Headlines

Japan Prime Minister Shinto Abe says he’s resigning due to health reasons

S&P 500’s stunning summer rally points to best August since 1986

U.S consumer spending increased more than expected in July

Michelle Obama: White people have treated me like I don’t exist

Biden snags ‘Keep America Great’ domain in latest act of Trump trolling

Fed’s Harker says he would be OK with inflation creeping past 2.5%

Far-left lunatics attack Rand Paul and others leaving Trump speech

Kenosha, Wisconsin: Teenager Kyle Rittenhouse charged with murder

Pelosi says Dems will release Trump’s tax returns if they win White House

Hurricane Laura leaves damage in Louisiana and weakens into tropical depression

Russian nuclear submarine surfaces near Alaska, alarming American fishing vessels

FNC’s Wallace: Trump’s speech ‘surprisingly flat, far too long’


STAND UP FOR AMERICA!

Green Charmin

From Powerline blog

And, when inflation eventually kicks in, this substitute may be appropriate.

Headlines

Senators pelt Trump’s lawyers and impeachment managers with questions

Coronavirus live updates: Outbreak is ‘grave concern’ as infections spread beyond China

Bernie internals: Set for big Iowa win ...

WH tells Bolton not to publish book until classified info removed ...

Pomp, tears and bagpipes as European Parliament ratifies Brexit treary

Fed holds rates steady, affirms commitment to higher inflation

Anything Trump does to get re-elected is UNIMPEACHABLE, says Dershowitz ...

Actress tells jury: Weinstein teased film roles in exchange for threesome

New poll: Biden and Sanders running neck-and-neck in Iowa

‘In truth, I never lied’ — ex-Trump aide Flynn claims innocence as he seeks to undo guilty plea

Bust: Congressional Budget Office projects trillion-dollar deficits indefinitely ...

Poll: Michael Bloomberg leaps to second place in Florida

Headlines

The Fed could face a possible ‘inflation scare’ in 2020 with commodity prices on the rise

3 years in, no sign of Trump’s replacement for Obamacare ...

Pete Buttigieg knocks Joe Biden’s support of the Iraq war

Bill De Blasio calls NYC ‘the safest big city in America’

The battery decade: How energy storage could revolutionize industries in the next 10 years

GALLUP: Obama, Trump tied as most admired man ...

Barack Obama picks his own documentary among favorite movies of 2019

Hunter Biden owed $113,000 in unpaid taxes for year he served on Burisma board

Ivanka Trump may not return to the White House if her father wins in 2020

Shooting at church in Texas ... Gunman shot dead by parishioner ...

Suspect arrested, drenched in blood, in Hanukkah machete attack ...

CBS reporter says Trump’s record with minorities is one ‘any president after 3 years would want to claim’

Opportunities

With the yield on our 30-year Treasury bond at a historic low, below 2% ... and likely to go lower, the U.S. has a rare opportunity to refinance its debt coming due into long-term bonds ... a good thing. The result of this would be much less pressure from interest payments in the years ahead.

And, like we did after World War II, if our Federal Reserve Bank eventually (when we have balanced our budget) might allow inflation rates to break back into ... or close to ... double digits, we will have monetized our enormous federal debt and pretty much removed it from our grandchildren’s shoulders ... and placed it back on their grandparents. Of course, I suspect this would be Trump’s longer-term preference ... but I doubt he will be president when and if this were to happen.

Now, if we can match these strategies with a lowering of our current deficit spending? Are you listening Congress?

Boiling the Frog

“The era of economic surrender is over.” — President Donald J. Trump

Trump is turning up the heat on China. He says that he will impose 10% tariffs on the remaining $300 billion of imports from China starting September 1st. Last December he slapped 10% tariffs on $250 billion of imports from China ... then raised them to 25% in May when China reneged on a deal that had been almost fully negotiated. If China does not make the huge agricultural buys that it has committed to (but already reneged on once), I fully expect that this second tranche of tariffs will go to 25% sometime next year. Trump is slowly boiling the frog ... or, should I say, dragon.

As I have often predicted, China is obviously hoping against hope that Trump will lose the election next year and that he will be replaced by an Obama clone (maybe even Michelle) in order to be restored to the old status quo. Obviously, the tariffs that Trump has so far imposed have slowed down capital investment by US companies ... which has, in turn, slowed our economy by about one percentage point. If and when higher tariffs go into effect, economic growth may slow further which would reduce Trump’s chances of getting re-elected ... which is also likely part of China’s strategy. However, if this gambit does not work, China will end up with a worse deal in 2021 (as Trump has warned.)

