jueves, 16 de febrero de 2017

The Bond Vigilantes Will Stop Trumponomics


Yes, the bond vigilantes are back. I welcome the return of the bond vigilantes, and not just because they are the one force that can stop the mad dash toward a fiscal bloodbath that has been launched by Trump’s economics team.
Their return also marks the end game of the drastic falsification of debt and other financial asset prices that has been carried out by the world’s central banks since the mid-1990s.
What has actually happened since then is that the bond “vigilantes” of yore morphed into central bank “front runners” in recent years. That is, bond traders, who used to sell government securities when they sensed fiscal profligacy, switched to the “buy” side of the market as the age of massive central bank balance sheet expansion and the associated bond-buying sprees under quantitative easing (QE) unfolded.


Flying On A Wing And A Tweet


I never believed that the Great Disrupter made any sense on the fiscal issues. In fact, in Trumped! I called out his blather about rebuilding defense, slashing taxes and mounting a giant infrastructure program as far more reckless than Ronald Reagan’s 1981 “riverboat gamble.”
I also said back when the book was published that whatever he had in mind would quickly end up smothered in the Swamp.
I do not claim clairvoyance, but I am pretty sure that a “gong show” is exactly what is unfolding. On CNBC recently I described it as a “trainwreck from the Oval Office,” meaning a furious burst of activity which is sowing animosity, confusion, doubt, discord and pushback throughout the Imperial City.


Deflation and Gold: A Contrarian View


The warring forces of inflation and deflation are at each other’s throats. Some see victory for inflation. Others for deflation.
So… What happens to gold?
Conventional wisdom says gold thrives under inflation and wilts under deflation. The case for gold under inflation is easy enough. Gold rises as the dollar falls. It’s the opposite under deflation.
But is conventional wisdom right about gold and deflation? Is it time to consider a different metric — not the nominal gold price — but gold’s purchasing power relative to consumer prices?
The late lamented Roy Jastram was a recognized authority on the gold standard. He authored a 1977 tour de force on gold under both deflation and inflation called The Golden Constant: The English and American Experience, 1560–1976. 


The Crash Will Be Violent


It is almost impossible to overstate the level of unhinged mania in the stock market, but still the robo-machines and knucklehead day traders just can’t seem to let go.
They are essentially 12-year-olds on a bicycle defiantly screaming, look ma — no hands and a blindfold, too!
Worse still, these daredevils have been indulged by the Fed and other central banks so long that they surely have come to believe flying blind is completely safe. After all, we can count at least 60 “dips” since March 2009 that resolved to the upside over and again.
Altogether the S&P 500 now stands at 3.4X its post-crisis low, having generated an 18% annual return (including dividends) for nearly eight years running.
To be sure, in an honest free market that very fact would be a flashing red light, warning that exceptionally high gains over an extended period necessitate a regression to the mean in the period ahead.


This Is How the U.S. Empire Destroys Itself

BALTIMORE – Victoribus spolia
So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment.
Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations.
You’d think Washington had been invaded by Goths, now raping the vestal virgins (if there are any within the Beltway) on the White House lawns while the Capitol burns to the ground.


The Fed’s Only Escape Is to Trash the Dollar

Harry Houdini was the greatest escape artist of the 20th century. He escaped from specially made handcuffs and underwater trunks, and once escaped from being buried alive. Now, Janet Yellen will try to become the greatest escape artist of the 21st century.
Yellen is handcuffed by weak growth, persistent deflationary trends, political gridlock, and eight years of market manipulation from which there appears to be no escape. Yet, there is one way for Yellen and the Fed to break free of their economic handcuffs, at least in the short run. Yellen’s only escape is to trash the dollar. Investors who see this coming stand to make spectacular gains.


