Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Category Archives: Economics

Calls for a U.S. Recession Are Premature

This article was published by The McAlvany Intelligence Advisor on Friday, August 16, 2019: 

In May of 1897, an English correspondent for the New York Journal, Frank Marshall White, contacted Mark Twain who was in London at the time to inquire after his health. White’s editors had heard a rumor that Twain was on his deathbed. On May 31, Twain responded to White:

I can understand perfectly how the report of my illness got about. I have even heard on good authority that I was dead. James Ross Clemens, a cousin of mine, was seriously ill two or three weeks ago in London but [he] is well now. The report of my illness grew out of his illness.

The report of my death was an exaggeration.

Investors on Wall Street know exactly how Twain (a pen name adopted by humorist Samuel Langhorne Clemens) felt. Reports from the Wall Street Journal, tweets from President Trump, riots in Hong Kong, etc. set the stage for an 800-point drop in the Dow on Wednesday.

The rumors seemed to have substance. On Wednesday the Journal reported that “early indicators and business sentiment indicators point to another weak performance in the third quarter. That could potentially indicate a recession….” It backed it up by noting that Germany’s economy went negative in the quarter that ended in June, while the jobless rate in China’s largest cities hit the highest level seen since such reporting began. Other data on China’s factory production, consumer spending, property investment, and “other key readings” were all “lower than expected,” said the Journal.

Given the opacity of data coming from Chinese government sources, the Journal looked at exports to China from the eurozone (19 of the 28 countries making up the European Union) and reported that they slowed to a barely perceptible increase of 1.5 percent in the first five months of the year. The Journal quoted Germany’s economic minister Peter Altmaier: “The new figures are a wake-up call and a warning. We are in a weak growth phase but not yet in a recession.” All Germany needs is another negative quarter and the classical definition of a recession there will have been met.

The next day, the Journal reported

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Recession Coming, or Head Fake?

This article appeared online at TheNewAmerican.com on Thursday, August 15, 2019: 

Upon hearing rumors that he had died, Mark Twain quipped, “The reports of my death are greatly exaggerated.” Upon hearing rumors that the U.S. economy was headed for recession, Walmart’s healthy sales and revenue report on Thursday rebuffed such a presumption.

The rumors seemed to have substance. On Wednesday the Wall Street Journal reported that “early indicators and business sentiment indicators point to another weak performance in the third quarter. That could potentially indicate a recession.” The Journal backed up that claim by noting that Germany’s economy went negative in the quarter that ended in June, while the jobless rate in China’s largest cities hit the highest level seen since such reporting began. Other data on factory production, consumer spending, property investment, and “other key readings” were all “lower than expected,” said the Journal.

Given the opacity of data coming from Chinese government sources, the Journal looked at exports to China from the Eurozone (19 of the 28 countries making up the European Union) and reported that they slowed to a barely perceptible increase of 1.5 percent in the first five months of the year. The Journal quoted Germany’s economic minister, Peter Altmaier: “The new figures are a wake-up call and a warning. We are in a weak growth phase but not yet in a recession.” All Germany needs is another negative quarter and the classic definition of a recession will have been met.

The next day the Journal reported the results

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Trump: Spend Now, Cut Later

This article appeared online at TheNewAmerican.com on Friday, August 2, 2019: 

Following passage of the two-pronged budget/debt-ceiling bill by the Senate on Thursday, President Trump tweeted triumphantly: “Budget Deal is phenomenal for our Great Military, our Vets, and Jobs, Jobs, Jobs! Two year deal gets us past the Election. Go for it Republicans, there is always plenty of time to CUT!”

The “deal” avoids the automatic cuts under the Budget Control Act (BCA) which, without Congressional action, would have cut government spending by $125 billion. Instead, those cuts were avoided and government spending was increased. It also eliminates the debt ceiling for two years, well past the November presidential election.

As The New American noted last week,

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Raft of Economic Reports Confirm Continuing Strength of U.S. Economy

This article appeared online at TheNewAmerican.com on Thursday, August 1, 2019: 

A cluster of economic reports just released confirm the continuing strength of the U.S. economy. This is especially impressive in light of the perceived global slowdown, including the economic powerhouses of Germany and China.

