Advancing Time: Trump's Economic Advisers Send Mixed Messages

Advancing Time: Trump's Economic Advisers Send Mixed Messages: Recently Trump's economic adviser Stephen Moore weighed in on 'Fox & Friends Weekend. The topic was the impact of the Amazon and...

Trump's Economic Advisers Send Mixed Messages

Recently Trump's economic adviser Stephen Moore weighed in on 'Fox & Friends Weekend. The topic was the impact of the Amazon and Starbucks strikes during Christmas. Moore warned how the actions these workers were taking could backfire. All in all the interview did little to reassure me that the direction the Trump economic team was going to move us in the direction of economic Utopia. 

What Policies Will We See And How Well They Will Work?

While I have been supportive of the idea we need tariffs as a way to level the playing field when it comes to trade. I have concerns about some of Trump's proposals and his ability to push them through. The huge pork filled bill that easily just passed Congress to keep the government open screams fail to the idea anything is about to change. 

Both the Democrats and Republicans make up the "uniparty," a term to suggest that our ostensibly separate political parties function as a single party when it comes to approving new spending. This makes it difficult to think the razor-thin margin of Republicans forming the new Congress will be any more successful at curbing future spending. Adding to my woes are talks about the government diving into investing in Bitcoin and a number of other questionable ideas.

Still, the focus of this article is more on what flowed from Moore's mouth during the interview. Moore repeatedly endorsed Amazon a company that has done huge damage to Main Street and small businesses on a number of fronts. Yes, Amazon, with the help of our government, has unleashed a wave of "creative destruction" that has altered our society, but it could be argued, not in a good way.  

Moore then pushed forth how Americans under Trump should expect to see their wages go up but missed telling us how this would lower inflation. Nowhere was talk about increasing productivity. Forget the spin, this is not about whether someone is for or against unions, it is about producing a sustainable economy by increasing productivity.

Placing big business over America's small businesses that have suffered over the years is reason for concern. These large companies have lobbied their way to prosperity and are eating the lunch of American workers. If Amazon had to act the way other companies had to, it most likely would not exist.

Then there is DOGE, the "Department Of Government Efficiency." This newly created organization, headed by billionaires Elon Musk and Vivek Ramaswamy is promising to slash at least $2 trillion from the federal budget. Much of it by slashing the number of government workers and whole departments. Both claim they can downsize the federal workforce by forcing employees to return to the office, which they hope would prompt many of them to quit.

The duo, as outside advisers, have targeted areas such as the Internal Revenue Service, the Department of Education, the Federal Bureau of Investigation, and the Nuclear Regulatory Commission. They also want to review foreign aid, defense spending, and the inaccurate payments the government sends to Social Security recipients and others.

At an event in Philadelphia on October 18, Musk said, "We will reduce a lot of government headcount, but we're going to give very long severances. Like two years, or something like that." He went on to say, "The point is not to be cruel or to have people not be able to pay their mortgage or anything."

Taking a big chunk out of federal spending is easier said than done. Much of the budget supports mandatory programs, which must be funded by existing laws. Also, there are many high hurdles to clear when it comes to firing Federal workers. Paying them long generous severance pay will do little to halt spending. 

We have heard many promises of huge tax cuts mixed in with promises of cutting deficits. Trump's economic advisers are sending mixed messages, what they can or will do is still very much up in the air. I need to see results from DOGE, regulations cut, and real help for small businesses throughout America before I get excited. It might be wise to put the celebration on hold until we see results rather than just promises.

 

 (Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)

Advancing Time: The Fed Should Not Follow The Path Of The BOJ

Advancing Time: The Fed Should Not Follow The Path Of The BOJ: America and the Fed may not be able to follow the path the Bank of Japan forged over the years, and it should not. Cutting rates and buying ...

The Fed Should Not Follow The Path Of The BOJ

America and the Fed may not be able to follow the path the Bank of Japan forged over the years, and it should not. Cutting rates and buying long-term bonds to artificially keep rates low may not work when it comes to the US dollar. The big difference is that the dollar is the worlds reserve currency, and the yen is not. 

More Fed Intervention In The Markets Destroys True Price Discovery

A massive increase in the Fed balance sheet is a scary prospect and opens the door for central banks across the world to do likewise. This hogties the Fed's options going forward. While everything is relevant when it comes to fiat currencies, this notion is hijacked by the advantage the dollar gets from being the worlds reserve currency. Currently this advantage is fully built into valuations. 

It is kind of a "weird" thought that the Fed might move in this direction voluntarily. Most likely such a shift would only occur if the global financial system was coming apart at the seams. Even then, increased intervention would not be a "cure all" and likely make things even worse.

In a past article. I built a case that the BOJ, by buying all of Japan's bonds and a huge quantity of stock market ETFs, was in effect nationalizing the country. Buying all the debt used to finance Japan's government and propping up Japan's stock market put it on the path towards owning everything. The piece focused on the flaw of creating a false and unsustainable economy. This type of action is not good for the fiat currency of any nation.

Any indication the Fed might follow the BOJ's footprint would have huge ramifications for global markets. When central banks or the government becomes a buyer they are generally don't care what the price is, this destroys true price discovery. Tied to resonable valuations are inflation expectations and long-term stability. 

