Tuesday, December 26, 2023

Advancing Time: The Nature Of Government Bureaucracies Is To Expand

Advancing Time: The Nature Of Government Bureaucracies Is To Expand: Across the world governments are broke and they won't stop spending. Expansion into all sectors of the economy has become a thing. Addin...

The Nature Of Government Bureaucracies Is To Expand

Across the world governments are broke and they won't stop spending. Expansion into all sectors of the economy has become a thing. Adding regulations to the private sector is a Trojan horse that weakens the private sector that drives economic growth. All in all the expansion of governments brings with it a fair amount of negative ramifications. One of the biggest is corruption, another is the concentration of wealth, and with this, the concentration of power. 

To fulfill the promises they make, governments often get involved in things that harm people, these include war, subsidizing parts of the economy, or steering things, by hook or crook. During the pandemic and years of low-interest rates, this trend accelerated. Still, the cost of fulfilling these promises is outrunning their ability to pay for them, this is evident in the rapid growth of sovereign debt.  

With interest rates moving higher the cost for a government to carry its national debt has exploded. The idea we are looking at higher rates for longer as central banks move us to a more sustainable return to normal does not lessen the pain taxpayers face. It also lessens the options governments face to finance their programs going forward.

The role of Government in America has changed, over many years we have seen a shift away from Adam Smith’s idea of limited government. This has occurred on federal, state, and local levels. Much of this has been in the form of mandates. Often unfunded they are fostered upon businesses, organizations, and private citizens. Governments also mask their expansion by outsourcing functions, this reduces the image of growth.

There is a new dance that officials have developed over the years, politicians and bureaucrats, deterred from expanding or funding programs by a few vigilant citizens, wait and find creative ways to reach their objective at a later date. By creating special bonds, attaching fees to needed services, or narrow taxes governments fund new authorities, commissions, and districts. These often unneeded quasi-government organizations then reach out to expand the influence and power of their directors. 

Another way governments push forward their expansion is through public–private partnerships. these are long-term arrangements between a government and private sector institutions to perform what is spun to be beneficial to the populace. This area is ripe with both cronyism and corruption. Typically, it involves private capital financing government projects and services up-front often with government guarantees and promises from taxpayers that users will create a profit for the project over time. These often become boondoggles or white elephants.

Instead of focusing on the business of government and simplicity, this proactive movement consisting of “cuteness” cloaked in a veil of flexibility and diversity continually expanding. Make no mistake, those in government are proud of their pet projects. They allow bureaucrats to experiment and try new things without the personal financial risk that a businessman must take. The problem is that they are being creative on our dime.

Nowhere is the expansion of government more apparent than in the area of social services. By replacing the word "want" with the word "need" those seeking a larger and stronger safety net have created a hammock. Many non-working Americans exist under the notion that they have a right to things like a car, free food, cell phones, internet, and free or supper low healthcare coverage and society must supply these items. 

The fact is, the government can't be everything to everyone.  At what level should we supply those who choose not, to or claim they are unable to carry their share of the burden? Those choosing to describe themselves as victims need to take more personal responsibility. Waiting for the government or someone to do things for you is a recipe for disaster. Claiming entitlements is a form of theft, those who take them do so at the expense of others.

Politicians do have a way of distancing themselves from responsibilities. Former Senator Tom Dashel claimed that business "lobbyists in Washington often blocked change." Someone should remind our elected officials that at the end of the day unless the Constitution has been changed that lobbyists are still not allowed to vote!

I should remind those who are less cynical about government that the House and Senate have placed themselves in the enviable position to receive automatic pay raises unless they specifically vote against the increase. This seldom occurs. Is it any wonder that government grows unchecked in such an environment? The big problem is that spending by governments has a poor history of creating solid economic growth.

So I ask, what is fair? This transfer of wealth from those who work to those who wish to take continues to grow in a political system where a vocal minority has great sway over legislation. If unchecked government grows - it is the nature of bureaucracy to expand. The use of sun-set legislation is underused or the bar set far too low when it comes to extending and renewing government bodies. The best time to kill a monster is when it's small and that time has passed.


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

Sunday, December 17, 2023

Advancing Time: Market Crosscurrents Pose Massive Danger

Advancing Time: Market Crosscurrents Pose Massive Danger: The recent rally in the stock market flowing from what almost appeared to be a victory lap on the part of Fed Chair Jerome Powell gives the ...