Wednesday’s report from accounting firm ADP showed job growth across all sectors of the economy in July, as well as across all sizes of businesses. The goods-producing sector — mining, construction, and manufacturing — added 9,000 jobs last month, while the services sector — transportation, education, healthcare, and hospitality — gained 146,000 jobs. Small businesses (1-49 employees) hired 11,000 new people in July; medium-sized businesses (50-499 employees) added 67,000 workers; and large businesses (over 500 employees) brought on 78,000 people.

This was in line with expectations and well above the estimated 100,000 new jobs needed to keep up with population growth.

Thursday’s report from the Labor Department showing further declines in initial claims for unemployment insurance benefits confirmed the health of the labor market.

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Trump Wants Fed to Cut One Full Percentage Point; Powell Likely to Give Him One-quarter

This article appeared online at TheNewAmerican.com on Wednesday, July 31, 2019: 

President Donald Trump wants Jerome Powell, the chairman of the Federal Reserve, to cut the Fed Funds rate by a full percentage point Wednesday afternoon. Powell is certain to give him just one-quarter of that, with the possibility of more cuts soon.

The president has expressed regret repeatedly about his appointment of Powell as head of the country’s central bank, blaming him for raising rates four times last year, nine times since 2015, intentionally slowing his economy just as his reelection campaign is heating up.

The last time the Fed cut rates was in

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Democrats’ $15 Minimum Wage Bill Ignores Economic, Political Reality

This article appeared online at TheNewAmerican.com on Friday, July 19, 2019: 

House Speaker Nancy Pelosi rejoiced following passage of the Democrats’ Raise the Wage bill on Thursday, which would raise the Federal Minimum Wage to $15 an hour by 2025: “This is an historic day. Today we wake up for a day of jubilation because of the sense of fairness this legislation engenders. We wake up with a smile on our face[s], showing the world with all the love in our hearts, and that love in our hearts is about fairness for the American people.”

She failed to mention the people who would be treated unfairly if the Senate agrees and the president signs it into law. The New American reviewed what the Congressional Budget Office (CBO) thought of the proposed legislation: “For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty. But other low-wage workers would become jobless, and their family income would fall — in some cases below the poverty level.”

Those low-wage workers mostly at risk presently hold positions primarily in the service industry: restaurants, bars, hotels, retail stockers, and cashiers. Once their employers are required to pay them more than they currently are worth, they will be jobless. So much for being fair.

And how about those just entering the workforce with few if any marketable skills? What business owner would hire someone who isn’t worth $15 an hour? Worse,

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China Reports Its Economy Growing at Slowest Pace Since 1992

This article appeared online at TheNewAmerican.com on Monday, July 15, 2019: 

The “official” numbers released by China’s National Bureau of Statistics (NBS) on Friday show the world’s second-largest economy “growing at its slowest pace since at least 1992,” as the Wall Street Journal expressed it. But real numbers from the real world — not those reported by the communist government for public consumption — show that the world’s second-largest economy may not be growing at all, and in fact may be shrinking.

NBS spokesman Mao Shengyong all but admitted it: “Economic conditions are still severe both at home and abroad, global economic growth is slowing down and the external instabilities and uncertainties [read: trade dispute with President Donald Trump] are increasing. The [Chinese] economy is under new downward pressure.”

The statement from the NBS accompanying its press release was just as blunt: “The Chinese economy is still in a complex and grave situation.”

Officially, NBS said

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Pressure Building on Congress to Raise Debt Limit Before Summer Recess

This article appeared online at TheNewAmerican.com on Monday, July 15, 2019:

It was inevitable. A blind man could see it coming. With the federal government increasingly outspending its income, it was just a matter of time before the Treasury Department bumped up against the debt ceiling.

It happened on March 2. Secretary Treasury Steven Mnuchin immediately engaged “extraordinary measures” to keep the bills of Congress paid, and on May 23, he wrote the first of two warning letters to Speaker of the House Nancy Pelosi: “By reason of the statutory debt limit I will … be unable to fully invest the portion of the Civil Service Retirement and Disability Fund (CSRDF) not immediately required to pay beneficiaries.…The Treasury Department will also continue to suspend additional investments for … the Postal Service Retiree Health Benefits Fund (PSRHBF).”

