Relevant and even prescient commentary on news, politics and the economy.

Trump Says Dems Support Venezuelan “High Taxes And Open Borders”

Trump Says Dems Support Venezuelan “High Taxes And Open Borders”

The  average tax rate in Venezuela is 25%. The average tax rate in the US is 26%.  Sorry, Trump, this is yet another lie by Trump, but what else is new on this?

I do not know the details of Venezuelan of immigration policies, but at this point in time the issue  in Venezuela is not immigrants freely arriving and causing economic problems, but just the opposite: people leaving in massive numbers leading to crises in all the neighboring countries of Venezuela.
So, bottom line: Trump not for the first time is totally full of it on all of this.
But now it is time to deal with the political-economic problem of Venezuela, a matter that may lead to some regular readers of this blog to differ with me.

Indeed, Venezuela has turned into a political-economic disaster: extreme hyperinflation with a plunging real output, with massive outmigration, so massive that the receiving nations (Columbia, Brazil, Guayana, Ecuador), have had serious public complaints.

So GOP standard stories have now focused  on Venezuela as the supposed world model of “socialism.”  Oh gag on many issues. I have from the moment Hugo Chavez came to power I never supported him, a military guy who had attempted a failed coup.  I shall not name prominent economists who now are fumbling with the current awful situation.

Comments (13) | |

Failed Perceptions Of Economic Reality  

Failed Perceptions Of Economic Reality

It is long  viewed that what the electoral populace thinks of the state of the economy is an important factor in how they vote and electoral outcomes.  Prior to 2000 the state of the economy as measured by real per capita  GDP growth explained presidential election outcomes except in cases where there was a war (!940) or there was a party split (1912).  Personal scandals also played roles, with Ford’s defeat in 1976 at least partly due to his pardoning of Nixon.  2000  and 2016 had personal scandal issues involved in outcomes that went against the state of the economy (although 2016 a closer call on that), although in both of those elections we had the electoral college installing a president not favored by the national popular vote.

Midterm elections are not so closely tied to economic conditions as they have certain patterns based on the president and when he was elected, with midterms generally not favoring presidents. Nevertheless, economic conditions do play a role, with Reagan taking a big hit in 1982, even as he won big two years later when the economy turned around.

So now we have the economy doing well in terms of GDP growth, a 4,2% growth quarter followed by a  3.5% one, looking better than many forecast, despite some negative signals such as recent bad performance of the stock market. How will all this play out in the upcoming midterm elections?

To be honest, I do not know.  But it strikes me that most of the electoral populace is not in touch with actual current economic reality. It goes on both sides. So, the side that I tend to favor tends to understate the returns people received from the GOP tax cut.  Now I did not and do not support this tax cut for various reasons, but indeed it did hand out money to the vast majority of the population.  But now by nearly 2 to 1, the US populace says they got nothing from it, and they oppose it as mostly giving money to the rich and adding to the budget deficit. All the latter is correct, of course, so it the populace are not complete fools. But in fact most of them did get some gain from this tax cut. But then, back in 2009-10 when Obama gave most of the population a tax cut, most of them did not notice  it and were unaware they had gotten it.  The hard fact is that people only notice big changes in their take home income, and neither Obama’s nor Trump’s tax breaks were big enough for most people for them to notice it.

Needless to say, while many did not notice the  tax cut  Trump gave them, those favoring Trump are not noticing that the vast majority of the US population has not seen increases in real per capita income.  Trump’s tax cut for the majority of the population was too small to overcome the hard fact that real wages have remained largely stagnant.  GDP growth has been high in the last two quarters, but is declining, and  for a variety of reasons is likely to continue downwards.  The recent volatility of the stock market shows these concerns, ranging from Trump’s trade wars, creeping inflationary trends, and rising interest rates, not to mention bad markets and slowdowns abroad.

Barkley Rosser

Comments (11) | |

How To Get Distracted From What Is Most Important

How To Get Distracted From What Is Most Important

Of course as the midterm elections are nearly upon us, there is a rising cacophony of issues bubbling up, especially as Donald Trump attempts to excite his extremist base with base fears, while trying to distract most voters from threats by GOPs in Congress to cut the social safety net.  But some of the the new issues bubbling up are really more important than others.

