Monthly Archives: December 2016

Shaken, rattled and rolled

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You do have to wonder how much our financial advisors understand about anything when you can read a headline like this at the AFR:

YELLEN RATE HIKES RATTLE MARKETS

Could they have thought a quarter percent was too low? No, they are rattled because there may be three increases in 2017 and not just two. So let me quote from this morning’s press to point out that this should not be seen as a bolt from the blue:

Steve Kates, Associate Professor of Economics at RMIT, said it was good news for the US and could be for Australia if it followed suit by raising rates. “Low rates will kill you,” he wrote.

“[It’s] all part of economic resurrection. It may cost more to get your hands on money going forward, but it is also more likely that the higher cost of borrowing will help channel our savings into more productive projects.

“The belief that low interest rates are good for growth may be the worst delusion of all, causing one economy after another to fall into a low-productivity trap from which it is almost impossible to find a way out.”

What he had also said, and been saying for quite some time, was this:

That rates would go up at the first opportunity after the election was as certain as anything in economic policy can ever be. It was just as certain as knowing that with a Democrat President, that they would not be raised until after the election was over.

I did meet Yellen many years ago and we discussed fiscal policy of all things, so when I say to you that she has no idea how things actually work, it is from direct personal experience. These Keynesians are a hardy lot, never influenced by anything that actually happens in the world. Let me therefore take you to the very first para of this AFR article:

The Fed’s forecast of three interest rate rises in 2017 has rattled markets, raising fears that rising rates and bond yields could take the air out of high asset prices, including shares, that have been inflated by almost a decade of easy money from central banks around the world.

Are these people really that detached from how things work?

Tax and spend, and then when the taxes run out spend some more anyway

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This is from a review of a book titled, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe, found at the History of Economics Online discussion forum. It’s why you should never elect socialists. They promise you everything and leave you living desperate lives where it becomes barely possible for more than half the population to stay economically afloat.

U.S. businesses are increasingly at a competitive disadvantage with respect to tax burdens when compared to businesses in other OECD countries. The U.S. now has the second highest corporate income tax rate, at 40 percent when calculating federal and state corporate income taxes. U.S. businesses face high business tax and compliance costs. American businesses face a tax penalty when they repatriate profits earned by their foreign subsidiaries. The U.S. has the eighth highest dividend tax rate, and the highest estate and inheritance tax rate among OECD countries. Finally, the U.S. has one of the highest tax rates in the world on corporate capital gains. Much of this tax burden on business is borne by workers in the form of lower wages and employment opportunities.

In contrast, the most successful OECD countries have enacted new fiscal rules to constrain the growth in government spending. John Merrifield and I document how new fiscal rules have enabled these countries to reduce taxes and borrowing. By the end of the twentieth century Switzerland and the Scandinavian countries imposed the lowest top income tax rates compared to other OECD countries; and these countries are successfully addressing unfunded liabilities in their entitlement programs.

Fiscal rules in the U.S. have been relatively ineffective in constraining the growth in federal spending. For half a century rapid growth in federal spending has been accompanied by deficits and debt accumulation. With total debt now in excess of 20 trillion dollars, the U.S. is one of the most indebted countries in the OECD. The total debt burden as a share of GDP exceeds 100 percent, and is projected to grow even higher in coming decades under current law. Growing unfunded liabilities threaten the viability of federal entitlement programs. These flaws in tax and fiscal policy are causing a massive redistribution of income and wealth in the U.S.

On top of everything else, it has made the rich richer and the poor more desperate.

Princess Hill “teachers for refugees”

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princess-hill-teachers

No real reason to mention it other than that my wife went to Princess Hill. A refugee from communist Poland, Australia has certainly been her home. However, her parents came as legal migrants and both had paid work within the first month of arrival. From Andrew Bolt, who writes:

Have you wondered what kind of teacher could possibly think it appropriate to wear shirts with political slogans at schools, here is a sample.

Strange. Somehow I just didn’t need the slogans to identify the politics of some of them.

But I wonder how they can justify misusing their authority and position to preach politics beats me.

TEACHERS have posted pictures of themselves in class wearing T-shirts supporting refugees, and claim not one was punished despite warnings from the government.

Victoria’s Education Department and federal Education Minister Simon Birmingham advised teachers could face action and even the sack if they wore “Teachers for Refugees — Close the Camps, Bring Them Here” T-shirts this week in protest at offshore detention camps.