The other predicted bugaboo is the threat of US domestic inflation. This has been anticipated from our previous tariff impositions ... but, so far, nada ... a good sign that China is mostly paying these tariffs with lower prices and a devalued currency. Also US companies are beginning to move manufacturing out of China ... a trend that may well accelerate this Fall if China continues to be recalcitrant. This cannot be a trend that China relishes. But will it blink first and jump out of the boiling pot? As Trump often says, “We’ll see what happens.”

Trump’s Legacy

I know it’s rather early to start considering what Trump’s legacy will be. But there are some rather clear things that he has changed that will live on after he has departed the White House. Here are my takes:

- The president’s “magic wand” of tax cuts and regulation reforms has kicked up the rate of economic growth to above 3% from the previous “new normal” of below 2%. And the stock market is up over 50% combined with energy independence, strong consumer confidence, employment and domestic manufacturing. And inflation has been modest to boot. Not bad!

- The U.S.’s national image will have flipped from apologizing for our success to being proud of it ... and resolving to return to our past glories. We will have recaptured our greatness ... and be proud of it.

- Like Ronald Reagan did to restore our defense dominance, so Donald Trump will be equally lauded ... but he will also be praised for his restraint in using this military might. In the process, he has put, at least for the moment, North Korea and Iran in a box. If either of these countries capitulates, it will be the first sentence in his history book write up.

- Exactly opposite to the current media narrative, NATO will have been substantially strengthened by Trump’s insistence that our European partners live up to their financial and troop obligations under this decades-old pact.

- Although Trump will not have destroyed terrorism, he likely will have partially defanged it.

- Despite enormous sticky resistance in Congress and in the courts, Trump has made some progress in securing our borders and reforming our immigration process ... less than the majority of Americans want ... but still progress.

- Trump’s agenda has pushed the Democrat party to show its colors as being far more radical left in its actions than its deceptive rhetoric.

- If nothing else, President Trump will be remembered for his focusing on how China has become a hegemonic threat to America ... and his developing strategies to counter same. So far his success here has been modest but, if re-elected, I expect much more progress.

Headlines

Trump abandons effort to add citizenship question to census

Ocasio-Cortez finds herself on the same side as Trump regarding the Federal Reserve

Dow rallies 200 points to close above 27,000 for the first time ever

AOC backpedals: Pelosi ‘absolutely not a racist’

U.S. officials push for sanctions on China over oil purchases from Iran

Trump’s losses in drug pricing battle should be free-market wake-up call to him

Inflation tops projections ...

Report: Michelle Obama rents $23M ‘Shark House’ mansion for L.A. visit

House to vote next week on criminal contempt against Barr and Ross

Tommy Robinson jailed again ...

Radiation leak ‘100,000 times normal level’ from Russian nuclear sub wreck ...

Buttigieg: ICE raids make America ‘less safe’

Headlines

Jiuliani likens Pelosi to Sen. Joseph McCarthy

China says its May trade surplus was $41.65 billion, significantly more than expected

Wash Post Page One Monday: NRA money flowed to board members ...

Billionaire Kochs to financially back Democrats pushing amnesty, free trade

Latino leaders sound alarms over Trump re-election in 2020

Inflation trends suggest Treasury yields will surprise the Street and won’t bottom for months

TSA lets illegals skip airport security lines ahead of citizens?

Comey email exonerated Hillary two months before her FBI interview

Senators make bipartisan push to halt arm sales to Saudi Arabia

Former Red Sox star David Ortiz shot in Dominican Republic, said to be in stable condition

News industry joins calls for increased scrutiny of Big Tech ...

The U.S. created just 75,000 jobs in May

Between a Rock ...

... and a hard place.

It’s not there now, but the US Federal Reserve Bank might be in this predicimant in the not-to-distant future. Let me explain:

If Trump’s new-found infatuation with tariffs produces, as predicted by many “pundits,” higher inflation rates ... then the tool that the Fed uses to keep the lid on this ogre, higher interest rates, can’t be as effective in the sense that it strengthens the dollar which boosts imports ... working against Trump’s trade war ... and also makng the job of financing American deficits more difficult.