So we are now going to have a spectacle every day from now to the election of having top stories on nearly all media focusing on this caravan of Hondurans approaching the US.  Trump declares this to be a national security crisis, which his fervent followers clearly hysterically accept.  But even if this entire group were allowed into the US, it would be no big deal, probably good for our economy and society.

OTOH, we have the news over the weekend that Trump is planning to withdraw the US from the INF nuclear treaty, signed in 1987 by Reagan and Gorbachev.  The still living Gorby has declared that doing so is “stupid.”  That is putting it mildly.  This appears to be the brainchild of super-hawk John Bolton, now in Moscow, where he is also soft soaping Russian meddling in US elections.  But talk is that if INF goes, so will New START, leaving almost no nuclear arms treaties in place between Russia and the US.  Yes, Russia has been reportedly violating the INF treaty in some cases, but is just throwing out an arms control apparatus that took so long to negotiate the way to go?  Bolton clearly thinks so, but he has also talked about how maybe we should use nuclear weapons, echoing loose similar talk coming out of some Russians earlier.  There is also talk of a renewed arms race, which our military-industrial complex would love.

Really, this seems to be coming basically out of nowhere.  Are we to return to a Cold War and arms race and fearing a nuclear war?  It took decades for Thomas Schelling to convince world leaders with nuclear weapons to foreswear the first use of them.  Now he is dead, and we are suddenly hearing all this loose talk and possible unraveling.  Frankly, this is far more dangerous than this Honduran caravan, but it is back page news, and I fear most people are unaware of it, more worried about Central American immigrants than that the threat of nuclear destruction of the entire human species is suddenly increasing.  We must not be so easily distracted.

Barkley Rosser

Comments (1) | |

MBS Must Go

MBS Must Go

The grisly details of the murder of journalist Jamal Khashoggi now coming out make it clear that the one thing that would really clear the air would be for 33-year old Muhammed bin Salman bin Abdulaiz al Sa’ud (MBS) to be replaced as Crown Prince of Saudi Arabia and to be removed from any position of authority and power that he currently possesses.  Indeed, it would be wise if he were subjected to what he imposed on others whom he saw as in his way to assuming the  extreme level of power he currently has in KSA, to be confined to his palace under guard or perhaps in the Ritz-Carlton Hotel.  To make clear his removal from power it would also be appropriate to have da Vinci’s painting of Salvador Mundi taken from him, which he is reported to have purchased through intermediaries for $480 million, a sign of the degree of corruption that he has personally engaged in.

It should be clear that MBS’s crimes and mistakes go far beyond this awful mmuder by members of his personal bodyguard of Khashoggi.  The thousands of dead civilians in Yemen in the war there that he instigated as Defense Minister is at the top of the list.  But his idiotic embargo of Qatar and his hyper-aggressive attitude towards Iran (stupidly supported by the current US administration) are also on the list, along with his broader suppression of disssidents within KSA.  It may well be that a successor will continue the strongly anti-Iran policy, although some potential candidates have in the past urged negoatiating with Iran, including former ambassador to the US, Turki bin Faisal bin Abdulaziz al Sa’ud, for whom the now late Jamal Khashoggi once worked as a top staff aide.  However, for a variety of reasons this 73 -year old now Chair of the powerful King Faisal Foundation is unlikely to succeed MBS.

Comments (3) | |

Who Is The Bigger Terrorist Threat: Iran Or Saudi Arabia?  

Who Is The Bigger Terrorist Threat: Iran Or Saudi Arabia?

Yesterday’s WaPo had competing headlines about Iran and KSA (Saudi Arabia): Iran is described as a “potential” terrorist threat while the likely Saudi role in the death of journalist Jamal Khashoggi is described as threatening the US-KSA relationship.  The latter problem (likely to be smoothed over by claiming it was done by “rogue agents”) has distracted from the ongoing story of how Iran is this awful enemy and threat to the US, “the world’s leading state sponsor of terrorism” as organs oof the US government repeatedly tell us.  The problem is that in recent years there have been zero terror attacks by entities principally funded by Iran.

