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

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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An Obscure Economist from the Reagan Administration Just Might Reelect the President in 2020

This article was published by The McAlvany Intelligence Advisor on Monday, June 24, 2019:

Is it possible that a 78-year-old economist with degrees from Yale and Stanford Universities just might reelect President Donald Trump in November 2020?

Most people weren’t even aware that President Trump awarded him the Presidential Medal of Freedom – the nation’s highest civilian honor – last week for the impact he has had on the economy not only in the U.S. but worldwide over the last 35 years. Few know that the paper napkin on which he sketched the simplest of economic theories is now on display at the Smithsonian.

Arthur Laffer not only added the “Laffer Curve” to the lexicon, but “supply side economics” and “Reaganomics” as well. The concept was so simple that even New York Time‘s resident economist Paul Krugman grudgingly admitted it made sense.

Laffer was an adviser to the president during his 2016 campaign, helping to craft his tax policy, which would become The Tax Cuts and Jobs Act of 2017 – widely praised by corporate America for its

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Trump’s New Plan Puts States Back in Charge of Energy Regulation

This article appeared online at TheNewAmerican.com on Thursday, June 20, 2019:

One of Donald Trump’s key promises while running for president was that, if elected, he would end President Obama’s “war on coal.” On Wednesday the head of the Environmental Protection Agency (EPA) did just that. EPA Administrator Andrew Wheeler finalized his agency’s plans to replace Obama’s “Clean Power Plan” with Trump’s “Affordable Clean Energy” plan.

Wheeler referred obliquely to Obama’s “war on coal” by likening it to the Green New Deal: “The contrast between our approach and the Green New Deal, or plans like it [i.e., Obama’s “Clean Power Plan”], couldn’t be clearer. Rather than Washington telling Americans what type of energy they can use, or how they can travel, or even what they eat, we are working cooperatively with the states to prove affordable, dependable, and diverse supplies of energy that continues to get cleaner and more efficient.”

President Trump added:

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China’s Economy Continues to Slow

This article appeared online at TheNewAmerican.com on Friday, June 14, 2019: 

When President Donald Trump learned of the dismal performance of the Chinese economy for all of last year, he tweeted in March: “China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around.”

China’s No. 2 communist, Li Keqiang, admitted as much at the country’s annual news conference on March 15:

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The Fed’s Irrelevance Is a Beautiful Thing

This article was published by the McAlvany Intelligence Advisor on Wednesday, June 12, 2019:

When President Trump tweeted “The United States has VERY LOW INFLATION, a beautiful thing!” on Tuesday morning, he was referring to the latest PPI numbers from the Labor Department. For May, its Producer Price Index came in at a benign and nearly invisible 0.1%. Year over year the PPI was just 1.8 percent, down from 3.1 percent last summer.

Trump should have been referring to the quiescent Fed, which is in a state of confusion. By this time, according to standard interventionist (Keynesian) theory, a 10-year-old economic expansion should be exhibiting signs of inflationary pressures. Instead, real price increases are approaching low levels not seen in years.

The Fed chair Jerome Powell has repeatedly stated that his “target” is 2.0 percent inflation. His reasoning?

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Trump: “Very Low Inflation, a Beautiful Thing!”

This article appeared online at TheNewAmerican.com on Tuesday, June 11, 2019: 

Upon reading the latest report from the Bureau of Labor Statistics (BLS) about its Producer Price Index (PPI), President Trump tweeted: “The United States has VERY LOW INFLATION, a beautiful thing.”

What’s beautiful is that, in the month of May, wholesale prices — the prices paid by firms buying products and services from other businesses — scarcely increased: just 0.1 percent. Even better the year-over-year PPI slowed from 3.1 percent last summer to just 1.8 percent today.

The New York Federal Reserve bank reported on Monday that the outlook for future inflation looks rosy as well. Consumers polled by the central bank see lower inflation over the next one to three years. This matches the inflation numbers coming from the Fed’s preferred inflation measure, the PCE (Personal Consumption Expenditures) index.

This puts the lie

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Hand-wringing Over May’s Low Jobs Numbers Is Premature

This article appeared online at TheNewAmerican.com on Friday, June 7, 2019: 

It’s far too early to be writing off the longest-running economic expansion in history, as some in the media appear to be doing. Following the release of May’s jobs report from the Bureau of Labor Statistics (BLS) on Friday, CNBC whined that it was “much worse” than expected, while Jeffry Bartash, writing for MarketWatch, called the report a “warning sign for the economy.”

The headline number was 75,000 new jobs in May contrasted with forecasters’ estimates of 185,000. The BLS also revised lower their estimates for March and April by 75,000. The BLS report comes on the heels of the ADP report on Wednesday showing just 27,000 new jobs were created in May.