Trump in first summit with Israeli Prime Minister Benjamin Netanyahu

 (Getty Images)
(Getty Images)
President Trump and Israeli Prime Minister Benjamin Netanyahu both declined to commit to the internationally accepted recipe of a two-state solution to the Israeli-Palestinian conflict Wednesday, a diplomatic shift for both governments that could signal a realignment of the traditional peace process.
At a joint news conference ahead of their first White House summit, Trump said he would support whatever solution the Israelis and Palestinians wanted.
"I'm looking at two states and one state, and I like the one both parties like," Trump said. "I can live with either one."
Netanyahu dodged the question.


Trump announces Labor secretary pick, Alexander Acosta, who would be only Latino in Cabinet

Trump announces Labor secretary pick, Alexander Acosta, who would be only Latino in Cabinet
R. Alexander Acosta, President Trump's choice for Labor secretary. (Joe Raedle / AFP / Getty Images)
R. Alexander Acosta, President Trump's choice for Labor secretary. (Joe Raedle / AFP / Getty Images)
President Trump said Thursday that he will nominate former Justice Department official  R. Alexander Acosta as Labor secretary after his first pick, fast-food executive Andy Puzder, withdrew .
If confirmed, Acosta would be the only Latino in Trump’s Cabinet.
"He’ll be a tremendous secretary of Labor," Trump said at a news conference in the East Room of the WHite House, noting that Acosta was previously confirmed by the Senate three times.
Acosta was assistant attorney general for the Justice Department’s Civil Rights Division under former President George W. Bush and also has served as U.S. attorney for the Southern District of Florida and as a member of the National Labor Relations Board.


Why is economic dynamism such an unpopular message right now?

One of my all-time favorite podcast Q&As is a recent one I did with Virginia Postrel. We chatted about her newly relevant 1998 book, “The Future and its Enemies”, in which she describes a world riven by clash between “dynamism” and “stasism.” Right now, it seems the latter way of thinking — stagnation and security over growth and risky change — is on the rise in the Age of Trump.
Twenty20.
Let me highlight one exchange that touches on this issue:
Pethokoukis: Why have the dynamists done such a poor job arguing their case?
Postrel: Well, I think, first of all, the Republican candidates who might have done so; notably, Jeb Bush, who I know is a fan of this book, sort of crashed and burned early on and they never got traction. So that was a problem. And I think political savants felt that this was not the year to be talking, to be preaching that message.


Uncertainty and the geography of the Great Recession

Did high levels of economic and policy uncertainty contribute to the large and persistent increase in unemployment between 2007 and 2009? We assemble a state-level measure of policy uncertainty from 2006 through 2009 and find that increases in local uncertainty over this period are strongly correlated with local labor market outcomes. The uncertainty-unemployment relationship is highly robust, and higher levels of uncertainty created by preexisting institutions lead to increased unemployment.
Macroeconomists have advanced a number of hypotheses to explain the severity of the 2007–2009 decline in employment. These explanations, which are not mutually exclusive, include insufficient demand due to household deleveraging, slow recalculation or adjustment to sector-specific shocks, credit constraints due to problems in the financial sector, and the aforementioned increases in policy and general economic uncertainty. Unfortunately, as is often the case in macroeconomics, distinguishing the differential impact of these amplification channels has not been straightforward.
Credit: AEI
Credit: AEI
One aspect of the “Great Recession” that might shed light on the mechanism is the substantial geographic variation in employment losses. The five states most deeply affected by the recession experienced increases in their unemployment rates of 6 percentage points or more from 2006 to 2009 (with the largest increase, in Nevada, exceeding 7.5 percentage points). Conversely, the five states least affected by the downturn saw their unemployment rates increase by less than 2.1 percentage points. Given the importance of this geographic variation, it is desirable that theories of the recession are consistent with this cross-sectional pattern.