The new story reports on “potential” attacks, with the most serious possibility being in Europe, where indeed in thr 80s and early 90s Iranian MOIS apparently killed as many as 60 opponents of its regime in various attacks in Berlin and other locations. An Iranian embassy official based in Vienna has  been arrested in Bavaria in connection with an alleged plot to attack Mujahedin-el-Khalq (MEK) activists near Paris, which plot was foiled.  As it is, the MEK was labeled a terrorist group itself by the US government until 2012.  It may be that such a plot was in the making, but it did not happen.  Regarding the US two supposed Iranian spies were arrested in the US who may have been plotting something, but again, no actual attacks, and there is a related report that at least one spy supposedly supported by Iran working for Hezbollah went to the FBI to offer to become an informant but was arrested.  Ah ha!  Another terrorist!

Of course, there is the usual complaint that Iranian forces are in Syria and Iraq, but they are in both nations at the invitation of their governments.  Iran supports Hezbollah in Lebanon, but like Iran itself it ceased engaging in terror attacks in any serious way back in the 90s and is now too busy ruling Lebanon to mess with such stuff.  There are also claims they arm the Houthis in Yemen, but most evidence says they do little of that, and the main problem there comes from the US-Backed Saudis bombing the Yemenis, including civilians.

Which brings us to the Saudis.  So now people are suddenly questioining the close US alliance with them after this Khashoggi business.  But they are the ones bombing and killing civilians in large numbers in Yemen.  They have supported al Qaeda related groups in Syria.  It was fro KSA that most of the bombers on 9/11 came from.  And while the Saudis may now have allowed women to drive, women were never kept from driving in Iran.  The  Saudi-funded madrassas all over the world have been major breeding grounds for Sunni terrorists of various factions and stripes.  Really, this is a no-brainer.  It is the KSA that is a much more serious terror threat than Iran.

Barkley Rosser

Comments (2) | |

“Lock Her Up!!!”

“Lock Her Up!!!”

For several years now we have all grown accustomed to the fact that President Trump likes to go to rallies of his supporters where they relentlessly chant the subject head of this post.  It has always referred to his opponent in the presidential election of 2016, the person who got about 3 million more votes than he did, even as he managed to win in the determining electoral college.  While I recognize that Hillary Clinton has many flaws, she has been investigated more times than I can count for many alleged offenses, some of which I suspect she is guilty of, even as some of them were pretty minor (see financial shenanigans back in Arkansas).  She also was subjected to many Congressional investigations by several committees for many alleged offenses, including her notorious getting emails in her home like her three predecessors did, although none of them were ever so investigated. She even had 8, really 8, investigations of her role in the Benghazi fiasco, these costing taxpayers many millions of dollars.  The final one involved her  sitting for 11 hours straight while a GOP led committee interrogated her, ending up with them looking like a bunch of exhausted foolish idiots while she looked  cool as a cucumber. The final bottom line is that none  of those investigations led to even an indictment for anything.

A peculiar sideshow on this is that among the more bizarre investigations of her, costing millions of US taxpayer dollars, was that in 1998 by the Starr group of the chance that she had been responsible for the death of Vincent Foster, who committed suicide on the GW Parkway.  The person advocating this investigation of a conspiracy theoty and engaging in it, only to find a big fat nothing, was none other than Brett Kavanaugh, apparently about to be confirmed to be the  next lifetime member of the US Supreme Court.

Comments (7) | |

I Was Wrong: US-Mexico Trade Deal Lives With Canada: USMCA Rather Than NAFTA

I Was Wrong: US-Mexico Trade Deal Lives With Canada: USMCA Rather Than NAFTA

At the last minute last night the US and Canada cut a deal, so now Canada is on on the deal to change NAFTA to USMCA.  I think the name change is the biggest part of it, even though Trump still claims that NAFTA was “the worst trade deal ever” and the new deal makes relatively minor changes in it, especially if one considers what would have been the case if the US had actually joined the TPP, as most of the environmental, labor, and intellectual property parts of the new deal (the environmental and labor parts largely improvements, if not too dramatic) were already agreed to by Mexico and Canada when rhey joined TPP, which they belong to along with all its other members aside from the US.

