Wednesday, March 29, 2017

NYTimes is King of Fake News

The article in today's NY Times by Edward Wong takes first prize in the contest run daily in the NY Times to see which article contains the most fake news.

Here's the headline: "China Poised to Take Lead on Climate After Trump's Move to Undo Policies."

Now you would think that the headline would be followed by a story that shows China actually doing something regarding Climate Change.  You would be wrong.

What the article does is quote various Chinese political hacks and leaders saying that they are committed to the Paris Climate Accords.  Of course they are.  The Paris Accords impose absolutely no restrictions on the Chinese regarding carbon emissions or anything else related to Climate Change.  Naturally, the Chinese will stay committed to an agreement that imposes no restrictions whatsoever on their behavior.

The Chinese are the biggest polluters on the planet and have no intention of reversing that behavior.  Maybe, Mr. Wong should take a trip to Beijing to understand what real pollution is all about (or numerous other Chinese cities as well).  Large numbers of average Chinese citizens in China's largest cities daily wear gas masks because of the unbelievably high levels of air pollution.  Those are the facts (left out of Mr. Wong's absurd article).

So,. where are the facts in the article.  There are none.  Typical NY Times fake news.

Tuesday, March 21, 2017

The FBI and Criminal Investigations

The only crime, admitted by all in yesterday's hearings, was the criminal leaking of information by present and former US government officials in the Michael Flynn case.  The other matters were all innuendo and slander including the charges of collusion between the Trump Administration and Russian operatives and the President's assertion that he had been wiretapped by the prior administration.  There was zero evidence of the commission of a crime in these latter cases, but the revelation of the outing of Michael Flynn's private communications was unquestionably criminal, as Comey admitted repeatedly.

Comey refused to acknowledge that the FBI was investigating the admittedly criminal activity by US government officials, past and present, that lead to Flynn's ouster.  If Comey is not investigating this, then section 702 that gives the CIA and the FBI authority to monitor foreign conversations should not be renewed by Congress, because, otherwise, no American conversation with a foreign person or entity can be considered private.

All of this nonsense has served to deflect America's attention away from its real enemies -- Iran and North Korea and toward a country that in no way threatens the US -- Russia.  Russia is a real threat to Europe, but zero threat to the US.  Europe, who spends little or nothing to defend itself, expects the US to stand up and counter the Russians.  Nonsense.  It is past time that Europe expected the US to shoulder the burdens of Europe.  Let Europe defend itself.

Russia - Trump collusion is complete nonsense and an effort by the Democratic Party to confuse the public and promote the interests of Iran, which Obama and the Democrats have done much to promote.

Saturday, March 18, 2017

More Bad Reporting on the Fed and other Central Banks

The articles that are appearing almost daily about central banking are incredibly inept and reflect poorly on the financial news media.  The central fact that is missing from every single one of these articles is that the commercial banking system, both in the US and in Europe, is awash in excess cash reserves and could easily provide incredible amounts of additional commercial lending, if the demand was there and the regulatory authorities would relax.

Instead the articles are all about how easy money is going away.  Really?  Prior to the current regime, easy money was always and forever defined as a condition of massive excess cash reserves in the commercial banking system.  That condition is not going away -- not in the US and not in Europe.

Increasing the one day interest rate in the banking system is a stupid policy and has, so for had no effect for good or evil, as elementary logic would suggest.  That doesn't keep Draghi and Yellen from spouting nonsense.

What keeps commercial lending down is deliberate government policy.  US policy, encased in cement in Dodd-Frank, is that banks are now agents of the US government and are no longer intended to play their traditional role as financial intermediaries.  The result of that absurd policy is the the moribund economic performance of the past eight years.

It's time the financial press got some new voices, who get beneath the PR utterances of political hacks like Draghi and Yellen, and tell the public the facts about monetary policy, instead of these air-brushed ignorant (of the facts) stories that are incredibly misleading. 

Monetary policy remains absurdly loose and that fact will not change until excess reserves are drained from the system, both in the US and in Europe.  But, easy money won't matter as long as bureaucrats are hell-bent on prohibiting economic growth and the expansion of commercial bank lending.