He added:

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The Coming Angst About Raising the Debt Ceiling Will Be Pure Kabuki Theater

This article was published by The McAlvany Intelligence Advisor on Monday, July 15, 2019: 

Watch for it. It’s coming. A blind man could see it. It’s that moment in time when Treasury runs out of bookkeeping gimmicks and machinations, and finally admits that it has run out of money.

Treasury hit the debt ceiling ($22 trillion and change) on March 2. Treasury Secretary Steven Mnuchin informed House Speaker Nancy Pelosi in May that he was engaging in “extraordinary measures” to keep the government afloat. Last week he announced that he was running out of bookkeeping manipulations and would be forced to delay paying some of the government’s bills, probably – and inconveniently for Congress – during summer recess.

That’s the very last thing a politician wants. He (or she) will be out on the hustings defending his voting record. A vote to raise the debt ceiling is the very last thing he wants to be forced to explain to those he hopes will keep him in office.

It looked for a while as though Congress was going to luck out.

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What Are the Real Costs if the Federal Minimum Wage Is Increased?

This article was published by The McAlvany Intelligence Advisor on Wednesday, July 10, 2019: 

Having never learned, or conveniently forgotten, the “law of unintended consequences,” House Democrats are poised to pass their Raise the Wage Act next week. If passed into law, it would more than double the present federal minimum wage of $7.25 an hour to $15 an hour. It would be staged in, reaching $15 by 2024.

It’s because those workers (and Democrat voters, it is assumed) “deserve” it. Rep. Steny Hoyer (D-Md.) said that, “Americans who work hard deserve to afford a middle-class life and deserve opportunities to get ahead and help their children get ahead.” The first fallacy immediately appears: What if they don’t? What if their work isn’t worth paying them $15 an hour? Democrat answer: Give it to them anyway.

House Democrats were doubtless overjoyed upon learning that the Congressional Budget Office (CBO) came to their rescue, reporting that mandating that employers pay their people at least $15 an hour, starting in 2024, would boost the pay of an estimated 17 million workers and “could” also raise the pay of 10 million more workers already earning close to $15 an hour. It would also, said the CBO, lift 1.3 million workers above the poverty level.

Ignored were the other costs, including,

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CBO Counts Cost of Raising Minimum Wage to $15

This article appeared online at TheNewAmerican.com on Tuesday, July 9, 2019:  

Just a week before the Democrat-controlled House of Representatives is due to vote on its Raise the Wage Act, the non-partisan Congressional Budget Office (CBO) calculated its possible impact on the economy. The bill, if enacted into law (highly unlikely), would gradually raise the minimum wage in the country from its present level of $7.25 an hour to $15 an hour by 2024.

The CBO concluded that, “For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty [for a single person, that level is $1,040 a month; for a family of four, it’s $2,145 a month]. But other low-wage workers would become jobless, and their family income would fall — in some cases, below the poverty level.”

The CBO did its calculations, and drew its conclusions, based on three different scenarios:

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The Fed’s Impossible Task: Steering the U.S. Economy by Looking Through Its Rear-view Mirror

This article was published by The McAlvany Intelligence Advisor on Monday, July 8, 2019: 

Libertarian scholar Murray Rothbard was notoriously opposed to any sort of government control over the individual, especially by central banks and central bankers. In his book, What Has Government Done to our Money?, published in 1963, he wrote:

Money … is the nerve center of the economic system. If, therefore, the state is able to gain unquestioned control over the unit of all accounts, the state will then be in a position to dominate the entire economic system, and the whole society.

The fatal flaw is this: the hubris inherent in thinking that any gaggle of economists gathered around a table – no matter how well-educated and regarded as experts, and no matter how exotic and sophisticated their formulas and algorithms designed to track and follow the economy – can do better than the economy does all by itself. These economists believe that Adam’s Smith’s “invisible hand” is inferior to their own.

A perfect example just presented itself

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Economy Surprises to the Upside: 224,000 New Jobs in June; 335,000 Re-enter the Workforce

This article appeared online at TheNewAmerican.com on Friday, July 5, 2019: 

The jobs report from the Labor Department’s Bureau of Labor Statistics (BLS) Friday morning caught Jeffry Bartash, a MarketWatch market observer, by surprise. A month ago Bartash lamented that lower-than-expected job growth in May was “a warning sign for the economy.” Friday’s jobs report changed his tune: “Even though the economy has slowed, the strongest labor market in decades is likely to extend what’s already the longest expansion on record.”