Beyond continuing NAFTA and adding the TPP parts, the main changes are in the auto industry and the dairy industry, the former mostly affecting Mexico, the latter mostly affecting Canada.  Between the restrictions on outsourcing and the $16 per hour limit on imports, there may be some shifting of auto parts production from Mexico to the US and possibly Canada as well.  This will lead to job losses in Mexico, but there may be some Mexican autoworkers who see wage boosts also.  The auto deal has little impact on Canada aside from Trump retracting his threat to impose tariffs, which was opposed by GM and Ford as well as the UAW thanks to the profound integration between the US and Canadian auto industries.

Comments (2) | |

The US-Mexico Trade Deal Dies

The US-Mexico Trade Deal Dies

Nobody is calling it that, but the low key story on the back pages of Wednessday’s major papers report that this is what has happened, not to my surprise.  September 29 (or maybe the 30th at a stretch) is the deadline for President Trump to submit to the Congress the final version of the US-Mexico trade deal if there is any chance of it being passed by the US Senate in time for outgoing Mexican President Pena Nieto to sign it on his lats day in office on November 30 after the outgoing Mexican parliament could approve of it.  The US Senate rules are that there is a 90-day waiting period for the initial announcement of a trade deal and a 60 day waiting for delivering the final detailed agreement.  The Trump administration got their initial report in on time, but with only it involving US and Mexico.  Sept. 29 is the deadline for the final deal.

As noted in previous posts here (Aug. 29, econospeak.blogspot.com/2018/08/marrying-nafta-and-tpp-us-mexico-free.html and Sept. 6, econospeak.blogspot.com/2018/09/has-trump-gone-over-the-edge-on-negotiating.html , sorry having trouble providing the links), top Republican senators such as No. 2 John Cornyn of Texas and others have said they will not approve a deal that does not include Canada, a reformed NAFTA.  Let me note that it was not impossible for this US-Mexico trade deal to form the basis of such a deal.  But, unfortunately, in the immediate aftermath of the announcement of the US-Mexico deal Trump announced that Canada must settle the negotiation on “our terms.”  Oh.  The funny thing is that there was a possible deal.  The US was making demands of Canada about the dairy industry (never a part of NAFTA because it was so hard to make a deal) and Canada was making demands about the lumber industry, generally described as a dispute over “dispute resolution.”  There were other issues, but these were the politically hard and sensitive  ones involving such places as Wisconsin and Quebec.  In the end it appears that no deal between the US and Canada has been made and probably will not be made in time for the Sept. 29 deadline.

Comments (2) | |

Mainstream Media Says Trump Triumphs Over Iran!

Mainstream Media Says Trump Triumphs Over Iran!

That would be several stories in both the New York Times and the Washington Post over the last two days: Trump’s policy against Iran is a great success and it  is completely reasonable and justified. This reporting and columnizing has followed three tracks.

One was in a column yesterday in WaPo from Mark Thiessen of AEI, generally pro-Trump.  His column was about how Trump in general doing well on foreign policy, although with no mention of the trade war.  He did not spend much time on Iran, but it is a success, so obviously so it does not need much discussion.   He fulfilled a campaign promise and showed he is strong, and of course it is so justified he did not waste time defending it.  However, he made no comment on how Iran has responded to this supposedly gloriously successful policy, and in fact Iran has basically done nothing.