Market Crosscurrents Pose Massive Danger

The recent rally in the stock market flowing from what almost appeared to be a victory lap on the part of Fed Chair Jerome Powell gives the impression inflation has been vanquished. Many market pundits have taken this to mean upward momentum is not ready to abate. Still, market crosscurrents pose massive danger, in short, things could go several different ways. 

Adding to the recent confusion of why the markets are moving up is whether liquidity is, or is not being added to the financial system. It appears bank lending is contracting but other things are happening behind the scenes in swap rates and yield curves. While some of us point to the Fed saying it is tightening and reducing its balance sheet some economists point to a back channel inflow of liquidity juicing the system.   

A case can be made that recent market action remains more about liquidity than interest rates. A lack of liquidity can be poisonous. When you need money, whether the amount is small or large, not being able to get it can lead to a life-changing or grave outcome.  Interestingly, as noted above, the liquidity issue remains unresolved. Central banks are well aware that contagion from one area can spill over into other sectors of the economy and markets. This is why China continues to inject liquidity into its market. How much of that money is getting out of China is an issue. 

So, here we sit, new market highs at a time when many economy watchers are voicing concerns the economy is rapidly slowing and the Fed is already behind the curve in dropping rates. The counterargument being floated is that all is well and we are in the midst of a soft landing or no landing. The latter is the optimistic view that we have entered a Goldilocks moment and the markets are set to go ever higher. 

Those taking the stand a quick reversal of Fed policy and looking at rapidly falling rates may be failing to consider trees don't grow to the sky. It could be argued a major pullback is necessary to avoid a much more severe problem or bigger disaster in the future. Inflation is a key component in assessing where things go from here.  Again, I point to The Hard Asset Inflation / Paper Asset Deflation Theory

Much of the current market danger stems from the fact the fluid financial and economic situation is highly leveraged. If something breaks, the amount of money needed to backstop and halt a collapse of the system will be far larger than anything we have seen in the past. Remember a massive drop in asset prices and the value of bonds directly impacts pension funds and many other aspects of our financial structure.

A great deal of what we call growth has been, or is now financially engineered by companies buying back their own shares and other companies rather than growing organically. This risk is constantly being downplayed as more and more of the concentration of wealth pushes takes place, into just a few companies. A case and point often raised is the huge market capitalization of what is known as the "magnificent seven."

As usual or maybe even more than usual, we should continue to factor in the idea things could be shaken by another pandemic, massive war including the use of nuclear weapons. The whole idea that stocks climb a wall of worry and fall like a stone underlines the fact that markets are non-linear and do not move in a straight line. People tend to slip into a generally optimistic feeling of complacency and discount this reality.  

Lower inflation figures strongly into the euphoria we see in the market. Much of this has been driven by lower gasoline prices which are likely to prove temporary and the idea the costs of "shelter" or keeping a roof over your head will soon decline. These notions brush aside several important facts such as the rising cost of labor and other factors feeding into housing. These include insurance, soaring maintenance costs, and rising taxes. All of these are expected to move higher in the future.

A bond fella recently recently made the case that yields would drop as inflation falls. Several pundits have speculated the Fed must "know something, or be spooked" to have changed course. Pulling on this thread could lead us back to the notion China's economy is in free-fall and it is the main reason rates will be falling everywhere. This has resulted in the notion we will see super strong demand for bonds during a recession even if the supply is huge. 

Still, buying long-term bonds to hold is far different than buying them to hold. Long term we have to look at the future of fiat money and inflation from currency debasement. I'm not convinced it is wise for investors to lock themselves into any fiat currency long-term as things could change rapidly.

Consider the possibility that the Fed is yielding to pressure rather than making a policy change based on choice. By prematurely declaring inflation as no longer an issue it takes pressure off government bonds and banks. When we look back at how this plays out it is likely the importance of liquidity and the money supply will prove far more important than minor changes in interest rates.

In a recent video delving into inflation in commodities, Daniel Lacalle claimed there are only three ways to halt inflation and inflation is fueled by monetary conditions. Lacalle says the only way to stop inflation is raise interest rates, reduce the amount of money in the system, or to create an aggregate demand reduction of credit.

The public sector, or to qualify, governments are busy thwarting all these factors. As long as governments and central banks continue to overspend and print money the inflation beast will remain a ferocious creature.


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