He wasn’t the only one caught by surprise:

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U.S. Economy Settling in for the Long Haul, Say Two Reports

This article appeared online at TheNewAmerican.com on Wednesday, July 3, 2019:  

Two reports issued on Wednesday reveal a U.S. economy that is settling in for the long run despite headwinds that are slowing other economies around the world. The burst fueled by President Trump’s Tax Cuts and Jobs Act in 2018, which set records (and new highs on Wall Street), has moderated down to the pace of a marathon.

The National Employment Report issued by ADP showed that

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White House Says Trump Deregulations Are Raising Household Incomes

This article appeared online at TheNewAmerican.com on Monday, July 1, 2019:

The report released by the Council of Economic Advisors (CEA) on Friday, “The Economic Effects of Federal Deregulation Since January 2017”, likely underestimated the total impact of the president’s deregulation efforts, for several reasons.

First, it looked in depth at just 20 of these efforts. Second, it failed to estimate the impact of others implemented but not analyzed. Third, it left out any attempt to estimate the favorable economic impact of deregulations that are in the pipeline but haven’t been implemented yet.

Nevertheless, Trump’s efforts are impressive. According to the report, “The Council of Economic Advisers (CEA) estimates that after 5 to 10 years, this new approach to Federal regulation will have raised real incomes by $3,100 per household per year.” In addition, consumers will enjoy sharply reduced prices on many essential goods and services along the way.

Casey Mulligan, the chief economist for the CEA, explained what’s been accomplished so far:

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Another Record for U.S. Crude Oil Production: 12 Million Barrels Per Day in April!

This article appeared online at TheNewAmerican.com on Monday, July 1, 2019: 

Two recent reports confirmed the preeminence of the United States in its production of crude oil and its related derivative, natural gas. Earlier this month British Petroleum (BP) released its “Statistical Review of World Energy” for 2019 in which it reported that the United States extended its lead as the world’s top oil producer to a record 15.3 million bpd (barrels per day): 11 million bpd of crude and 4.3 million bpd of natural gas liquids (NGL) in April.

BP added that the United States led all global oil producers by increasing its production by more than two million bpd in 2018, 98 percent of the total new global production.

Friday’s report from the U.S. Energy Information Agency (EIA) overshadowed that from BP, noting that

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U.S. Enjoying Its New Role as World’s Largest Energy Producer

This article was published by The McAlvany Intelligence Advisor on Monday, July 1, 2019:

There’s an old saying in sales and marketing: “There aren’t too many problems that can’t be solved by sufficient production.” Donald Trump is learning that it also applies to production of crude oil and natural gas. Sufficient production solves many problems.

For one, he delivered a clear and distinct message to Middle East oil producers when he pulled his punch last week and canceled a military response to the shooting down of a U.S. drone surveilling the Strait of Hormuz:

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The U.S. Culture Isn’t Dying, It’s Changing

This article was published by The McAlvany Intelligence Advisor on Wednesday, June 26, 2019: 

Gerald Seib brings a secular background to the Wall Street Journal for which he has been writing since he graduated from the University of Kansas in 1978. In his present role as executive Washington editor, he, according to the Journal, “brings an insightful, predictive, and original” understanding to the news.

That would apply to the culture and the economy as well. On Monday he came close to wringing his hands over the state of both: “Americans are going to church less often, and are having fewer babies.”

He made a common and excusable mistake: he extended those trend lines into the future, drawing straight lines to describe a future curvilinear world. He said these two trend lines have “social and economic significance,” and he goes on to explain why.

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CBO: Entitlement Spending Plus Interest Shortly to Consume all Federal Revenues

This article appeared online at TheNewAmerican.com on Wednesday, June 26, 2019: 

The “2019 Long-Term Budget Outlook” for the U.S. government, issued by the Congressional Budget Office (CBO) on Tuesday, contained no good news. Those expecting — nay, hoping — that new revenues being generated by the Trump administration’s Tax Cuts and Jobs Act of 2017 would exceed government spending and begin to bring the monstrous national debt under some form of control will be disappointed.

