate -- but a lot better than the growth rate of the US and the Eurozone during the same period, where all the naysayers hold sway.

Facts can be inconvenient to the true believers.

Monday, October 24, 2016

The "We Can't Grow" Chorus

Economists and liberal business types are now united in the view that America no longer has the potential to grow at the rates, that until the last two decades, it has historically grown. Once the mightiest economic engine in the world, US economic growth is now a pitiful shell of its former self and more and more left-wing pundits say that's the new normal.

Well, possibly.  Imagine that a $ 15 minimum wage becomes law.  Do the numbers.  $ 15/hr translates into $ 32,000 per year.  Now tack on employer-provided health care, social security, unemployment compensation, implied litigation costs and on and on.  You quickly get to $ 50,000 per year.  So, in the brave new world that left-wingers are leading us to, it will cost $ 50,000 to hire an entry level employee with no apparent skill set.

How do folks with high school educations or less ever get hired if the entry level compensation implies $ 50,000 in costs to employers?  More than half of American potential employees fit into this category, so that, in effect, the $ 15 minimum wage law makes it a crime to have a job if your skill set at day one is less than $ 50,000.

How do you get a skill set?  Historically, folks learn on the job. That will be against the law in the brave new world of $ 15/hr minimum wage laws.  No longer will anyone but the economically elite have access to the job market in the world being prepared by the left.

Well, in that case, yes!  Economic growth will be over.  In fact, economic growth will most likely be negative if we get to a $ 15/hr minimum wage.

Add in the unbelievable proliferation of new regulations that hamstring banking and new business formation and economic growth will likely be impossible.

So, the left is correct.  There is no economic growth in our future.  The left has seen to that.

The left says that the absence of economic growth is caused by a decline in productivity.  'Productivity" is measured by output per worker (not by any measures that you and I might think of as technological growth).

Productivity can go down by the simple expedient of forcing businesses to hire and employ employees that they don't need or who are unproductive.  Hiring "compliance" employees to deal with a mass of new regulations reduces productivity by definition, since compliance officers don't produce anything and mainly serve to retard production.

Jamie Dimon recently noted that the new regulations since 2009 have forced JP Morgan to hire 30,000 new "compliance" officers.  Guess what?  The productivity at JP Morgan has collapsed.

Across America businesses are reeling from the autocratic, unpredictable rash of new regulations that occur hourly in the new America. Not much time is left to produce more goods and services.  The fear of ever more regulations is enough to prevent anyone from thinking out of the box.

New ideas, like Uber or Airbnb, immediately attract the attention of luddites like Elizabeth Warren, who never met a capitalist idea that she approved of.  Warren is the main cheerleader of the modern Congressional witch-hunt that hounds corporate leadership, who have the temerity to do things for shareholders, as opposed to doing things that fit the agenda of the left.

Fascism is defined as the intertwining of government and big business.  Warren is the leading proponent of fascism, if we define it properly.  The idea that a company should be free to pursue profits in every lawful manner is opposed by Warren, who thinks companies should mainly do her bidding as she sees it, which admittedly changes from moment to moment.

So, I guess all these left-wing economists and their "business" pals like George Soros and Warren Buffet are right. Economic growth probably is no longer possible in the brave new world toward which their policies are leading us.

Friday, October 21, 2016

Elitism Fractures the European Union

The idea of a common currency and a broad reduction of barriers to trade was a marvelous idea.  But European Union bureaucrats could not leave well enough alone.

Instead, the EU bureaucracy hammered down an enormous number of new restriction on the daily lives of citizens in EU countries.  (For example, it is against the law for a child under eight years of age to blow up a balloon in the EU).  The straw that broke the camel's back was the unlimited immigration into the EU of refugees that has been ongoing for the last three years.

In an article in today's NYTimes, James Kanter and Stephen Castle provided the following absurd viewpoint:

"the European Union's ability to plot a united and ambitious path forward is losing out to parochial concerns."

The above quote is ridiculous.  "Parochial concerns" are, in truth, legitimate objections by ordinary Europeans to the overbearing rules and elitism of the unelected bureaucracy that runs the EU today. 

The "plot" described above as a "united and ambitious path" is based on the whims of a handfull of elitists, constantly making rules without any citizen input.  The public in Europe is sick and tired of this and are rebelling against the elitism of the EU bureaucracy.

The Brits were right to leave the EU.  In time, most of the citizens of the EU will push to follow the lead of the British and escape this small band of elitists that are ruling their day to day life.

Friday, October 14, 2016

Raising Rates as the Economy Slips Into Recession

It is always a paradox why government policy tends to be so uniformly pernicious.  We are about to see another example of that.

Third quarter data shows that bank commercial lending fell for the first time in six years.  Given other data, there is a very strong likelihood that the sluggish economy is about to weaken into recession territory.  Perfect time for a rate hike?  Club the economy on the way down?  Is that the idea?