However, if the Fed night chose to let inflation rip, it would be effectively monetizing our national debt ... good for our country but bad for those elders on fixed incomes ... and China which would own a lot of this devalued debt.

At least two factors are working counter to inflation spikes — massive illegal immigration which holds down wages on the low end ... and huge increases in energy production which holds back gas price increases. And this is further complicated by the Fed’s desire to reduce its inflated balance sheet, a legacy of the Obama-era quantative easing.

So, in a way, the Fed is boxed in when it tries to set monetary policy ... not a happy place to be. I don’t envy Chairman Powell.

Punchbowl

"The job of the Federal Reserve Bank is to take away the punch bowl just as the party gets started" -- William McChesney Martin

Translation: The Fed causes recessions just so it can fix them.

It is my contention that the Fed's charter is too narrow -- maintain full employment and  low (2%) inflation. Today, both these goals are being met, yer the Fed seems bent on increasing interest rates (taking away the pinch owl) to prepare for (cause?) the next recession.

However, the interest rate differential between the U.S. and the rest of the world is now so great that the Fed, by strengthening the dollar so much, is impacting foreign trade and working at cross purposes with Trump's tariff agenda. These rate increases are also killing home and auto sales and making our Treasury's job of financing our debt much more difficult ... particularly since it neglected to extend its term during the previous administration.

Conclusion: If the Fed continues to raise interest rates, the party will surely be over for quite some time. Also meaning that the Fed has its thumb on the political scale ... as Trump is implying.

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.

Headlines

Trump pledges to end military exercises as part on North Korea nuke deal

Facebook denies building eye-tracking software it's hinted at

Inflation at six-year high, eating away at wage increases ...

Nancy Pelosi trashes Trump after North Korea summit

Senate will try to reverse ZTE deal with a must-pass defense bill

Trump says Trudeau's comments are going to cost Canada 'a lot of money'

NASA: Humans 'absolutely' could live on Mars ...

Small business confidence hits highest level in 34 years

Voto Latino aiming to register 1 million new voters by 2020

Dennis Rodman cries, wears MAGA hat ...

Seattle reverses course on business tax after AMAZON pressure ...

 Alec Baldwin: 'If I ran for president, I would win, hands down'

A Few Observations

- Obama's spooks, Brennam, Comey and Clapper, were so focused on undermining Trump's bid for the White House; I wonder how many real intelligence jobs went undone or underdone?

- Back in the day when salt was as valuable as gold, a bag of potato chips might have cost as much as $100

- If the Clinton Foundation and Global Initiative were not money laundering operations, how come they have gone quiescent after Hillary is no longer a shoe-in for the presidency.

- How does the DOJ's Rod Rosenstein still have a job since it has been revealed that he illegally back-dated by weeks the authorization to break down Manafort's  door at 3 AM to search his home and arrest him?

- Why is Turkey still in MATO?

- When the Federal Reserve Bank's primary missions of full employment and a 2% inflation rate are met, as they are now, it would seem that the Fed could swing to helping our balance of payments strategies and lowering the cost of financing our national debt.

Headlines

These headlines are real ... they have all been discovered on Internet news sites.

Canadian Black Lives Matter leader says white people have 'recessive genetic defects'

Mag: Kremlin starting to worry about Trump ...

Russian spy ship off East Coast ...

Son of Jerry Sandusky arrested on child sex, porn charges

Sarah Silverman mistakes construction markings for swastikas

Trump under fire for lax security practices

[China] Weapons reach 'near parity' with rhe West ...

NY toy maker to sell 'transgender' doll

Chicago horror: 2-year-old killed in gangland hit ...

WH sources: Priebus letting 'sleeper cell' Obama holdovers undermine Trump admin

Students wear white pins to remind them of 'white priveledge'

Inflation sees largest gain in four years ...

Inflation

Inflation is a damnedable thing. It is both the devil and an angel simultaneously. It clearly damages the poor without a cushion of interest-earning  savings, the elders living on a fixed income and companies without pricing power. But it benefits those with large debts at a fixed rate of interest ... like mortgage holders and governments burdened with big debts with long maturities at relatively low rates.