Precedented: The Flynn fiasco

Is the (presumably forced) resignation of Gen. Michael Flynn as national security adviser after only 24 days in office way out of line with presidential precedent? Certainly it’s the briefest tenure in that office since it was created in the first months of the Eisenhower administration in 1953. The runner up in that regard is William H. Jackson, Eisenhower’s National Security Advisor for 129 days in 1956 and 1957.
Retired U.S. Army Lieutenant General Michael Flynn stands by the elevators as he arrives at Trump Tower where U.S. President-elect Donald Trump lives in New York, U.S., November 30, 2016. Reuters
Jackson’s short tenure was not big news at the time, even though his service covered not one but two major foreign policy crises that occurred just before the 1956 presidential election — the Suez crisis, in which Britain and France joined Israel in attacking Egypt, and Nikita Khrushchev’s crushing of the revolt against Communism in Hungary. The national security adviser job was neither high profile nor particularly powerful in the administration of a president who, as later historians though not contemporary journalists appreciated, kept tight control over foreign policy.


Trade Restrictions Imperil Our Standard of Living

A recent trip to Cincinnati afforded me the opportunity to check out the well-known Jungle Jim’s International Market just north of the city. As a lover of all kinds of food, I was promised that here I could find everything under the sun in one location. And that promise was largely fulfilled, as Jungle Jim’s is indeed an amazing place.
The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor.
From its fantastic wine selection to its charcuterie to its tanks of live fish to its exotic and obscure international produce to its international dry goods area with sections containing food from countries across the globe, including some of the smallest in Europe and Central America, Jungle Jim’s is a food lover's paradise. It is a cornucopia. It is a giant global buffet table. The more time I spent there, however, the more I began to think about the physical space of that market as a metaphor for the globalized economy.


Trade Deficits Signal Confidence, Not Decline

Two weeks ago I told a simple yet realistic tale of You running a trade surplus with Non-Youers (that is, with people who aren’t you – with people outside of your own household).  Here I tell an equally simple and equally realistic, yet different, tale of You and Non-youers.Does your trade deficit with non-youers signal that you are economically irresponsible? Of course not!
You have just become the proud parent of new-born triplets, so you can no longer save as you once did.  Every cent of your pay now goes toward paying your current expenses.  In other words, you stop running a trade surplus with non-youers; you now buy as much from non-youers as non-youers buy from you.  One night, while awake tending to your new bundles of joy, you are struck with an entrepreneurial idea for a new product that you believe has a good chance of earning you a small fortune if that product can be manufactured and distributed to consumers.


25 Reasons Why Protectionism Is Taken Seriously When It's Actually a Form of Economic Suicide

It’s a scientifically and mathematically provable fact that all tariffs, at any time and in any country, will harm economic growth, eliminate net jobs, destroy prosperity, and lower the standard of living of the protectionist country because tariffs are guaranteed by the ironclad laws of economics to generate costs to consumers that outweigh the benefits to producers, i.e. tariffs will always impose deadweight losses on the protectionist country (see diagram below, and “An economic analysis of protectionism clearly shows that Trump’s tariffs would make us poorer, not greater“). That is, the reality that tariffs always inflict great economic damage and leave society worse off is not a debatable outcome, rather it’s a provable fact, like the law of gravity.


It’s Either Bullies or Balance Sheets

A piece of sea bass for $16 struck me as absurd. That’s too much! I bought it anyway. It was delicious. But I was still upset about the price. Nonetheless, the next day I decided to buy some more.
“We sold out of that yesterday.”
What can we conclude? I conclude that it was the right price after all. The market cleared. In any case, what gave me the idea that I knew it was too expensive? I bought it. The terms were right, since the buyer and seller agreed. After all, if the store could just charge anything it wanted, the fish would have been a million dollars. If I paid what I wanted, the price would have been $0. The real-world price is somewhere in between, but where precisely is an experiment in human decision making.
The price system is a kaleidoscope that beautifully merges our subjective imaginations with the gritty realities of the physical world.