Not punished? What signal does that send students about rules and authority?

And would there be no punishment if teachers wore “Teachers for climate scepticism” shirts, advertising a cause that is at least rational?

Where’s the FBI? Where’s the outrage?

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With all the fake news about “fake news”, what about dealing with some real news. Why is this just a sidelight, hardly discussed anywhere in the media.

MORE ELECTOR THREATS: ‘PUT BULLET IN MOUTH’…
LONG-SHOT BID TO BLOCK MONDAY…
Angry Celebs Call For Coup…
Two war rooms, plus ‘weaponization’ against Trump…

We are down to an almost zero chance that the Electoral College will overturn the vote, but we are not down to zero attempts to influence the outcome, in no small part because of how well the election result has been received. This, too, is from Drudge.

AMERICA GREAT AGAIN: Dollar Climbs to Strongest Since 2003…
Homebuilder sentiment spikes 7 points, Trump has them feeling fantastic!
WIRE: Measures of Economic Optimism Shooting Up All Over…

This is partly why it won’t happen, but also a large part of the desperation on the left. Trump might really make America great again. This sideshow is not just repulsive but fantastically dangerous for civic peace. The first of the articles listed by Drudge is actually titled, Electors are being harassed, threatened in bid to stop Trump, which begins:

Electors around the country are being harassed with a barrage of emails, phone calls and letters — and even death threats — in an effort to block Donald Trump from being voted in as president by the Electoral College on Monday.

The bullying is overwhelming Sharon Geise’s tech devices, but not her resolve to support Trump.

The Mesa, Arizona, grandmother woke up Wednesday morning to more than 1,500 emails demanding she not carry out her legal duty to vote for the president-elect.

“They just keep coming and coming,” Geise told The Post, estimating she’s received more than 50,000 emails since the election. “They’re overpowering my iPad.”

Her answer: mass delete.

Despite the avalanche, she said, her decision to back Trump is stronger than ever.

Well, there are crazies everywhere, and you have to expect that in a country of 300 million adults, 50,000 is not necessarily a lot. But there is this to make you wonder:

The effort to deny the electoral vote to Trump was launched shortly after the Nov. 8 election.

The Clinton campaign came out in support of the effort Monday, backing an open letter from 10 Democratic electors to National Intelligence Director James Clapper calling for an intelligence briefing on what role Russian hackers may have played in the election.

To have given any air at all to this effort is for the Democrat candidate for president to be found among the crazies of the farthest left. To genuinely hope to succeed is to tempt a similar effect on the future of the American Republic as the assassination of Julius Caesar had on the Roman Republic in 44 BC.

Revolutionary change

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This is Conrad Black, in the #NeverTrump National Review of all places, discussing the Lights Out for the Old Order. What he describes is what most of us hope will be a reality we can look back on in four years’ time. It was a close run thing but all such changes are like that in the first instance. Once Trump is president and the game plan unfolds, there will be massive shift in sentiment. This is a revolution that will become irresistible since it will be nothing other than governance in keeping with the sentiment and wishes of the governed.

In place of the scrimping Mother Hubbard Pentagon of Robert Gates, Leon Panetta, Chuck Hagel, and Ashton Carter, we will have combat military officers rebuilding a military capability adequate to all reasonable needs, accompanied by a prudent foreign policy that rejects George W. Bush’s hip-shooting nation-building and Barack Obama’s phantasmagorical conjuration of a friendly Iran and Hamas — a vastly increased strategic capacity to achieve much more realistic objectives.

This is a revolution: There has not been such a transition since Roosevelt in 1932. Each major domestic-policy department of government is being entrusted to people dedicated to radical change, to the uprooting of a whole generation of error. Education will go to a great champion of chartered schools (Betsy DeVos), in the hope of wrenching the country’s failed public-education system from the palsied hands of the Democratic party’s decayed allies in the teachers’ unions.

Labor itself will be in the hands of someone (Andrew Puzder) who supports the workers by guaranteeing their rights and liberating them from the corrupt enemies of workplace efficiency and cooperation in organized labor – a barely living group reduced now to the infestation of public-sector unions (only 6.7 percent of the country’s shrinking work force is now unionized).