Behind those headlines, and the premature handwringing, was much to be celebrated:

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Top Forecaster Predicts Dow at 40,000 in Two Years

This article appeared online at TheNewAmerican.com on Thursday, June 6, 2019:

In January 2016, when the Dow was trading around 16,000, market forecaster Yves Lamoureux predicted that the index would top 25,000 within three or four years. He missed it: The Dow hit that mark on December 31, 2017, two years ahead of schedule.

Last October, with the Dow trading at 24,700, he saw “a large panic event taking shape” as the Fed appeared determined to stall the economy by continuing to raise interest rates. That “event” occurred, dropping the Dow to 22,445 on December 16, a loss of 2,255 points, or nine percent.

Now Lamoureux is forecasting that the Dow will hit 40,000 within the next two years, but with a caveat: There’s another “event” that will occur first. In an interview with MarketWatch on Wednesday, Lamoureux elaborated:

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The Resurrection of Ford’s Bronco Illustrates How Capitalism Works

This article was published by The McAlvany Intelligence Advisor on Wednesday, May 22, 2019: 

Ford’s announcement of its resurrected Bronco for 2020 shows pictures of steep technical trails heading off into the woods while calling it a “no-compromise midsize 4×4 utility for the thrill seekers who want freedom and off-road functionality, with the space and versatility of an SUV. It’s capable of conquering everything from your daily commute to gravel roads and boulders.” (See Sources below)

This is how capitalism works.

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Angst Over Ford Cutting 7,000 Jobs Isn’t Warranted

This article appeared online at TheNewAmerican.com on Tuesday, May 21, 2019: 

Excessive angst over Ford’s announcement that it was cutting 10 percent of its workforce led CNBC to revise its initial coverage: “This article was updated [corrected] to reflect that Ford is cutting about 10% of its white-collar employees, not 10 percent of its total global workforce.”

CNBC didn’t complete its correction. Ford has 200,000 employees worldwide, with 70,000 of them being salaried, the rest hourly. The cuts apply only to the white-collar positions, and most of them are overseas. Only 2,300 of them apply to employees in the United States, and 1,500 of them accepted buyouts last year. That leaves just 800 to be laid off this year, each of them with severance packages. That’s four-tenths of one percent, CNBC, not 10 percent.

To put Ford’s announcement in perspective, let’s remember

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Many Millennials in Financial Trouble Being Drawn to Siren Song of Socialism

This article appeared online at TheNewAmerican.com on Monday, May 20, 2019: 

The millennial generation, also known as Generation Y (GenY), the “Me Me Me Generation” (Time magazine), and the “soccer trophy generation,” is suffering financially, and as a result many are listening to the siren song of socialism to solve their problems.

This is the generational cohort born between 1981 and 1996 (Pew Research’s definition) with more people in it (75 million) than the Baby Boomer generation. They also have less accumulated wealth, own less real property, are marrying later, and having fewer children than any other generational cohort (Silent Generation, Baby Boomers, GenXers, or Generation Z). As a result they are more frustrated and unhappy about their future economic prospects.

All of which have long-term political and economic implications stretching out decades into the future.

Millennials are helping drive down the number of births to their lowest levels in 32 years. Translation:

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Where Is the Luddite Movement in Light of the Robotic Revolution?

This article was published by The McAlvany Intelligence Advisor on Wednesday, May 15, 2019: 

In 1779, Ned Ludd, an apprentice hand weaver, smashed two stocking frames because of his fear that the improved machinery would put him out of a job. The resistance to automation began in Nottingham, England, and became widespread in the early 1800s. Over time, its attractiveness waned thanks both to government intervention and the awareness that lowering the cost of textiles through automation benefited everyone wearing clothes.

Ned would be astonished at the automation taking place in the U.S. today. Amazon is quietly installing machines called CartonWraps and SmartPacs in its never-ending quest to serve its customers more quickly at lower cost. In busy warehouses serving Seattle, Frankfurt, Milan, Amsterdam, and Manchester, the company is taking the tiring work employees were doing – each spending up to 10 hours a day taking products and building shipping boxes to fit them for shipping – and giving it to robots.

The robots work four times faster than humans

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Robotics Revolution Rolls On: Amazon Now Using Robots to Pack Shipping Boxes

This article appeared online at TheNewAmerican.com on Tuesday, May 14, 2019: 

Amazon is quietly installing machines called CartonWraps and SmartPacs in its never-ending quest to serve its customers more quickly at lower cost. In busy warehouses serving Seattle, Frankfurt, Milan, Amsterdam, and Manchester, the company is taking the tiring work employees were doing — each spending up to 10 hours a day taking products and building shipping boxes to fit them for shipping — and giving it to robots.

