Sunday, May 21, 2017

Trump is a Throwback to Truman

The pilloring that Donald Trump is getting from all sides is reminiscent of the nightmares that Harry Truman endured as President.  Truman was so hated by the press and what media there was in the early 1950s that he chose not to even attend the Democratic National Convention of 1952 when he certainly would normally have been considered a candidate for re-election.  Republicans and Democrats alike piled on as Truman achieved the lowest poll numbers in modern times.  Why?

The press wanted Tom Dewey, the urbane Governor of New York.  They thought he was going to win in 1948 and that Truman would be demolished.  After all, Truman was a hick politician from Kansas City and didn't have the political polish of the smooth-talking Dewey.  Fortunately for America, Truman won the election and proved to be one of the best Presidents in American history, though vilified by the press throughout his nearly eight years in the White House (he took over from Roosevelt in the first year of FDR's fourth term).

Truman was brave, intelligent and plain spoken.  He did not look like he came out of central casting for the role of President.  Ditto for Donald Trump.  Who would have thought?

But Trump is the President.  He has a bold agenda.  He has appointed a truly outstanding cabinet -- perhaps the best cabinet in modern time.  He may not be the guy you want to sip tea with in the afternoon, but he is headed politically in the right direction.  He should be given the chance that Truman never got from a hateful and angry press corps.

Friday, May 19, 2017

Venezuela -- the LIberal End Game

Almost everything proposed by the left reduces incentives.  Given enough of that stuff, the economy eventually collapses.  The old Soviet Union, the old China and today's Venezuela are textbook cases of how destroying incentives destroys a country's economy.  Today's Russia and today's China, having brought back a substantial amount of economic incentives, are, today, far, far better places for their average citizens.

This is a persistent, historical theme.  It sounds great to provide free stuff.  But, providing free stuff eliminates the incentives necessary for an economy to grow.  In time, the economy, absent incentives begins to slip into collapse.  Venezuela shows the path.

Venezuela was the dream of the left.  The election of Hugo Chavez promised to provide free everything for everyone and to throw out the capitalists.  That program succeeded and, today, the outcome is visible to see: riots in the streets, people starving, an economy crumbling.  This is what happens when incentives are stripped from an economy.

It is possible for free elections to destroy a country: Venezuela is an example today; Turkey will be an example tomorrow.  More important than free elections is a commitment to individual liberty and free markets -- check out Singapore if you need an example. 

Singapore does not have free elections to determine the country's future, but Singapore does have free markets and individual liberty that most countries, including the US, do not have.  Yes, Singapore is not perfect.  But, where would you rather live -- Singapore or Venezuela (or Detroit or Chicago)?

Tuesday, May 16, 2017

The Greece Economy Plunges Again

The EU bailout of Greece has all but guaranteed a generation of misery for the Greek people.   Greece is now entering its fifth recession in a decade, after announcing another two consecutive quarters of negative economic growth.  This is the Merkel-Sarcozy bailout legacy.

Greece should have defaulted on their debt.  No bailout was required.  Bailouts prolong agony, curing nothing.

Note that Puerto Rico and Detroit defaulted.  That proved therapeutic for Detroit and will do the same for Puerto Rico.

Get the politicians out of the way. A normal bankruptcy process is the key to future prosperity.  That and free markets.  Meddling politicians with bailout solutions produce economic stagnation.

Friday, May 12, 2017

A Whiff of Inflation

Yesterday's PPI number -- 0.5 percent -- was mildly shocking to the markets.  A six percent annualized inflation rate would change things considerably.  No one, of course, is expecting PPI number to be anything other than an aberration.  But, what if it isn't?

In one important way higher inflation could be therapeutic.  Inflation lowers the "real" value of debt and, ultimately, inflation may be the only mechanism to reduce the absurd sovereign debt levels in the western economies.  Inflation euthanizes sovereign debt in a way exactly equivalent to taxing the principal value of the debt.  It just looks different and often goes unnoticed.  The public won't agree to taxes to lower the value of debt, but they may well not notice that inflation is eating up the value of the debt.

The true economic problem with inflation arises to the extent that it is "unexpected."  Future commitments make assumptions about future economic values, including the "expected" future inflation levels and interest rates.  If these latter two variables prove to be widely different than earlier expectations, there could be real economic dislocation.  Expected and constant inflation poses few problems since contracts can be adjusted to reflect such inflation, but unexpected inflation can be disastrous because it makes so many past decisions look foolish in retrospect.  Resources get consumed in a wasteful manner, if expectations are too far off the mark.

So, keep an eye on inflation indicators.  They could be game changers.

Wednesday, May 10, 2017

Single Family Home Boom Coming

Two factors combine to suggest that a boom may be underway in the single family home market: 1) the tax laws; 2) the massive excess reserves in the commercial banking system.

The tax laws still provide for deductible mortgage interest payments and essentially tax free capital gains on the vast majority of home sales.  No other asset on the planet has that kind of special tax treatment. 

Meanwhile, Bernanke's policy of buying over $ 4 trillion in fixed income assets has resulted in over $ 4 trillion of excess reserves in the banking system.  This level of excess reserves would permit a huge expansion in residential mortgage lending without running into reserve or capital limitations.  This is a fuse ready to be lit.

Since 2009, the home owner percentages have fallen, but that may be coming to an end.  There are already signs of booming prices in many residential markets.

We learned nothing from the pre-2008 real estate boom.  All of the tax bonanzas that led to the boom are still in the tax code and Fannie and Freddie are alive and well.

History will repeat itself in the housing market.

Tuesday, May 9, 2017

What Macron Should Do First

The newly elected French President, Emmanuel Macron, should begin immediately to unwind the European Union's bailout policy for profligate members.  If that isn't done the European Union has no hope of survival.  The EU may have little or no hope anyway, since EU member country debt levels have exploded beyond sustainable levels.

The Greek bailouts are symbolic of an arrogance and a lack of understanding of simple economics that permeates officialdom in the EU.  As long as the EU provides a bailout apparatus, two conclusions follow automatically: 1) There is no incentive for member states to behave in a fiscally sensible manner, since bad behavior is rewarded by a bailout mechanism; 2) Sovereign debt levels will continue to increase with no limits until ultimate disaster occurs.

It is unlikely that Macron will bring sanity to the EU, but hope springs eternal.

Saturday, May 6, 2017

A Textbook Case of Fake News -- Todays NYTimes

In today's NY Times, there is an article in the business section written by Reed Abelson and Katie Thomas that seems to have no other purpose than to deliberately mislead readers.  The headline:  "In Rare Unity, Hospitals, Doctors and Insurers Criticize Health Bill."

That headline would suggest that doctors, as a group, oppose the health care bill that passed the House last week.  As everyone not living in a cave knows, doctors overwhelmingly oppose Obamacare and support the House bill passed last week. 

In an incredible exercise of fake news, the Times' article provides no support at all for the statement that "doctors," acting "in rare unity" are criticizing the health bill.  That statement is nothing more than a deliberate lie.  Isn't that the definition of "fake news"  -- a deliberate lie.

Worse, all this article does is quote two or three insurance industry lobbyists, who see some things they don't like about the House bill.  Jeez, is there anyone on the planet who thinks the House bill is perfect. I don't think a bunch of lobbyists for the insurance industry speak for doctors "in rare unity."

Once again, simply to buttress their own political viewpoint, the Times has deliberately set out to mislead its readers by presenting false and misleading headlines accompanied by an article that has nothing to do with the headline.  That's fake news.