The Environmental Protection Agency will be in the hands of someone (Scott Pruitt) who does not believe the unsubstantiated ecoterrorism about global warming and will protect the environment without throwing millions of people in carbon-related energy into unemployment in the fatuous professed expectation that they will be reemployed building windmills and solar panels.

Health care will be in the hands of the greatest expert in the Congress (Tom Price) on how to introduce a dual-payer (where affordable to the insured family) universal-health-care system that does not lie to the taxpayer, separate the patients from their doctors, or preserve statewide insurance fiefdoms.

Taxation, campaign-finance reform, and the budget will be in the hands of people (Steven Mnuchin at Treasury) who will raise revenue from elective transactions and reduce taxes for small personal and business income earners.

In the meantime, in the words of our most recent Nobel Prize winner for literature, get out of the way if you can’t lend a hand. The notion on the left that a re-run of the election would see Hillary win is so ludicrous that it is almost impossible to imagine how people can say they have an interest in politics and get things so completely wrong.

Experts without expertise

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Being educated and smart is not the same as being clued in and having common sense. From The Intellectual Yet Idiot. I have bolded the bit that matters most to me. Basically, almost every area of public life is managed by people who have only a learned experience, not an actual experience of the issues they are dealing with. They have studied the subject, but have never actually plied their trade in the area.

What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking “clerks” and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think… and 5) who to vote for.

But the problem is the one-eyed following the blind: these self-described members of the “intelligentsia” can’t find a coconut in Coconut Island, meaning they aren’t intelligent enough to define intelligence hence fall into circularities — but their main skill is capacity to pass exams written by people like them. With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3 of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers (or Montaigne and such filtered classical knowledge) with a better track record than these policymaking goons. . . .

The IYI has been wrong, historically, on Stalinism, Maoism, GMOs, Iraq, Libya, Syria, lobotomies, urban planning, low carbohydrate diets, gym machines, behaviorism, transfats, freudianism, portfolio theory, linear regression, Gaussianism, Salafism, dynamic stochastic equilibrium modeling, housing projects, selfish gene, election forecasting models, Bernie Madoff (pre-blowup) and p-values. But he is convinced that his current position is right.

Essentially, our societies have been managed by a clerisy of the ignorant and stupid. With Trump, it may be about to change, but they will not give up without a fight.

Looking for a Christmas miracle

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There are many things great and small Andrew Bolt does that are important and for which I remain grateful. Among these – one of the smaller blessings – is that he reads Niki Savva’s columns so that the rest of us don’t have to. From today: Niki Savva: admits Turnbull floundering, but still blames Frydenberg, Abbott, delcons…. Expecting Malcolm to do well is like belief in Santa or the tooth fairy. No conception of what needs to be done and no ability to achieve it even if he did know what to do. This is from Niki, looking for a Christmas miracle.

Turnbull unwisely provided a measure against which he can be judged on the day he ousted ­Abbott by pointing out Abbott had been behind in 30 Newspolls. Turnbull has been behind now for several polls. Only one thing will turn it around: performance. And better political management.

Yes, better performance and management is just what’s needed. Unfortunately, it’s just not in his DNA.

Rates up

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That rates would go up at the first opportunity after the election was as certain as anything in economic policy can ever be. It was just as certain as knowing that with a Democrat President, that they would not be raised until after the election was over. I thought it would be more, but the Fed has now stated that there will be three further increases in 2017 rather than two, so there must have been quite some debate. And there is no certainty they will each be a quarter of a percent either.

Not much more to say other than that this will work well for the United States, and given that rate reductions are now off the table, may work well for us, if we can follow along. Low rates will kill you. You are invited to read my article from the October Quadrant: That’s the Way the Money Goes. I will mention, however, that the title, the summary at the front and the lead-in para – the bits in black – were not written by me and do not quite say what I think. Here is how it should begin:

Low interest rates have been the mantra of economic policy for quite some time, even more so since the various public-sector stimulus packages that followed the GFC have been accompanied nowhere by anything like the kinds of recovery policy-makers had sought. . . .

There was a time, however, when it was universally recognised that monetary policies of this kind would only make matters worse, but that was a very long time ago. Perhaps we should go back and see what economists used to say about such things before we go even farther in this direction, whose continuation will make it ever more difficult to extract ourselves from the abyss of our own creation we now find ourselves in.