A Border Wall is a Terrible Idea for Americans and Immigrants Alike

If his first week in office is any way to judge him, Donald Trump might, after all, be the kind of president who keeps his promises. Unfortunately, some of what he vowed will be harmful—to everyone.
Trump became a real candidate the moment he began complaining about immigrants in 2015. Rhetoric suggesting that Mexicans are rapists and that Muslim immigrants are inherently a threat benefited Trump immensely. His plans for a wall between the U.S. and Mexico, propelled him—bafflingly—to the White House. People like it. In my own experience covering Trump rallies during the campaign, the crowds were most happy to cheer and chant when Trump’s magic word “wall” came up.


When "the Nation" Trumps the Individual

Donald Trump has hardly taken his hand off the Bible upon which he took the presidential oath to preserve, protect and defend the U.S. Constitution, and he has already begun to radically and rapidly transform the direction of the American government. Taking up Barack Obama’s pen, he has signed a series of executive orders. Several of them demarcate the underlying premises and principles guiding much of his policy decision-making: political and economic nationalism.
One of these executive orders declared that the United States was formally withdrawing from any intention of participating in the Trans-Pacific Partnership (TPP), which had the stated purpose of reducing trade barriers among 12 countries, while specifying a variety of requirements for the member nations to fulfill as part of the agreement.
Another executive order called for expediting the approval and construction of the Keystone and Dakota Access Pipelines, to enable the transportation of crude oil from Canada to refinery facilities closer to the Gulf coast. 


Why the Rule of Law Matters, Especially Now

At the 2010 State of the Union address, President Obama rebuked members of the Supreme Court who were in the majority on the Citizens United case. These days, President Trump is fighting a two-front war against the judicial branch: in the courtroom, and on Twitter.
Both are examples of poor decorum, and neither is a coup d'etat.
Bad Policy
Whatever the long-term psychological effect of presidents calling out judges in public, the American legal system seems to carry forward. But we may underestimate the real damage caused by judges who trade in legal reasoning, for legislation and policy. The Ninth Circuit’s decision on Trump’s travel ban is just the latest example of this so-called judicial activism.
Congress has been exalting presidential powers for decades, and we should stop fainting like Victorian virgins every time they use that power.


Former CIA Analyst: Yes, Former Obama Officials Were ‘Directly Involved’ In The Effort to Remove Flynn (And I'll Say Their Names)

Matt Vespa

Former CIA Analyst: Yes, Former Obama Officials Were ‘Directly Involved’ In The Effort to Remove Flynn (And I'll Say Their Names)
The fallout from the resignation of National Security Adviser Michael Flynn is not over. We have Russia, leaks, and palace intrigue about former Obama administration officials laying the foundation to topple Flynn, who was knows for being staunchly opposed to the Iran nuclear deal. Guy wrote a post about the allegations. Flynn misled the vice president, which alone is an act that warrants being shown the door. Yet, multiple writers, namely Damon Linker at The Week and Eli Lake at Bloomberg have noted another sinister angle to this story, which is the number of leaks of highly sensitive information coming from this administration. It appears as if the intelligence community is willingly leaking intercepted phone calls with Trump officials (Flynn) to hamstring the administration from governing. Linker is no fan of Flynn, but added that dissatisfaction with an administration is handled through things called elections.


Killing the Trade Golden Goose: Farmers Rattled by Trump’s NAFTA Rescinding Plans

Mike Shedlock

 Killing the Trade Golden Goose: Farmers Rattled by Trump’s NAFTA Rescinding Plans

Cross-border trade with Mexico surged following NAFTA.
It’s fair to presume NAFTA is not the sole cause of the increase in trade, but it is also fair to presume that NAFTA helped. Increased trade is a benefit to both parties, otherwise, the trade would not take place.
Trump now threatens to kill the trade golden goose and US farmers are in the crosshairs of the dispute. Any unraveling of NAFTA could hit deeply enmeshed cross-border food supply chains.
Please consider US Farmers Rattled by Trump’s Mexico Plans.
Corn is the biggest of the US’s $17.7bn in agricultural exports to Mexico, a value that has risen fivefold since the countries signed the North American Free Trade Agreement. Mexico’s exports to the US have grown even faster to $21bn, led by fruits and vegetables such as lemons and avocados.

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