Thursday, March 16, 2017

The Fed and the Facts

Once again, the media missed the story.  The headlines say:  "Fed Raises Rates."  What exactly did the Fed do, since ten year yields and mortgage rates are lower today than yesterday?  They certainly didn't raise those rates.  And, by the way, those rates matter.

Instead, the Fed now pays one percent on all commercial bank reserves parked at the Fed.  That arbitrarily forces the Federal Funds rate to one percent, since it is illogical for a commercial bank to loan reserves out to another bank at a lower rate than what the Fed is offering.  Whoop-te-do.

Of course, that isn't all the Fed did on Wednesday.  The Fed agreed to do (a limited amount of) repos at a minimum of 75 basis points.  Whether this works or not is anybody's guess since it is hard to imagine the Fed taking on 10 trillion in repos just to avoid looking stupid.

In any event, neither of these actions have implications for the broader rate spectrum.  One-day rates have been going up since December, 2015, but nothing else seems to be going with them.

Where is this story in the financial press?

The Fed announced that they do not intend to reduce their $ 4.6 trillion balance sheet, which ballooned over the Bernanke-Yellen years, from under one trillion to the current ridiculous levels.  And, why?  What economic theory suggests that anything virtuous is going to occur by the Fed arbitrarily expanding their balance sheet?

This whole business is ridiculous, has no support in economic theory and no empirical support.  This is equivalent to witchcraft.  Except that witchcraft is acknowledged to be absurd.  This isn't.  Yet.

The best analogy is to suppose you intended to raise the price of all fruits and vegetables and your policy was to bid $ 3 for every apple brought to you (assuming that apples were a dollar apiece, when you began the policy).  Okay, if you bought enough apples (heaven knows what you are going to do with them), you could force the price of apples to $ 3.  But, is there some predictable effect on the price of carrots or oranges or grapefruits.  Not likely.

The Fed should be abolished and replaced by a simple monetary rule and stop all the costly shenanigans.

Wednesday, March 15, 2017

Is Health Care A Right?

You often hear people argue that health care is a right.  Is that true?  If so, why?

Imagine two different people: one lives a healthy life style, saves their money, purchases health insurance; the other smokes and drinks, becomes heavily overweight, saves nothing and has no health insurance.  If health care is a right, then the first person is legally required to use their savings to provide health care for the second person.  How fair is that?  People make choices.  Should they be insulated from the results of those choices?

You might argue: how can people who have made bad choices be taken care of?  Historically, the answer has been charity.  Charity hospitals once were ubiquitous in America.  But they disappeared when medicare and medicaid took over.  Charity hospitals provided excellent care because they were usually the breeding ground for future doctors, who did internships in the charity hospitals.

Imagine this idea: if someone deliberately contracts a terminal disease -- deliberately -- that costs billions of dollars to cure one person.  Should society foot that bill?  Why?

By forcing those who play by the rules to pay for those who don't play by the rules, inevitably, you will end up with many more people not playing by the rules.

It is different, if through no fault of their own, someone has a debilitating disease without the funds to get treatment.  Then, it seems that, within limits, society has an obligation to help those who are ill through no fault of their own.   But, this is a very, very tiny group of people and would cost very little in the aggregate to provide for this group.

Our health care system is burdened down with people who consciously made decisions that they knew would result, later, in serious illnesses.  I don't see the case for forcing taxpayers, who consciously made good decisions to fund those who deliberately and knowingly made bad decisions.  I can see the argument for private charity in these cases, but not public charity.

Those who disagree with this have a simple solution.  Give your own money to help fund folks who made bad decisions, but don't require lower middle income families, playing by the rules, struggling to support their families, to bankroll bad behavior.  That's what medicare and medicaid does.

Sunday, March 12, 2017

The Ryan Bill Will Get a Lot of Health Care Reform Done

The main criticism of the Ryan Bill on "Repeal and Replace," coming from the Freedom Caucus, has to do with the tax credits that are designed to help lower and middle income Americans afford insurance.  These credits replace the direct subsidies that were in Obamacare.

The Freedom Caucus argues that health insurance and health care costs will not decline if the Ryan Bill passes, because of the tax credits.