There is no way to soft-soap the bad news. Larger and larger annual deficits will drive the national debt “to unprecedented levels”, wrote the CBO. And the assumptions underlying this dismal outlook “are highly sensitive” to change — the CBO’s way of saying that the national debt could be vastly higher if their assumptions are wrong.

Take their underlying assumption on the growth of the economy. If the estimate is just one-half of one percent lower than projected, the national debt will balloon to nearly twice the size of the U.S. economy. If interest rates rise by just one percent higher than projected, the national debt would be closing in on three times its size.

Second, the CBO points out that, under any of its various iterations, the economy never generates enough revenue even to begin to close the gap between revenues and spending. And nothing in the 79-page report mentions the possibility of a recession occurring over the next 10 to 20 years, which would completely obliterate their assumptions.

In other words, as bad as the CBO reports, the debt situation in the United States is likely to be much worse than projected, and reach critical mass sooner.

When Justin Bogie, a senior policy analyst at the Heritage Foundation, looked at the report from the CBO, he used words such “precarious” and “unsustainable.” And that’s assuming that Congress doesn’t totally lose its collective mind and adopt the increased spending bill — “Investing for the People Act of 2019” — being proposed by the Democrats. As Bogie noted, “the current proposal put forth by House Democrats would raise spending by at least $357 billion over two years, driving long-term debt even higher.”

At these stratospheric levels of debt, numbers almost don’t matter. The government’s current budget for fiscal year 2019 is $4.4 trillion. In less than 10 years, assuming everything goes as forecast by the CBO, the budget will approach $7 trillion. And 85 percent of that increase will reflect entitlement spending on Social Security, Medicare, Medicaid, and various health-insurance subsidies. Add in interest payments on the increased debt, and government spending by 2028 will be more than twice its current level.

Bogie reminds his readers of just how far we have come. The ratio of the national debt compared to the country’s gross domestic product (GDP) has historically been just over 42 percent. Today, it’s 78 percent, and in 10 years will approach 150 percent — a banana republic-type number.

He said that “entitlement reform is the key to shrinking the national debt and creating a healthy, sustainable budget.” It’s going to take a lot more than that. He’s assuming that a simple majority of legislators will suddenly come to their senses and begin to rein in government spending. But it’s not that simple: Most of the entitlement programs are on “auto-pilot” — a nice way of saying that few legislators are likely to touch them, especially in an election year, as they consider them the “third rail” of politics, i.e., touch them and you die.

The cohort of Baby Boomers — those born between 1946 and 1964 — number 76 million. Threaten them with the loss of “their” Social Security benefits and the roof will cave in on anyone suggesting cuts.

Restraint on government spending won’t be coming from politicians whose primary purpose in life is to stay in office. Restraint from taxpayers who already receive government checks (Social Security sent out 68 million checks in May, 48 million of them to people age 65 or older) isn’t going to happen.

So when writers such as Bogie begin to suggest solutions to this “unsustainable” problem that involve politicians or beneficiaries, he is dreaming.

There is an outside source that will eventually “cure” this “unsustainable” problem: the bond market. At some point in the future, perhaps sooner rather than later, investors (mostly bond funds, pension plans, banks, and wealthy individuals) are going to demand higher premiums on their investments in federal government securities to offset their increasing risks of default. As that happens, the Federal Reserve is likely to get involved, bailing out banks and other institutions perceived to be critical to the continued functioning of the economy. When that fails, all that will be left will be the empty shell of unfunded promises made to the current generation by legislators long-since deceased.

Consider the latest CBO report as the “canary in the coal mine,” an allusion to caged birds that miners would carry down with them into underground tunnels. If dangerous gases such as carbon monoxide collected in the tunnels, the gases would kill the canary before killing the miners, thus providing a warning to exit the tunnels immediately.

Next Stop: Dow 30,000 Say Experts

This article appeared online at TheNewAmerican.com on Monday, June 24, 2019: 

Ivan Martchev, an investment strategist with Navellier Private Client Group, was among the first to call for the Dow to hit 30,000 very shortly. In early May Martchev wrote that “the retail investors’ favorite index — the Dow Jones Industrial Average — looks like it’s going to 30,000.… The same way that charts … were bearish in late 2018, they are bullish now.”

How long could the current economic expansion that underlies Wall Street’s bullishness last? Martchev answered:

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.
Copyright © 2018 Bob Adelmann