All part of economic resurrection. It may cost more to get your hands on money going forward, but it is also more likely that the higher cost of borrowing will help channel our savings into more productive projects.

Trying it on

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The left in general, but the American Democrats in particular, are doing about as good a job at discrediting their brand as I could hope. This Russian hacking business is an example of such insanity that you really do have to wonder why they have any credibility at all. The point is not that the Russians hacked into the voting machines and manipulated the results. Voting machines are stand-alone and cannot be influenced from the outside (we can talk about their programming some other time). The way in which the election was supposedly affected by the Russians is that they fed all of the WikiLeaks material from the Democrat National Committee to Julian Assange who then made this material public. And the outrage is that the Russians supposedly also had similar material from the Republican National Committee which they did not leak. Therefore, according to some unknown and unnamed source inside the CIA, the Russians are the reason for Donald Trump having won. So if I say to you that anyone who believes this sort of thing is crazy, you will see what I mean. Here, for example, is Paul Krugman in an article titled, The tainted election: How Donald Trump won is horrifying.

The CIA, according to The Washington Post, has now determined that hackers working for the Russian government worked to tilt the 2016 election to Donald Trump. This has actually been obvious for months, but the agency was reluctant to state that conclusion before the election out of fear that it would be seen as taking a political role.

Meanwhile, the FBI went public 10 days before the election, dominating headlines and TV coverage across the country with a letter strongly implying that it might be about to find damning new evidence against Hillary Clinton — when it turned out, literally, to have found nothing at all.

Did the combination of Russian and FBI intervention swing the election? Yes. Clinton lost three states – Michigan, Wisconsin, and Pennsylvania – by less than a percentage point, and Florida by only slightly more. If she had won any three of those states, she would be president-elect. Is there any reasonable doubt that Putin/Comey made the difference?

You really have to read it all to see just how demented the argument is. That Hillary was everything you would not want to see become president, that she would have continued Obama policies as far into the future as she could, that there is a renewed optimism in the US following Trump’s win is perfectly clear, only emphasises how bizarre all of this is. The aim is somehow to discredit the election result, to perhaps influence enough “electors” to abandon Trump at the electoral college, and even, as some have asked, to run the election again. Here is Krugman again, spelling out the strategy:

We ought to be able to look both forward and back, to criticise both the way Trump gained power and the way he uses it. Personally, I’m still figuring out how to keep my anger simmering – letting it boil over won’t do any good, but it shouldn’t be allowed to cool. This election was an outrage, and we should never forget it.

There is no doubting it. These people are not just bad losers. They are totalitarians at heart who support the democratic processes only up to the point it actually delivers them the results they want. They are a danger to us all, and to themselves. The only reason the US does not turn into Venezuela is that they represent only about 47% of the voting population. They are saved from financial oblivion by the Republicans whom they hate. Here’s Newt Gingrich.

All the panic on the left about Russia is a ruse. The same media which was freaking out about ‘fake news’ last week is now engaging in just that. They’re promoting the idea that Russia influenced the election to create doubt about Trump’s victory and de-legitimize him. It’s a completely dishonest political move.

It’s a try-on by the left and their allies in the media. This one didn’t quite get the traction, but you may be sure they will be back with something else as soon as they can find something else to beat up. Meanwhile, this is a drumbeat that will continue for the next four years, and hopefully for the next eight.

Is this what is known as burying the lede?

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An extremely interesting story even if a bit sensational: Shock claims massive ancient civilisation lies frozen beneath mile of Antarctic ice – and could even be Atlantis. So the story:

The theory, called crustal displacement, alleges that movements in the Earth’s crust meant that large parts of Antarctica were ice-free 12,000 years ago and people could have lived there.

Allegedly, a society could have existed ‘prehistory’, coming to an end with the last Ice Age which froze over the continent.

And this could have been Atlantis, a mythical city founded by people who were half god and half human which was first mentioned by Greek philosopher Plato in 360BC.

Speculation over the location of the legendary long-lost city is rife, with others believing it to have been near the Greek island of Santorini.

Antarctica’s secret city was apparently ‘”confirmed” by an ancient map called the Piri Reis map, compiled in 1513 from military intelligence.

And the buried lede:

The fascinating discovery comes just weeks after scientists revealed the Earth could be heading for another mini ice age caused by the Sun “going blank”.

So much for the science is settled.