Like today, a surfeit of money in the United States does not necessarily create inflation ... particularly if labor is not in short supply. Although it appears on the surface that we currently have a low unemployment rate, this number is misleading due to a very large number of those not looking for work. And the influx of H1-b immigrants also keeps high tech salary growth down. Therefore employment cost pressure is currently low. However, if President Trump can cause an economic boom for middle America and slow down H1-b immigration, there well could be a shortage of blue-collar and white-collar workers ... resulting real wage pressure ... and overall inflation well beyond the Federal Reserve Bank's goal of 2%.

Once this beast inflation is set loose, vicious feedback will kick in and it won't want to stop at 2%.

Add to this a trillion dollars of infrastructure spending certainly will increase our national debt and inflation. If Trump follows through with his pledge to lengthen the maturity of our national indebtedness, we might be able to inflate our way out of our current fiscal insanity ... like we did after World War II when we let inflation cure our huge debt burden,

So here are my current inflation predictions under Trump.... particularly if he serves two terms:

- Spend like mad on infrastructure, health care and rebuilding our military
- Extend the maturities of our then fast-growing national debt ..  maybe even longer than thirty years ... hopefully at relatively low rates
- Put pressure on the Fed to let inflation run ... possibly into the high single digits which will monetize this debt
- But still, longer term, try to bring government spending more in line with increased tax revenues generated by a booming economy

Is this all good? What other choices do we have?

Inflation

Central banks around the world are pulling out all stops to try to counter what has been a persistent global deflationary trend. ... at least in developed economies. They have tried Quantitative Easings 1, 2, 3, etc. ... purchasing vast quantities of government debt and now even private debt to increase the money supply ... clearly to the point of diminishing returns ... since all this cash is not causing the sleeping giant of inflation to awaken. Of course, with all this debt on their balance sheets, they have also forced interest rates down ... even into negative territory ... so that all this debt doesn't crush their income statements and, more importantly, in an attempt to disincent private savers ... since saving negates spending which, in turn, is necessary for inflation.

What have been the consequences of all these central bank actions?

- I would argue that these central-banks' easy monetary accommodations have given the fiscal side of governments the license to spend beyond reason .. feeding the yaws of these ever increasing central banks' debt issuances. This will surely have longer-term consequences.

- Raising interest rates, particularly in the United States, has been like a trip to the dentist ... something put off until absolutely necessary. Don't forget that most 2015 projections had our Federal Reserve Bank raising rates four times in 2016. How many times so far? Zero! And that tooth is throbbing more and more. And I predict it won't happen before the election either ... since this might damage Hellary's chances. In December, it is more likely, especially if Trump is elected.

- Of course raising interest rates attracts capital from around the world which strengthens the dollar which then hurts exports and helps those countries importing here. Thus, the U.S. balance of payments gets even worse than it devastatingly is. This might be OK with Clinton but wouldn't sit well with Trump. He might lean on the Fed to weaken the dollar (not necessarily with interest rates) to help bring manufacturing back to America. The Fed might resist which would open another can of worms -- more federal government control over the Fed.

- The jury is out about what happens with government spending and deficits after the election. Both candidates have promised increased infrastructure spending and, Trump, a beefing up of our military ... while Hellary will open the spigots on social transfer payments. Taxes will likely go up under either candidate but, I would hope, under Trump, we might get real tax reform which might then spur our economy enough to reduce deficits. In Trump's case the Fed might be able to move more into the background except Trump might push to lengthen the term of our government debt. Clinton would still require a very accommodating central bank.

This is all very complicated with many fiscal and monetary cross currents. I wish I had the confidence that any of the world's central banks knew exactly what they were doing ... including our own. However, I think that one consequence is very likely to occur. Once all these monetary gurus have coaxed the inflation genie out of the bottle, that it will not stop at their targeted 2%. All this money in hiding around the world will then start sloshing around and may well sink a few of the more injudicious ships of state.

Counterpoint

Recently I wrote a blog specifying all the good things that can be said about the United States ... see: Rose-Colored Glasses. However, daily we see media articles that show these advantages often slip-sliding away. To illustrate this I have juxtaposed below, next to my previously-stated advantages, media stories that show the slow dulling of our nation's edges:

We have a capitalism-driven growing economy ... the largest in the world. See: China Overtakes the U.S. as World;s Largest Economy.

We have a plentiful supply of cheap labor to our south ... anxious to experience our American life. See: Donald Trump Was Right.