The robots work four times faster than humans

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Corporate Welfare: Ex-Im Bank Being Revived by Trump

This article appeared online at TheNewAmerican.com on Thursday, May 9, 2019: 

After lying fallow for nearly four years, the Export-Import Bank is being revived by one of its most vociferous critics: President Donald Trump. On Thursday the Senate, at the urging of the president and with the assistance of Senate Majority Leader Mitch McConnell, confirmed three people to fill vacancies at the bank, bringing it back to full strength.

That means that the bank, once limited to guaranteeing loans of $10 million or less, will now be able to go full throttle, helping big U.S. companies (who don’t need the help but are always willing to accept it) such as Boeing, Caterpillar, and General Electric with billions in loan guarantees.

The bank’s charter expires on September 30. If, as appears likely, Congress extends it (as it has ever since the bank’s inception in 1934), then not only will the biggest companies in America be able to obtain financing for their exports by putting the American taxpayer at risk instead of themselves, but their export partners will also benefit.

One of those export “partners” is communist China, Trump’s adversary in the escalating trade wars. Trump’s mouthpieces Larry Kudlow and Peter Navarro, who have been pushing for the bank’s resuscitation, claim that since China has its own Ex-Im bank, the United States needs one too — to “level the playing field,” of course.

As senior research fellow at George Mason University Veronique de Rugy warned last fall in an article republished at The New American,

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Fed Ignores the Elephant in the Living Room: Mushrooming Federal Debt

This article was published by The McAlvany Intelligence Advisor on Wednesday, May 8, 2019: 

At last count, the federal government’s deficit is growing at $100 billion a month. Barring a miracle, the national debt will hit $30 trillion in less than 10 years.

That’s what makes the latest report from the Federal Reserve, its semi-annual Financial Stability Report, so laughable. It’s worried about a paltry $1.1 trillion that has been lent to companies with less than stellar credit ratings, while ignoring entirely the $22 trillion investors are lending to the U.S government – which sports even worse ratings.

No one remembers the last time that any of the three major credit rating agencies attempted to tell the truth about the government’s shaky financial foundation: it cost the CEO his job.

It was Standard & Poor’s that had the temerity to even suggest that U.S. government debt wasn’t quite as secure as people wanted to believe. It downgraded its assessment of U.S. government debt from AAA by one notch, to AA+, four days after the 112th Congress voted to raise the debt ceiling in 2013 above the $14 trillion level.

The outrage that followed, from left and right, Democrat and Republican, led 18 days later to the head of Standard & Poor’s, Deven Sharma,

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Fed Fears Rising Corporate Debt, Ignores Rising Federal Debt

This article appeared online at TheNewAmerican.com on Tuesday, May 7, 2019: 

For the second time in six months the Federal Reserve has issued a warning about excessive corporate debt. Its Financial Stability Report, released on Monday and issued twice a year, repeated its concerns over rising corporate debt burdens, particularly those being incurred by companies already carrying the most debt.

It said that “leveraged lending” — lending to companies whose debt already exceeds four times their earnings — jumped more than 20 percent last year. And since the first of the year, nearly 40 percent of those loans went to the most highly indebted companies — those with debt levels that exceeded six times their earnings.

Said the report:

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Labor Department: Job Growth in April Blew Away Expectations at 263,000

This article appeared online at TheNewAmerican.com on Friday, May 3, 2019: 

The jobs report released by the Labor Department on Friday confirmed what ADP reported on Wednesday: The U.S. economy generated more than a quarter of a million new jobs in April. As we noted on Wednesday in reporting on the ADP numbers, there’s no reason, outside of Federal Reserve interference, that the Trump economy cannot continue to grow and notch new employment records on a regular basis.

Friday’s report from the Labor Department’s Bureau of Labor Statistics noted at least one new record: “The unemployment rate declined by 0.2 percentage points to 3.6 percent in April, the lowest rate since December 1969.” It also reported that the number of unemployed persons in the economy dropped below six million for the first time in decades.

There were other important takeaways:

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U.S. Job Growth Exceeds Estimates: 275,000 New Jobs Created in April

This article appeared online at TheNewAmerican.com on Wednesday, May 1, 2019: 

Economists polled by MarketWatch expected just 177,000 new jobs to have been created by the U.S. economy in April, once again applying rear-view-mirror thinking to their forecasts. Instead, not only did the economy generate 275,000 new jobs (according to payroll giant ADP with some help from Moody’s), but the gains were across every sector and size of business.

Service-providing jobs, such as professional and business services and education and health services, leapt by 223,000 in April, while goods-producing jobs (construction, manufacturing, and mining) added 52,000. ADP also revised upwards its March report by 22,000 jobs.

Mark Zandi, Moody’s chief economist and resident pessimist, was forced to admit that

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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