TLR Updates, Part 1*

“Will Modern Monetary Theory Work” (April 14th TLR) and “They’re All Keynsians Now” (March 27th TLR)

Republicans no longer are believers in balanced budgets. Democrats most often have favored deficit spending. Both are now in agreement that Congressional spend-and-debt orgies are fun!

This week, the Trump Administration agreed with Democratic leaders to raise the government’s borrowing limit and defer any and all further budget discussions until July 30, 2021 – that is, after the 2020 election. How convenient! Their deal calls for more than $2.7 trillion ($2,700,000,000,000) in spending over the next two years – increasing spending above current excessive levels by almost $50 billion in the next fiscal year alone and by almost $320 billion above the limits set in the 2011 budget laws that established allegedly automatic spending cuts designed to prevent fiscal recklessness. Congress can make the rules for one election cycle and Congress can break the rules for another election cycle. Republicans have attempted to justify the fiscal profligacy increased spending by asserting that such spending is absolutely essential its only purpose is to support America’s military and that supporting America’s troops is the most worthy of purposes, and Democrats have attempted to justify their fiscal incontinence agreement to the Republicans’ big spending by pointing to the balance the compromise achieves between military expenditures and absolutely essential domestic programs. Democratic House Appropriations Chairwoman Nita Lowey neatly summarized the consensus for fiscal indiscipline: “I am proud that this agreement ends the senseless austerity imposed by the [2011] Budget Control Act.” On the other hand, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said: “There was a time when Republicans insisted on a dollar of spending cuts for every dollar increase in the debt limit. It’s hard to believe they are now considering the opposite ÔÇö attaching $2 trillion of spending increases to a similar-sized debt limit hike.”

America’s budget deficit is now on track to top $1 trillion a year …, with no real possibility of a change in trajectory for at least two years. They indeed are all Keynsians now. They apparently believe that virtually unlimited spending is fiscally responsible … and that Modern Monetary Theory will work.

Be Careful What You Wish For” (July 29th TLR) and “The Canary in the Gold Mine” (June 24th TLR)

On Friday, President Trump tweeted: “Interest rate costs should have been much lower, & GDP & our Country’s wealth accumulation much higher. Such a waste of time & money…. Also, very unfair that other countries manipulate their currencies and pump money in!” On Monday, President Trump followed up with further tweets: “With almost no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve…. It is far more costly for the Federal Reserve to cut deeper if the economy actually does, in the future, turn down! Very inexpensive, in fact productive, to move now. The Fed raised & tightened far too much & too fast. In other words, they missed it (Big!). Don’t miss it again!”

President Trump is wishing for a weaker US Dollar. To achieve that goal, since early April the President has been badgering pressing the Fed ever harder to engage in further rounds of Quantitative Easing, a practice the Fed discontinued in October 2014 … in addition to lowering interest rates. Most recently, he nominated Judy Shelton, a monetary dove, to fill an open seat on the Federal Reserve Board. Shelton has called for a large interest-rate cut at the Fed’s July meeting. “I would have voted for a 50-basis-point cut at the June meeting,” she said. The markets believe the Fed will reduce interest rates when it meets next week by a mere only ┬╝{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35}. Some economists nevertheless believe that even that smallest of rate cuts would be hazardous to America’s economic health: A rate cut “will incite undesired risk taking by borrowers and deepen the next recession, which will unnecessarily increase the cost to society,” according to Steve Ricchiuto, Mizuho Americas’ U.S. chief economist. According to Jim Glassman, JP Morgan Chase’s commercial banking head economist, “The Fed has tried to take the high road. But markets don’t buy it. They think political pressure is making the difference [in forcing the Fed to cut rates].”

On July 17th, Ray Dalio (the founder, Co-Chief Investment Officer and Co-Chairman of Bridgewater Associates which, over the past 30+ years, has been the world’s most successful hedge fund) published a piece called “Paradigm Shifts” in which he explained how to address the following investment principle: “Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops.” His conclusion is that the trajectory of the global economy is unsustainable and that the world now is on the verge of a major economic collapse paradigm shift. For a variety of carefully researched historical and uniquely-current reasons, “those [investments] that will most likely do best [going forward] will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant…. [As a consequence, it] would be both risk-reducing and return-enhancing to [add] gold to one’s portfolio.”

The headline of a New York Times’ article on July 19th summaries the current fiscal playing field: “The Economy Looks Solid, But the Fed Plans to Cut Rates Anyway….”

“More Turkey Anyone” (May 29th TLR) and “Let’s Talk Turkey” (April 1st TLR)

Although Turkey’s President, Recep Tayyip Erdogan, is an tyrant astute politician who has pursued a well-thought-out anti-democratic and fiscally foolhardy set of policies, Turkey is not Venezuela (with a President Maduro) or the Philippines (with a President Duterte) … or even Brazil (with a President Bolsonaro) – and it cannot be treated the same by the U.S. or Western Europe. It’s an important NATO member whose geographic location places it at the center of the geopolitical universe. It straddles Europe and Asia, controls entry to Russian and Ukrainian ports on the Black Sea, borders Syria, Iran, Iraq, Georgia and emerging Kurdistan, and is a focal point of the Old Silk Road China’s Belt and Road Initiative (see “The Trade War With China” in the May 22nd TLR). It’s therefore today’s most important global pivot point …, and it’s on the verge of changing sides and, possibly, even of becoming a failed state.