We have a premier higher-education system ... the envy of the world ... and one which keeps supplying us with gifted entrepreneurs. See: Higher Education -- Not What It Used To Be.

We have the geographic advantage of being isolated from most of the rest of the world by two large oceans. See: How Geography Explains The United States.

We have a very low inflation rate. See: What Official Inflation Figures Aren't Telling Us.

We have a generally benign climate. See: Scientists Warn Sun Will Go To Sleep In 2020, Cause Temperatures To Plummet.

We have a national park system that is the envy of the world. See: Obama Designates More Than 1 Million Acres For Three New Monuments.

We have the world's best health-care professionals and technology. See: Healthcare Is Getting Worse Under Obamacare.                 

Despite continuing declines, we still have an enormous manufacturing capacity. See: Fast Track To Lost Jobs.

We are currently not in a hot war draining our treasury and supply of young people. See: Pentagon Official Lists Militants, Russia and China As Threats To The U.S.

Most crime in this country is on the decline except in a few hot spots. See: Murder Rate Surges In Major U.S. Cities.

We have a democratic-elected government and all the freedoms provided by our Bill of Rights. See: The Constitution Is Eroding.

We are abundantly supplied with raw materials. See: How Putin's Russia Gained Control Of A U.S. Uranium Mine.

We have a stable currency ... the basis of most world-wide commerce. See: Momentum Builds To Label Chinese Yuan A Reserve Currency

We have the strongest military in the world. See: Lawmakers Blast US Army Force Cuts.

We have a very large middle class that supports our democracy and our way of life. See: The Shrinking American Middle Class.

We have an enormously efficient food-supply chain. See: America.s Fragile Food Supply Chain.

We lead the world in most technological advances. See: U.S. Moving From Technology Leader To Laggard.

We still carry a large surplus of prestige with most world governments. See: The Decline Of U.S. Power?

Now you see "the rest of the story."

Currency Wars

The world is a boil with currency devaluations, interest rate cuts and quantitative easings (QEs) by numerous central banks. Because of the recent slump in oil prices, the Canadian central bank has just cut its lending rate … with another commodity exporter, Australia, expected to follow suit shortly … see: CNBC Story. And today Mario Draghi of the European Central Bank is expected to announce the start of another QE program totaling perhaps 500 billion euros … see: Another CNBC Story.

I have in the past commented on what has degenerated into a major pissing contest between the central banks of the more developed nations and what the consequences that might result are … see: Race to the Bottom. It seems to this observer that the world has been lulled into an expectation, led by the now retired Chairman of the U.S. Federal Reserve Bank, Ben Bernanke, that central banks are the panacea for all the world’s economic woes.

Clearly monetary policy, in the long run, cannot solve basic economic malaise … yet the world’s stock markets now seem addicted to the opiate of easy money and very low, even negative, interest rates. This cannot all end well … at some point, possibly sooner than we wish, as Obama’s reverend, Jeremiah Wright, would say, “the chickens will come home to roost.”

What is now an illogical deflationary monetary and commodity spiral, I somehow expect, will flip into run-away inflationary in a nanosecond. Money is, after all, just gussied-up pieces of paper representing a political promise. Be prepared for these promises to be broken …

Deflation

Despite all the best efforts of our Federal Reserve Bank and other national banks around the world to promote modest monetary inflation, we now appear to be entering into a period of increasing worldwide deflation. This is prompted by the geo-political turmoil and by the decision of the Saudi Arabian government to push down the price of oil … see: The Bow. In many ways this oil price decrease is good for the United States since it strengthens the dollar, reduces the cost of living for normal Americans, and makes our enormous national debt an easier burden. (But it also makes our exports more expensive to the rest of the world.)

However, falling oil prices will cause major problems elsewhere in the world … in particular, many OPEC members’ budgets are dependent on higher oil prices and may suffer major economic dislocations if such lower prices persist … see: UK Telegraph Story. Like, for instance they might not be able to subsidize terrorist activities around the world … or may have to cut back on their development of atomic weaponry … or they might even have to stop promoting the adoption of Sharia Law (and all the evil that this entails) in non-Muslim countries?

But, unfortunately, I also believe that these deflationary pressures might eventually grease the skids for rampant inflation when it eventually does re-appear its ugly head. So enjoy things while they are good.