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

Killing Abu Mahdi Al-Muhandis

Killing Abu Mahdi Al-Muhandis

Most of the attention in this recent attack by a US drone at the Baghdad Airport has been on it killing Iranian Quds Force commander, Qasim (Qassem) Solmaini (Suleimani), supposedly plotting an “imminent” attack on Americans as he flew a commercial airliner to Iraq at the invitation of its government and passed through passport control.  But much less attention has been paid to the killing in that attack of Abu Mahdi al-Muhandis, commander  of the Popular Mobilization Forces in Iraq and reportedly an officer in the Iraqi military, as well as being, according to Juan Cole, a Yazidi Kurd, although the PMF is identified as being a Shia militia allied with Iran.

The problem here is that supposedly US leaders approved this strike because there were no Iraqi officials in this group; it was supposedly “clean.”  But there was al-Muhandis, with his PMF also allied to a political faction, the Fath, who hold 48 seats in the Iraqi parliament.  The often anti-Iranian Shia leader, Moqtada al-Sadr, has now joined with Fath and other groups to demand a vote in the parliament to order a withdrawal of American troops from Iraq.  It might be good for them to go, although Trump has just sent in 3,500 more Marines to protect the US embassy that came under attack and protests after an earlier US attack on pro-Iranian militias.

Comments (13) | |

Initial jobless claims still negative, but no recession signal

Initial jobless claims still negative, but no recession signal

As you know, I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, if businesses aren’t laying employees off, those same people are consumers who are going to continue to spend, which is 70% of the total economy. So the lack of any such increase has been the best argument that no recession is imminent.

Yesterday morning’s report of 222,000 initial claims continues the string of numbers above the 2018-19 average. Superficially the four week average of 233,250 is also enough for a recession flag, but as we will see below this is really an artifact of seasonality.

To reiterate, my two thresholds for initial claims are:

1. If the four week average on claims is more than 10% above its expansion low.

2. If the YoY% change in the monthly average turns higher.

I’ve also added a threshold for the less leading, but also much less volatile 4 week average of continuing claims at 5% higher YoY.

As indicated above, the 4 week moving average of claims has risen to 233,250, which  is 15.8% above the lowest reading of this expansion, which occurred back in April

On a YoY% change basis, the 4 week average is 11,500, or 5.2%, higher:

Comments Off on Initial jobless claims still negative, but no recession signal | |

Forward Creeping Excessmass Wins The War On Christmas

Forward Creeping Excessmass Wins The War On Christmas

“Excessmass” is a term neologized in a column in the late 1990s in the Wall Street Journal (sorry, unable to find precise date) by my JMU colleague, Bill Wood.  A devout Brethren, he was and remains disgusted by the crass commercialism associated with the Christmas holiday in the US. In this column he proposed dividing the holiday into two: a strictly religious one, “the Nativity” without gift giving, and a gift giving one he argued should be called “Excessmass,” a term that did not particularly catch on, but I am reviving as I see its forward creep as in fact damaging it not outright destroying the traditional religious Christmas, certainly far more vigorously than any bout of people saying “Happy Holidays!” to each other.

What triggered this post is that over the weekend in the Washington Post comics section (the most important part of the paper), nearly a  quarter  of the comics had a theme of “taking down the Christmas tree” or “taking down the Christmas decorations,” and indeed in my neighborhood I saw several houses where there was a tree out on the street on either the 26th or 27th.  Plus, for some years now a local radio station has started playing the schlocky commercial Xmas music (“Frosty the Snowman,” etc.) starting a day or  two after Halloween, but then on Dec. 26 is back to its usual pop music stuff. Hey, Christmas is over!  Time to move on to Valentine’s Day!  And also this year I saw the stores breaking what had been a Halloween barrier (the Thanksgiving one long ago broken) and putting up all their Xmas stuff in October.  Hey, with all that going on for so long, of course it is time to put all those decorations away the minute Christmas is over!

Comments Off on Forward Creeping Excessmass Wins The War On Christmas | |

The chart of the decade

The chart of the decade

Today doesn’t just mark the end of 2019, but the end of the 2010’s as well. So it’s only suitable that I post the one chart that I think most explains the economy over the past 10 years.

In terms of public policy, that chart would be of the continual explosion of income and wealth inequality, particularly at the very top 0.1% or 0.01% of the distribution.

But in terms of explaining why the economy has chugged along at roughly 2% GDP growth every year for 10 years, with no recession, the below graph, that was part of my year-end review last week, sums it up nicely. Here it is again, the YoY changes in the Fed funds rate and the YoY% change in the price of gas:

What generally kills economic growth is either a sharp change in the cost of financing and/or a sharp increase in the costs of inputs. In the 2010’s we never had either. In 2018 we came close, particularly in a YoY change in gas prices, but it was an increase from a very low level, and it didn’t last that long.