More intervention in markets could also unleash a bomb in the derivative markets, and that has the potential to do far more damage than any move to slash rates would create. This dovetails with the idea the Fed has painted itself into a corner. Still, we should not underestimate the many other ways and tools central banks and governments have to postpone the day of reckoning. 

 

(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)

Advancing Time: Revisiting, "This Time Is Different"

Advancing Time: Revisiting, "This Time Is Different": Efforts to justify the most recent market melt-up following the election of Donald Trump are difficult to comprehend if you are one of tho...

Revisiting, "This Time Is Different"

Efforts to justify the most recent market melt-up following the election of Donald Trump are difficult to comprehend if you are one of those already skeptical of this market. A read of the 2009 bestselling book titled, "This Time Is Different" did little to convince me that this time is different. It chronicles eight centuries of financial follies in which financial meltdowns have typically followed real-estate bubbles, rising indebtedness, and gaping deficits. Many of us see a strong similarity between what is happening today and prior financial meltdowns. 

A read of the pdf file rather than the 2009 bestselling book titled, "This Time Is Different" delves into the history of economic bubbles. Sadly, periods of rapid credit expansion always end the same way and that is in default. The book written in 2009 by Carmen Reinhart and Kenneth Rogoff  makes a solid case that despite many economists being enthralled with our newfangled Modern Monetary Theory, also known as MMT, we should still question just how well debt cycles can be managed.  

The failures and meltdowns that are chronicled include state failures, bank crises, currency crashes and destabilizing outburst of inflation. Several interesting points leaped out to me while I was reading the file. One concern was the strong link found that indicated countries experiencing sudden large capital inflows are at a high risk of having a debt crisis.  The preliminary evidence over a much broader sweep of history suggests this is often the case. Surges in capital inflows tend to precede external debt crises at the country, regional, and global level since 1800 if not before. Also, periods of high international capital mobility have repeatedly produced international banking crises, this is not only true during the last one hundred years but historically.

The charts contained in the working file were frightening and a strong reminder that debt has consequences. One thing that stands out as you read the file is that a clear pattern and similarity exists between many of the defaults that have occurred throughout history. The same situation is developing today as debt grows at an incredible rate globally. Much of this is the result of MMT. This economic theory details the procedures and consequences of using government-issued tokens as the unit of money.

Note Trend Of Growth In Intangibles

  

According to MMT, governments with the power to issue fiat currency are always solvent which means they can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints. In short MMT enthusiast feel empowered to avoid future crashes. Of course, looking at the vast amounts of historical data on the past financial failures that have taken place, we naysayers voice reason for concern. MMT and what is known as the "Fed put" are part of what is fueling the growth in intangible assets.

 

Even the distinction of whether the debt was held internally by its citizens or externally by others did not alter the outcome and things still ended by default. The varieties of economic crisis extend to Ponzi-type schemes that finally collapse in upon themselves creating contagion and resulting in a destructive domino effect. The massive derivatives market that is touted as one of our modern financial tools is often sighted as having the potential to wreak havoc in this way. 

 

Some important lessons can be garnered from the book that elevated Reinhart and Rogoff as close to celebrity status as a couple of economists can ever come. Over the last 800 years of financial history we see time and time again how high government debt ratios lead to slow economic growth. Today we are seeing deficit spending and borrowing surge as never before. It is safe to say everyone involved in shaping economic policy should own a copy of  "This Time Is Different" and open it when things seem to be going well because the read brings with it a blast of badly needed seriousness and reality.

 

Sadly, periods of rapid credit expansion always end the same way and that is in default. Global debt has surged since 2008, to levels that should frighten any sane investor because debt has always had consequences. The massive debt load hanging above our heads in 2008 has not receded or gone away it has merely been transferred to the public sector where those in charge of such things feel it is more benign. A series of off-book and backdoor transactions by those in charge has transferred the burden of loss, however, shifting the liability from one sector to another does not alleviate the problem.

Efforts to justify the lofty levels of today's markets, especially just a few stocks, are sometimes difficult to comprehend. Part of this is tied to the trend of passive investing coupled with the ability to leverage up and plow into speculative investments. Unfortunately, this has been deemed a good thing because it drives the wealth effect forward and bolsters the notion that pension funds will be able to keep their promises to retirees. Adding to our current market euphoria is the recent bout of financial engineering evident in companies buying back stock. All of these should be enough to give us pause, should markets falter and the wealth effect shift into reverse, the economy would be left in a world of hurt.

Despite mankind's unbridled confidence that the future will be better and our ability to blindly follow our leaders, the elevated markets of today may be placing our future at risk. Even the few people that care about such matters as the overall economy tend to be seek out easy and painless answers even if they are loosely rooted in reality. This again has raised the important issue of whether this time is really different. If not, what happens when the bubble bursts?

 

(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)

Advancing Time: Syrian Regime Collapses, Putin Loses Key Ally, Assad

Advancing Time: Syrian Regime Collapses, Putin Loses Key Ally, Assad: The Syrian government collapsed early Sunday, falling to a lightning rebel offensive that seized control of the capital of Damascus. A Syria...