But, that is exactly what is about to happen.  And the reason?  The Fed does not want to appear irrelevant.  All other interest rates have been rising over the past couple of months.  Only the repo rate and the funds rate have not been rising.  Those are the only two rates that the Fed has any possibility of controlling (and, frankly, only by completely artificial methods).

Gone are the days when anybody believes that the Fed can loosen or tighten.  Having a $ 4 trillion balance sheet does not leave much room for flexibility.

So, we are about to see an interesting spectacle.  The Fed will act to "raise rates," while the economy weakens.  Good combination.  Is that what they teach in Macroeconomics these days?  Raise rates just as the economy weakens?

The absurdity of Fed policy as well as the bankruptcy of modern academic Macroeconomics is just about to be put on sharp display.

No rational person believes that a policy of raising rates coincident with a falling economy is sensible policy.  Only Janet Yellen and other "political" economists can defend what they are about to do.

But, if they don't do it, the Fed will be exposed as irrelevant.  The Fed is irrelevant, but they desperately do not want that fact revealed to the public.

Thus, look for the Fed to "raise rates" while the data shows the economy is weakening.  Interesting and ridiculous policy, but perfectly predictable.

Goodbye stock market.

You might wonder:  why other rates are rising?  Because the long dormant inflation is beginning to rear its head. That will move all rates higher regardless of whether or not there is a Fed or what it may or may not be doing.

Yes, inflation can pick up exactly at the time the economy is faltering.  Does anyone remember the 1970s and "stagflation." That's where we are headed.

Thursday, October 13, 2016

Fed Rate Hike Imminent - More Fed Irrelevance

Now that interest rates have increased everywhere except in the overnight repo market and the federal funds market, the Fed will boldly announce a 25 basis point hike in repo and funds. What choice do they have?

If the Fed does nothing, it exposes the fact that their policy has no influence over interest rates.  The ten year yield has now pushed through the 1.8 percent level and is headed higher.  So are all other rates.  How stupid is the Fed going to look in a higher rate environment if they don't move their two (largely irrelevant) rates higher?

It will happen soon.

Monday, October 10, 2016

Our Future -- Loyalton, California

Andrew Ross Sorkin has an article in today's NYTimes that gives a glimpse into the future for retirees expecting pensions under CALPERS -- the largest public pension defined benefit plan in America.

To cut to the chase: Patsy Jardin, who is now 71 years old, worked for the city of Loyalton for 29 years.  She retired in 2004 with an annual pension of $ 48,000.  Now, CALPERS is telling Ms. Jardin that her pension will be cut to $ 19,000.  She has been a member of the CALPERS employee pension fund all these years.  Now, in retirement, comes her surprise.  It's mostly not there.

What is CALPERS doing about it?  Nothing.  So, tough luck Ms. Jardin.  That's what the big government folks do for you.  They promise big pensions and then, when the time comes, tough luck.

This article is a worth a read.  It is the future for most average Americans.  Ms. Jardin's fate is just the beginning.  More to come.


Saturday, October 8, 2016

Colleges and Free Speech

Colleges have rarely been defenders of free speech and they are not today.  Colleges only permit free speech if that speech is consistent with the current views of the college administration.

When I was an undergraduate, the editor of the Rice Thresher, Hugh Rice Kelly, was removed (in 1964) as editor by the school's administration because he wrote an editorial condemning US policy in Vietnam.  He was never reinstated.  The far right was in control and they enforced that control.  No faculty supported Kelly.

In the late 1940s, Woodrow Seals, editor of the student newspaper at the University of Alabama, wrote an editorial that appeared to support integrating the all-white student body at the University of Alabama.  Seals was removed from the student body and only allowed to graduate after writing a letter of apology for his errant views.  No faculty spoke up for Seals at the time.  (Seals would later be a leader in the movement for integrating southern public schools while serving as a Federal District attorney in the Kennedy Administration and was later appointed a Federal Judge by Lyndon Johnson).

Today, the far left runs almost every college in the US.  Any statement that doesn't agree with the views of those running these schools carries the potential for dismissal.  If you criticize the Black Lives Matter movement, you run the risk of losing your employment.

There is no free speech on most college campuses.  If you have the political point of view of the current administration, then you are free to parrot the views of the current administration.  Otherwise, forget free speech.  It isn't available on college campuses and never has been.  Academics are no fans of free and independent thought and they never have been.

Brexit and the Pound

The Pound has fallen almost 20 percent, against both the Euro and the Dollar, since the vote in June of this year severed British ties to the European Union.  This is a large drop but has no obvious implications.  Nevertheless, the pundits who regularly beat the drums for big government control of the private markets are citing the fall in the value of the pound as "proof" that Brexit will be disastrous for Britain.