This very long moderation in both interest rates and important commodity prices is the most basic explanation for the fact that the expansion that started in 2009 is still going on as we begin 2020.

See you on the other side. In the meantime, Happy New Year!

Comments (3) | |

Thiessen Balances His Policy Defense Of Trump

Thiessen Balances His Policy Defense Of Trump

Several days ago I posted on Marc A. Thiessen’s defense of 10 policies by Trump in WaPo.  I must now credit him with today on New Year’s Eve in the same venue publishing a column “The 10 worst things Trump did in 2019.”  Good for him, some balance after all.  I agree these are all bad things, although I disagree with some of his analysis of them, with a few caveats especially on a couple of the foreign policy items.  However, I shall just list them with Thiessen’s conclusion.

10. He ridiculously claimed “Our country is FULL”

9. He used anti-Semitic tropes to attack his enemies.

8. He said the Soviet Union was right to invade Afghanistan and congratulated China on the 70th anniversary of the Communist takeover.

7. He lost a needless government shutdown.

Comments (1) | |

Summing Up the Last Decade

To steal from Sandwichman’s excellent commentary on 2020 Hindsight and use a quotation from it which does give the magnitude of the last 10 years in financial terms;

“A fourth wave of debt began in 2010 and debt has reached $55 trillion in 2018, making it the largest, broadest and fastest growing of the four” (since 1970). There is a cost to this and one which can be seen in the US as this debt formation is not going to “meet urgent development needs such as basic infrastructure, as much of the current debt wave is taking riskier forms”

akin to what we began to see in 2000 and culminating in 2007/8 with a disastrous economic collapse.

The Atlantic’s Anne Lowry also writes about the last decade. Perhaps, she is the wrong author to pick upon and use to summarize the impact of the economy on the nation’s population. And again others may disagree with my choice; however in this case, I appreciate her summation on what she notes in passing; The Decade in Which Everything Was Great But Felt Terrible.

Picking the best story encapsulating the economy of the last decade she chose CamperForce: depicting elderly nomads living in vans and RVs and spending their twilight years temping at Amazon fulfillment centers, other places, setting up temp businesses, etc. after losing savings, homes, and belongings in the 2008 crash.

If there was a positive spin to this recital it would be of people wanting the structure and community work can provide well into retirement age, the freedom and mobility associated with a RV life, the flexibility of temp gigs, or not being nailed down to place, job, etc. The story is not of a newly realized freedom in retirement; CamperForce consisted of grandparents who had been evicted from their homes during the housing collapse and were struggling to stay out of poverty. It’s a modern-day, AARP twist on The Grapes of Wrath.

To use Anne’s words; perhaps the most representative story is that of the former graduate student who ended up as a warehouse janitor or the thousands of people who have gone online to beg for money to help them stay afloat through a life-threatening illness.

In finality these stories cast a reality in the names and faces depicting today’s economic impact; the real, urgent, and indelible marks of this past decade’s failings. The ten years without a single month of serious recession with the United States growing to its wealthiest point ever and still longevity fell, and it became clear that a whole generation was losing its place in the hierarchy.

The central economic message given to us from the 2010s? No matter how well the market was doing, how long the expansion lasted, and how much the economy grew; families still struggled and lost ground in the economic hierarchy. Because the decade did so little for so many, it strained America’s idea of what economic growth could and should do.

The rest of Anne Lowry’s story can be found here; “The Decade in Which Everything Was Great But Felt Terrible,” The Atlantic, December 31, 2019.

It is a good read.

Comments (6) | |

2020 Hindsight: Why the world is not zero-sum

According to a report, Global Waves of Debt, pre-published by the International Bank for Reconstruction and Development:

Waves of debt accumulation have been a recurrent feature of the global economy over the past fifty years. In emerging and developing countries, there have been four major debt waves since 1970. The first three waves ended in financial crises—the Latin American debt crisis of the 1980s, the Asia financial crisis of the late 1990s, and the global financial crisis of 2007-2009.

A fourth wave of debt began in 2010 and debt has reached $55 trillion in 2018, making it the largest, broadest and fastest growing of the four. While debt financing can help meet urgent development needs such as basic infrastructure, much of the current debt wave is taking riskier forms. Low-income countries are increasingly borrowing from creditors outside the traditional Paris Club lenders, notably from China. Some of these lenders impose non-disclosure clauses and collateral requirements that obscure the scale and nature of debt loads. There are concerns that governments are not as effective as they need to be in investing the loans in physical and human capital. In fact, in many developing countries, public investment has been falling even as debt burdens rise.