Anouher thrust in both papers have been reports of the release of the State Department’s annual report  on terrorism.  As in past years the report again without question names Iran as the world’s “leading state sponsor of terrorism,” something that Trump and politicians of both parties have regularly repeated without a shred of embarrassment.  Juan Cole points out several problems here.  For starters, there is not a single terrorist act that happened last year (this report covers 2017) that can be blamed on Iran or any of the groups it supposedly supports.  The single piece of evidence on Iran’s supposed terrorist threat to the US is that in February two supposed Hezbullah “operatives” were arrested in Michigan.  There is not even a claim that these “operatives” were even planning a terrorist act, much less actually carried out one.  As Cole notes, Hezbullah is the dominant force in the Lebanese government, and it is well over a decade since anybody has tied that organization to an actual terrorist act. As it is, Cole notes that the report notes a 23% decline in terrorist acts from 2016 to 2017, with most of that due to a reduction of acts by ISIS in Iraq especially.  Who helped shut down ISIS in Iraq?  Iran-supported gropus, but the report fails to note that, just as it fails to note ongong Saudi support for terrorist actions.

Comments (2) | |

The Minsky Moment Ten Years After

The Minsky Moment Ten Years After

These days are the tenth anniversary of the biggest Minsky Moment since the Great Depression. While when it happened, most commentators mentioned Minsky and many even called it a “Minsky Moment,” most of the commentary now does not use that term and much does not even mention Minsky, much less Charles Kindleberger or Keynes. Rather much of the discussion has focused now on the failure of Lehman Brothers on September 15, 2017. A new book by Lawrence Ball has argued that the Fed could have bailed LB out as they did with Bear Stearns in February of that year, with Ball at least, and some others, suggesting that would have resolved everything, no big crash, no Great Recession, no angry populist movement more recently, heck, all hunky dory if only the Fed had been more responsible, although Ball especially points his finger at Bush’s Treasury Secretary, Hank Paulson, for especially pressuring Bernanke and Geithner at the Fed not to repeat Bear Stearns. And indeed, when they decided not to support Lehman, the Fed received widespread praise in much of the media initially, before its fall blew out AIG and brought down most of the pyramid of highly leveraged derivatives of derivatives coming out of the US mortgage market, which had been declining for over two years.

Indeed, I agree with Dean Baker as I have on so many times regarding all this that while Lehman may have been the straw that broke the camel’s back, it was the camel’s back breaking that was the problem, and it was almost certainly going to blow big time reasonably soon then. It was not Lehman, it was going to be something else. Indeed, on July 12, 2008, I posted here on Econospeak a forecast of this, declaring “It looks like we might be finally reaching the big crash in the US mortgage market after a period of distress that started last August (if not earlier).”

I drew on Minsky’s argument (backed by Kindleberger in his Manias, Panics, and Crashes) that the vast majority of major speculative bubbles experience periods of gradual decline after their peaks prior to really seriously crashing during what Minsky labeled the “period of financial distress,” a term he adopted from the corporate finance literature. The US housing market had been falling since July, 2006. The bond markets had been declining since August, 2007, the stock market had been declining since October, 2007, and about the time I posted that, the oil market reached an all-time nominal peak of $147 per barrel and began a straight plunge that reached about $30 per barrel in November, 2008. This was a massively accelerating period of distress with the real economy also dropping, led by falling residential investment. In mid-September the Minsky Moment arrived, and the floor dropped out of not just these US markets, but pretty much all markets around the world, with the world economy then falling into the Great Recession.

Let me note something I have seen nobody commenting on in all this outpouring on this anniversary. This is how the immediate Minsky Moment ended. Many might say it was the TARP or the stress tests or the fiscal stimulus. All of these helped to turn around the broader slide that followed by the Minsky Moment. But there was a more immediate crisis that went on for several days following the Lehman collapse, peaking on Sept. 17 and 18, but with obscure reporting about what went down then. This was when nobody at the Board of Governors went home; cots made an appearance. This was the point when those at the Fed scrambled to keep the whole thing from turning into 1931 and largely succeeded. The immediate problem was that the collapse of AIG following the collapse of Lehman was putting massive pressure on top European banks, especially Deutsches Bank and BNP Paribas. Supposedly the European Central Bank (ECB) should have been able to handle this but along with all this the ECB was facing a massive run on the euro as money fled to the “safe haven” of the US dollar, so ironic given that the US markets generated this mess.

Anyway, as Neil Irwini The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a full out global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet. These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities. This was the save the Fed pulled off at the worst moment of the Minsky Moment. The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

Barkley Rosser
Revised; 9/19/2018

Comments (9) | |