While it is true that the tax credits create more demand, than would otherwise be the case, there are other parts of Obamacare and of the American health care system that are probably far, far more important in determining insurance costs and health care costs.  And, at the very least, the tax credits can be defended as suppportive of lower and middle income Americans and serving to even the playing field with current tax-favored employer plans.  It is not a transfer to favored classes of people, which is a characteristic of a lot of existing health care as well as of Obamacare

Where to begin?

Obamacare requires all eligible health insurance sold to have certain coverages that apply to some buyers but not others.  If buyers were free to choose the health insurance they would never, ever choose insurance that cover illnesses that they cannot possibly acquire.  Almost every single Obamacare insurance plan does not fit the buyer.  Thus folks are paying for something that they don't need.

Obamacare implicitly forbids the sale of health insurance across state lines.  What conceivable reason could exist for this cost-increasing requirement.

Obamacare refused (in the Congressional admendment process) to consider limitations on frivolous lawsuits that drive up health care costs  in two very important ways: 1) requires gargantuan medical mal-practice insurance premiums for doctors who, innocently, make mistakes (is there some busines that doesn't make innocent mistakes); 2) effectively forces doctors to peform unneccesary procedures, require unnecessary tests and, often, perform unnecessary surgeries -- for no other reason than to limit medical mal-practice lawsuits.  A huge amount amount of these unnecessary items have no medical justification at all.  They are a sop to the trial lawyer industry.

Obamacare extended Medicaid to 10 million recipients in the most inefficient possible manner.  Ignoring the plain fact that currently one-third (and growing) of all physicians refuse medicaid patients, letting states designed the best system for their state -- which is in the Ryan bill -- can make medicaid dramatically better for recipients, as well as keep costs under control.

There are many other things about the current state of US health care and of Obamacare that will disappear eventually from HEW changes brought about by Secretary Price and further legislation that is already making its way through the House of Representatives.

The Freedom Caucus should swallow hard and accept the tax credits in the Ryan Bill and move on.  They will never win this issue politically, but they could win all of the other issues outline in this post.

Friday, March 10, 2017

The US Economy May Be Starting a Run

With the shackles of heavy-handed government regulations being loosened, the US economy is beginning to exhibit a new spark.  The jobs number today of 235,000 jobs for the month, while modest, is definitely an improvement over the Obama jobs numbers.  Hopefully, more progress lies ahead as the albatross of big government is sloughed off and capitalism is permitted to do its thing.

The critics of the current administration seem viscerally opposed to economic growth.  They are content with the status quo.  This is completely understandable.  Critics in the bureaucracy and the academy and the Soros-Buffett types gain nothing from economic growth.  Their prosperity is based mainly upon hegemony over the masses.  They like the no-growth economy and they work hard to make certain that sufficient impediments are placed along the roadside to keep the economy stagnant and to maintain their own positions of control.

The average American is not protected by inherited wealth (yes, Soros and Buffett are both beneficiaries of inherited wealth) and not protected by tenure rules in the academy and in the bureaucracy.  The average American does benefit from economic growth.  Free markets mainly benefit the poor and lower middle income.  They don't do much for wealthy folks.  Check out Latin America -- wealthy folks and bureaucrats do great! -- average folks are mostly in poverty.  That's the world that heavy handed bureaucracy gives you.  The Venezuela path -- the leaders and the powerful prosper -- the poor pay the price.

So three cheers for the return of freer markets and economic prosperity -- long overdue.  But, don't expect the protected classes to join in the cheering.

Monday, March 6, 2017

Steve Ross - The Death of a Legend

Steve Ross is perhaps the greatest economist of the past 50 years not to have won a Nobel Prize.  Ross passed away at his home in Connecticut yesterday of a heart attack.  Just a year ago, Ross delivered a lecture in my class on Behavioral Finance at the University of Virginia (defending the Efficient Market Hypothesis, I might add).  Later that evening, Steve had dinner with six of our top undergraduates.  Ross was a genius, but he was also humble, affable and articulate in the extreme.

We will miss Steve Ross -- a wonderful, kind, brilliant man.