We hear from time to time that “the world is not zero sum.” Rarely is that dictum explained in other than mystical terms (e.g. “supply creates its own demand,” “human wants are insatiable,” etc.). The explanation, however, is simple: debt. Without debt there would be no “economic growth.”
Debt finances growth; growth services debt. And they all lived happily ever after. But some debt takes “riskier forms.” Hyman Minsky wrote about the first of those four debt waves in “The Bubble in the Price of Baseball Cards.” In that paper Minsky addressed the price of baseball cards, the Latin American debt crisis, the Japanese, Korean and Taiwanese real estate and equity booms of the ’80s, and “[o]ne of the puzzles of the 1980s… the rapid rise in the financial wealth of Donald Trump.”
What the rise in Trump’s wealth had in common with the Latin American debt crisis was that they both were predicated on a precarious differential between real interest rates and increases in asset values that could change very suddenly with an increase in the former or a decrease in the latter.
One of Minsky’s best shots was a drive-by — relating the regional increase in real estate prices to “rapid increase in incomes in banking and financial services — sort of a derived demand from the financial success of Drexel Burnham.” That Drexel Burnham “success” was, of course, transitory and involved fraud. The inference was that Trump’s financial success, too, was ultimately — at least indirectly — fraudulent.
John Kenneth Galbraith coined the term “bezzle” for the amount by which total wealth is inflated by embezzlement in the period before the embezzlement is discovered:

At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle.

Any large quantity of debt includes an inventory of embezzlement. A certain amount of it will never be paid back. Some was never intended to be repaid. As the debt increases relative to income, the proportion of prospective embezzlement also increases.

Happy New Year!

Comments (1) | |

A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

Last week Kevin Drum had the following inquiry:

[H]ow is it that wages can go up but overall inflation remains so subdued? That seems to be the real disconnect here. During the dotcom boom, wages went up but inflation remained around 3 percent. During the housing bubble, wages didn’t go up and inflation remained around 3-4 percent. Right now, wages are going up but inflation has remained around 2 percent. Wages no longer seem to have much correlation with overall inflation.

I haven’t seen anyone address this specific issue, but I’d be interested in hearing more about it…. What’s the deal?

The answer here, I believe, is quite simply that in the modern era since 1983, consumer inflation more than anything else is about the price of gas. Let me show you why.

First, here’s the relationship that is the subject of Drum’s query: wages for non-supervisory workers (blue) vs. consumer inflation (red) YoY:

Overall inflation has been more variable than Drum’s summary indicates, but it is fair to say that during the 90’s and 00’s it averaged roughly between 1.5%-4% regardless of wage growth. During the present expansion,


Comments (2) | |

Weekly Indicators for December 23 – 27 at Seeking Alpha

by New Deal democrat

Weekly Indicators for December 23 – 27 at Seeking Alpha

My last Weekly Indicators post of the year is up at Seeking Alpha.

The producer side of the economy seems to be worsening, while initial jobless claims suggest some weakness is spreading over to the consumer side.

As usual, clicking over and reading helps reward me a little bit for the effort I put in.

Comments Off on Weekly Indicators for December 23 – 27 at Seeking Alpha | |

The Unreasonableness Of The Policy Defense Of Trump

The Unreasonableness Of The Policy Defense Of Trump

In today’s (12/27/19) Washington Post, regular Trump defender, Mark A. Thiessen published a column, “The 10 best things Trump did in 2019”  This turns out to be mostly things either not worth defending or Thiessen, who simply never criticizes Trump, misrepresenting situations.  Here they are.

10. “He continued to deliver for the forgotten Americans.”  This amounts to unemployment continuing to decline, wages beginning to rise, and supposedly 57 percent of Americans saying they are better off since he became president.  Yes, this by and large happened, but amounts to Trump managing to having avoided derailing the expansion he inherited from Obama.  The problem is that he enacted many policies that have hurt the poor and redistributed money to the rich.  They would have been even better off without his policies.

9. “He implemented tighter work requirements for food stamps.”  Yikes, more of his helping “forgotten Americans.”  This was the amazingly Scroogeish policy of dumping people from getting food stamps just as the holiday season arrived, probably part of the “War on Christmas.”  This supposedly to help the “dignity and pride” of the poor.  Sure, Scrooge himself could not put it better.

8. “He has gotten NATO allies to cough up more money for our collective security.”  I guess the outcome here is not a bad thing, per se, although the amounts of  money involved are not all that big.  But this has been the only thing he has done regarding NATO, managing to alienate most of the leading nations in NATO, with him raising serious doubts regarding whether he would actually defend a nation that might be attacked by Russia.  Their attitude is best seen by the bunch of leaders mocking him on tape at the last NATO meeting.  They hate his guts and disrespect him.

Comments (13) | |