Savant Idiot

Larry Summers, onetime Treasury Secretary, President of Harvard (who left under a gaff cloud) and now a cable-news chattering head, last week poo-pooed President Trump's attempt to re-balance our international trade. He said on CNBC that he buys lots at his supermarket but it buys nothing from him ... and this is not a disaster. Thus, h,  a renowned economist, is implying that our huge trade deficits with China are not a worry.

To hear such liberal tripe from such a powerful voice in American policy making shocked me to the core ... and suggest why our country has been asleep at the switch for the last 25 years. Now, I am not a PhD. in economics, but I do know that Summer's has his bubble-head in the clouds on at least this issue ... for these reasons:

- Summer's supermarket analogy is misusing microeconomics. Asserting that this micro conclusion applies to macroeconomics is another gaff by one who clearly should know better.

- If Summers were employed by the supermarket he shops at ... and it bought his services as the other half of his analogy, then let's finish this lesson. If Summers spent much more there than he earned (like the current China trade analogy) them this supermarket would be the classic "company store" ... to which Larry would soon "owe his soul."

- The U.S. has been running growing trade defies with China for decades ... last year totaling about $375 billion. China then uses this sovereign wealth to but American assets. It would not take many more years of such an imbalance before China would effectively own the United States -- not a circumstance any of us (including Summer's I assume) would want to impose on our issue.

QED: Larry Summers is a savant idiot.

Myopic Fed?

I have written before about our Federal Reserve Bank's narrow focus ... see: A Few Observations. It's Congressional-directed mandates, low unemployment and 2% inflation, are only domestic goals ... and these mandates are currently being met. Left in the lurch are what effects the Fed has internationally. In particular, the Feds push to increase interest rates and reduce its balance sheet, although good and noble goals, are seriously complicating Trump's current trade strategies and negotiations.

The U.S. ten-year bond yield, at about 2.9%, is well over two percentage points above the rest of the developed world. This pushes up our dollar and disadvantages out exporters. China, having a centralized planned economy (no independent central bank) has enormous latitude in manipulating its currency ... which it does. It even has devalued its currency to give its exporters a huge advantage.

In fact, if Trump imposes tariffs on all $500 billion of Chinese goods (as he is currently threatening), China might devalue once again. And this is the reason that the U.S. is somewhat hamstrung in dealing with Xi ... and why Trump is currently tweeting about his opposition to the Fed continuing to raise interest rates tight now  ... in the midst of our fighting these trade wars around the globe.

Basically, yes, the Fed should raise interest rates to give itself ammunition to fight our next economic downturn ... but maybe not just now. Possibly, Congress should expand the Fed's mandate to deal also with international trade and currency goals ... particularly when it has achieved, as it has now, its domestic objectives on the employment and inflation fronts.

Afterward: China has one more way of pushing up the US. dollar. It can start selling off i ts large holdings of U.S. debt ... which would drive down prices and drive up yields ... and strengthen the dollar further. Of course China would have to take a financial haircut i n the process. But it i might be willing to pay that price if things get hot between us.

Full Plate

President Trump has a full plate of problems ... mostly because of other presidents ignoring them. But he seems to recognize most of them and is willing to try to fix things.  Here are some:

- Our broken immigration system

- Our porous southern border

- The political mare's nest in the Middle East

- Our enormous negative balance of trade with China and the EU (read Germany)

- The burdensome cost of being the world's police force

- An economy burdened by regulation and a counter-productive taxing system

- Constitutional-guaranteed freedoms under constant assault

- A military unprepared for its looming challenges ... particularly from China

- The North Korean and Iranian nuclear threats

- The constant menace of Islam-inspired terrorism

- Soaring medical costs not matched by results (particularly for veterans)

- A growing national debt driven largely by feel-good entitlements

- Restoring the national dream of equal opportunity for all

You get the picture ... the list goes on and on. And, in most cases, Trump is fixing things ... or , at least, trying to. This is not something that could be said for our previous three prexies.

Will he remedy them all? Probably not ... but enough of them to be called very consequential and to MAGA. That is enough for me and most attentive Americans (maybe not Mueller).