Despite repeated warnings not to do so by the Trump Administration, Turkey recently moved forward with its purchase of Russia’s most advanced surface-to-air missile by taking its first delivery of the S-400, a weapon that Russia would use against America’s F-35 Fighter force. In order to keep Turkey in the Western fold, the U.S. had agreed several years ago to allow Lockheed Martin to sell Turkey more than 100 of the world’s most advanced Fighter aircraft, and Turkish companies became integral parts suppliers to the F-35 program. Those contracts were suspended earlier this year. In addition, in order to comply with U.S. law, specifically the Countering America’s Adversaries Through Sanctions Act (CAATSA) which mandates sanctions on those who make sizable purchases of Russian arms, President Trump met yesterday with Senate leaders to determine which of the twelve specific sanctions mandated by the CAATSA the U.S. will impose on Turkey. Because of the President’s relationship with President Erdogan, analysts believe that Trump will press Congress to agree to a minimum sanctions program, hoping that Erdogan can be persuaded to change his mind. There is little belief that he will do so.

Erdogan’s recent domestic setbacks are impairing impacting his foreign policy decisions. His political party, the AKP, lost the mayoralty election in Ankara in June and he continues to preside over declining GDP, an ongoing currency crisis and high inflation. He further rattled markets on July 9th when he dismissed his central bank governor, apparently because Governor Murat Cetinkaya would not go along with his demand for lower interest rates. Erdogan has an bizarre eccentric unconventional theory of interest rates: “[M]y belief is: interest rates are the mother and father of all evil…. I will emerge with victory in the fight against this curse of interest rates…. [Although] I agree on the independence of the central bank but let me put it very clearly that I am against interest [rate] policies and above all, high interest rates.” Erdogan’s moves have further adversely impacted the Turkish Lira and Turkey’s economy. As a consequence, some analysts have speculated that Erdogan’s next steps will include capital controls, nationalization and other policies designed to cement his power and prevent the private sector from protecting its property as the macroeconomic environment deteriorates. The fear is that Erdogan may push Turkey’s economy into an economic collapse similar to that seen in Venezuela. Political pressures are adding to the pressures on Erdogan as earlier this month his highly-respected former economy czar, Ali Babacan, quit the AKP and is expected to form his own opposition party. Other vocal critics of Erdogan include former Prime Minister Ahmet Davutoglu, once Erdogan’s chosen heir, and ex-president Abdullah Gul.

Turkey all-too-rapidly – not really though, given Erdogan’s carefully orchestrated slide into autocracy – has become a global geopolitical and economic flash point.

Finally (from a good friend who is in his 80s)

  1. My mother taught me TO APPRECIATE A JOB WELL DONE.

“If you’re going to kill each other, do it outside. I just finished cleaning.”

  1. My mother taught me RELIGION.

“You better pray that will come out of the carpet.”

  1. My father taught me about TIME TRAVEL.

“If you don’t straighten up, I’m going to knock you into the middle of next week!”

  1. My father taught me LOGIC.

“Because I said so, that’s why.”

  1. My mother taught me MORE LOGIC.

“If you fall out of that swing and break your neck, you’re not going to the store with me.”

  1. My mother taught me FORESIGHT.

“Make sure you wear clean underwear, in case you’re in an accident.”

  1. My father taught me IRONY.

“Keep crying and I’ll give you something to cry about.”

  1. My mother taught me about the science of OSMOSIS.

“Shut your mouth and eat your supper.”

  1. My mother taught me about CONTORTIONISM.

“Just you look at that dirt on the back of your neck!”

  1. My mother taught me about STAMINA.

“You’ll sit there until all that spinach is gone.”

  1. My mother taught me about WEATHER.

“This room of yours looks as if a tornado went through it.”

  1. My mother taught me about HYPOCRISY.

“If I told you once, I’ve told you a million times, don’t exaggerate!”

  1. My father taught me the CIRCLE OF LIFE.

“I brought you into this world, and I can take you out.”

  1. My mother taught me about BEHAVIOR MODIFICATION.

“Stop acting like your father!”

  1. My mother taught me about ENVY.

“There are millions of less fortunate children in this world who don’t have wonderful parents like you do.”

  1. My mother taught me about ANTICIPATION.

“Just wait until we get home.”

  1. My mother taught me about RECEIVING.

“You are going to get it from your father when he gets home!”

  1. My mother taught me MEDICAL SCIENCE.

“If you don’t stop crossing your eyes, they are going to get stuck that way.”

  1. My mother taught me ESP.

“Put your sweater on, don’t you think I know when you’re cold?”

  1. My father taught me HUMOR.

“When that lawn mower cuts off your toes, don’t come running to me.”

  1. My mother taught me HOW TO BECOME AN ADULT.

“If you don’t eat your vegetables, you’ll never grow up.”

  1. My mother taught me GENETICS.

“You’re just like your father.”

  1. My mother taught me about my ROOTS.

“Shut that door behind you. Do you think you were born in a barn?”

  1. My mother taught me about EDUCATION.

“When you get to be my age, you’ll understand.”

  1. My father taught me about JUSTICE.

“One day you’ll have kids and I hope they turn out just like you!”


*┬® Copyright 2019 by William Natbony. All rights reserved.

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