The economy and the financial markets haven't gotten the message apparently.  Britain's economy and stock market are, if anything, stronger today than prior to the Brexit vote.   Hoping and praying for a British collapse, the modern day collectivists point the finger at the pound.

Meanwhile, for other countries (Greece and Italy as examples), the Krugmans of the world cite absence of the ability to depreciate your currency as the major weakness of a currency union.  Can these economists have it both ways?  Currency depreciation is good for you; currency depreciation is bad for you.  I guess which way the wind blows depends upon your current political stance, not the underlying economics.

The truth is that the drop in the pound is largely irrelevant.  Where is the need for a decline in the value of the Texas currency against the Oklahoma currency?  Is the single expedient of a common currency enough to extinguish the constant clamors about the significance of the value of one's currency.

The value of one's currency against another is largely irrelevant unless there is some special pathology, such as denominating one's debt in terms of another country's currency.  Short of some special circumstance, this is much ado about nothing.

Friday, October 7, 2016

Another Pitiful Jobs Report

Today, the Labor Department released another pitiful jobs report.  It seems everyone has adjusted to the new normal of limp-along growth and minimal job creation.  The economy that we once knew is no more.  The hits the poorest among us the hardest, so we can look for increased civil strife in the US and further increases in crime, which is obviously on a major uptrend.

A strong economy heals a lot of problems; a weak economy creates a lot of problems.  The last pillar of hope in this environment is the stock market.  The stock market has made meager gains the last couple of years, but such gains are probably done for.  The prospects are not good -- not for the real economy, not for the financial sector, not for the average American.

Interest rates, for those who watch such things, are headed upward -- with or without the Fed.

Thursday, October 6, 2016

Summers & Rubin Sing a Tired Old Song

Larry Summers and Robert Rubin, long time Democratic Party stalwarts, have each penned an op-ed in recent days supporting the same ole, same ole:  more big government spending is the answer, both for the US and the world.

These op-eds are sitting alongside articles that show that world debt, private and public, has spiraled completely account of control.  Debt in the developed world is now three times the level that was considered, just a decade ago, as unsustainable.  I guess Summers and Rubin have revised their views as to what is unsustainable, just in time, I note, for the election.  Good timing guys!

Neither Summers nor Rubin has any concern that government regulations have all but eliminated new business formation and effectively destroyed our commercial banking system.  I guess their view is that, even though, increasing areas of the private sector are being outlawed (don't forget health care), nevertheless, especially after reading that Hillary plans to confiscate at death any significant wealth creation, entrepreneurs will rush out in celebration of "infrastructure spending" and get the economy rolling again.  No chance Larry...Robert.

Entrepreurs are scared to death.  Western economic growth is over.  "Infrastructure spending" is little more than a phrase which translates to "transfer income and wealth from average Americans to our political friends."  That's the plan and Summer's and Rubin's friends are well aware of that message.

The $ 800 billion "stimulus" package of 2009, passed with Summer's and Rubin's enthusiastic trumpeting, produced almost no infrastructure spending -- even though, "infrastructure spending" (wink...wink) was their main reason for endorsing the package.  Instead the "stimulus" package was used almost exclusively for political payoffs to friends of Barrack and Bill.  But, in that sense, it did what was intended by its supporters.

Now they want more of the same.

Wednesday, October 5, 2016

We Should Pay College Athletes

College athletes should get paid.  That would make more sense than the current system.  Paying athletes will likely also eliminate much of college athletics, but that may be all for the good.

Increasingly college athletics has less and less to do with education and more and more to do with money and politics.

Why have an "indentured servant" program in college athletics?  If college athletes can fill the stands, then pay them.  The education that most of these kids receive isn't worth much, but real money could be worth a lot for some of them.

The only athletes that would likely get paid anything significant would be in the football and basketball programs.  It is increasingly questionable whether these programs are consistent with the overall educational goals of the modern university.  Pay for athletes might fix this.

State of Illinois Chastises Wells Fargo -- Really?

Arguably the worst run state in the country -- Illinois -- is now pulling back its business with Wells Fargo. 

In another attack upon the hapless and innocent current shareholders of Wells Fargo, the corrupt, incompetent and soon-to-be bankrupt state of Illinois is granting itself the moral high ground.  This state has stolen more money from its taxpayers than any another other state in the US, excepting only California and New York.

This should be a Saturday Night Live episode.  The morally bankrupt state of Illinois holding forth on what a private company should or should not do.

Once again, the losers will be the innocent -- the taxpayers of Illinois and the innocent shareholders of Wells Fargo, mostly pensioners and foundations.  Meanwhile, corrupt politicians continue to ride high and rough over the innocent.

Monday, October 3, 2016

The "New Economics" and The "New Feudalism"

Economics was once the study of the consequences of market activity by individuals participating in free markets.  As free markets have eroded in the developed countries, so also has the academic discipline of Economics.

Incentives are now thought not to matter when people make economic decisions, according to the "New Economics."  The new approach is to begin with a political point of view and a very specific conclusion.  Then run a few regressions over and over again on the same data until at least one of the regressions reaches your conclusion.

Another strategy is to mix and match data to reach spurious conclusions.  For example, suppose you wished to know if workers in the same industry were subject to wage discrimination.  Imagine that the industry was NFL football.  Calculate the income for men, then for women and see what you find?  There are many, many men making tens of millions of dollars, but not a single woman making that much.  Conclusion: wage discrimination. 

Most publicly quoted studies of gender wage discrimination pay no attention whatever to what the actual jobs are that people hold.  In the medical profession, nurses and doctor incomes are mixed to produce the conclusion that men are overpaid relative to women in the medical profession.   The data doesn't show that.  What the data shows is that most doctors are men and most nurses are women.  These researchers should go look at the data showing who is and who isn't applying to medical school.

But if your goal is to make political points, not to advance knowledge, then the current fads in the Economics profession are the way to go.  If you've wondered why economists' predictions are so notoriously poor and why the economic performance of the developed countries have collapsed, look no further than the correlative trends in the academic discipline of Economics.

Sunday, October 2, 2016

Athletes Carve Up Their Fan Base

College and professional athletes are now taking their political views to the workplace.  Not content to use the normal political channels to express their views, these athletes put on the team uniform and snap photos of themselves in the team facilities, so that their team becomes part of the political process.

Interestingly, most of those who support the political expression voiced by these athletes despise college athletics and professional sports, so these athletes are mainly trying to anger their own fan base.

They are succeeding.

Punishing the Middle Class

Deutsche Bank is reeling.  If the bank collapses, it will likely lead to financial panic in the Eurozone.  Why is Deutsche Bank reeling?  The SEC has imposed a find of nearly $ 5 billion on the bank, which was already in a precarious situation.

Who pays this fine?  Since the fine is for past misdeeds, only those currently at the bank or current shareholders will be paying this fine -- mostly middle class pensioners or after-the-fact investors are stuck with this bill.  Virtually no bad guys will share in the hit.  If you were guilty of any wrongdoing, you are long gone and will not pay this fine.  Just innocent folks pay this fine.

Fining corporations is essentially taxing shareholders and not the same set of shareholders that were there at the at the time of the alleged crimes.  Nope.  The new and innocent get tagged in this brave new Jack Lew, Barrack Obama, Barney Frank world.

Go get the innocent.  Go where the dollars are.  Let the guilty go unpunished.  That is the theme song of the Obama Administration. It's all about the money.  There is not a hint of justice in any of this.

Meanwhile the European economy braces for potential disaster, thanks to Barrack Obama.

Saturday, October 1, 2016

Irving Wladawsky-Berger is Puzzled

There is an interesting article in today's WSJ, that centers around the following quotation:

"Growth has ground to a halt almost everywhere, and economists, investors, and ordinary citizens are starting to confront a grim new reality: the world is stuck in the slow lane and nobody seems to know what to do about it."

The article then quotes a variety of extreme-left economists (Summers, Krugman, Gordon, Reinhart, Rogoff) who mostly push their pet political themes -- demanding more government, mostly lamenting the very existence of free markets.  All of these economists seem to advocate what I call the "new feudalism."

The "new feudalism" is a world where bureacrats and experts run everything.  You won't recognize any of these folks in Adam Smith's Wealth of Nations, because they played no role in his scheme of things.  Smith argued that individuals pursuing their own interest, unfettered by the heavy hand of government, was the reason why a few countries were breaking out of feudalism and into the modern era.

Now, we are headed in the other direction.  Individuals are now the enemy of the state.  Innovative companies and risk takers are public enemies.  Dividing a constant pie is the new game with an army of bureaucrats to enforce the rules and place arbitrary fines and penalties upon their enemies. The politicians daily opine on their view of what private risk taking should be allowed and what shouldn't.  Much of this is, of course, after the fact, when the results of risk taking are known.

The end game is a steady march back to feudalism, where the kings will be the politicians and the serfs will be those struggling in whatever is left of the free market after the politicians' lordly regulations have snuffed out the heart and soul of free economic activity.

Nowhere in Wladawsky-Berger's article is there any mention of the stifling regulations and arbitrary political interference in free markets that is now becoming commonplace in the US, Europe and Japan.  No wonder Wladawsky-Berger is puzzled.  Economic stagnation is the new reality and for good reason, though the left will never be able to figure it out, stuck as they are in a silly ideology comforting only to those with their head in the sand.