Why Social Security Privatization Cannot Be The Solution To Economic Inequality

With the roaring Bull going past ten years now it was only a matter of time before  one once again beheld the siren song of the Social Security privatization nabobs.

Sure enough, a definite snake oil pair (Jeff Yass and Stephen Moore) recently emerged with their misinformational op-ed 'Conquer Inequality With Private Social Security Accounts' (WSJ, July 26, p. A15)

As usual, and ever since this misbegotten idea was first touted by Gee Dumbya Bush, the two current hucksters promise it will relieve or solve all current and possible future financial ills - and there's no doubt their pitch is to the Millennial demographic.  After all, it is this group which has been told over and over that their wages are subject to FICA taxes to help support those "greedy Boomers".  So why not have their own money in their own accounts? Well, plenty of reasons.

The biggest lie is that accepting such a scheme will ensure that "workers will become owners".  Nothing is further from the truth.  You will no more "own" your money than you own your 401 (k), meaning you cannot do whatever the hell you want with it without penalties.  There will inevitably be a Wall Street outfit that controls your funds so you are only under an illusion of ownership.

Just as 401(k)s have misled millions into believing they are really finance mavens and savvy investors, so Messrs. Moore and Yass seek to have you  believe just having a private Social Security account will pave the way to wealth.  As they put it:

"Each individual account (would take 10 % of payroll taxes)  be invested in a low fee index fund of roughly two thirds stocks and one third bonds and would mature at the federal retirement age.   This way every working American  - from the minimum wage waiter to the truck driver to the store manager-  would become a genuine owner building real wealth for himself and his family with each paycheck."

Not so fast there, buckeroos!  First, as the authors of The Great 401k Hoax (Wlliam Wolman and Anne Colamosca) have observed: 401ks were never set up to be investment vehicles, but savings vehicles!  Ditto for Social Security monies.  They were never ever intended to be  paycheck "seed corn" to buy equities or gamble in Maul Street's casino but to supplement pensions in the retirement phase.  Financial specialist Steve Rattner, who I daresay has more educational heft than the two WSJ clowns, has put it best:  "Just as I would not be so kunckleheaded as to perform my own surgeries, I would not be so addled as to believe I can do my own investments. Not unless you are a skilled financial expert or planner:."  And from the annals of most Americans' saving experience and use of money 9 of 10 are not - finance mavens that is. Hence, they have no more business managing their Social Security FICA monies in investments, than they do for 401(k)s.    Certainly not putting money in stocks in any 'index funds" - or more fully managed funds.    Look, you can lose your ass with a bear market just as easily in the first as in the second.

Let's explore this aspect. Investment and finance specialist William J. Bernstein in a MONEY magazine interview in 2012 went through the biggest retirement investing mistakes - most of which violate life cycle investment principles. (MONEY, Sept., 2012, p.  97).  His rule of thumb which thorough research has validated is that the ordinary person needs "20 to 25 times the residual living expenses - the yearly shortfall you have to make up after Social Security and any pension".

So, let's say you do the math and find out on retirement - say at 67 - you will need  $3,500 in monthly living expenses, to pay utility bills, meds, groceries, Medicare supplement premiums, etc.  Then if you know Social Security will pay you $2,000 a month that leaves $1,500 to cover with savings, or safe investments. (Bernstein advises safe assets such as U.S. Treasury Inflation Protected Securities)  12 times that is 12 x   $1,500 = $18,000 per year.  And 20 times that 'magic number' is $360,000.  This is the yearly shortfall to make up  if, say at age 67,  you project the probability of living 20 more years.  The increased (5) factor, e.g. the yearly amt. by 25,  provides a greater safety margin. Hence, the more advisable saving total outside of Social Security is $450,000.

Bernstein is also adamant that the older the worker is the greater the need to pull back from equities.  The reason for that?  The closer you are to retirement, the more difficult it will be to make up the lost earnings - say if you find yourselves in a prolonged bear market, or a major stock crash. Yass and Moore take no account of this in their blather about "owning" private accounts.  The outcome if this is not taken into account?  "There's a significant chance you're going to be eating Alpo when you're 85." according to Bernstein.

WSJ letter writer Don B. Stuart, responding to the cockeyed nonsense of Moore and Yass (p. A14 yesterday) noted a similar concern:

"Is this plan only for those with 40-plus years remaining? What about those with only a decade left?  Their risk may be too high."

Which was exactly Bernstein's point and why the individual person's "life cycle" horizon must be reckoned in, else it's a pile of foolishness.

Do you really think Yass and Moore give a hoot if you're eating Alpo daily at 85? Of course not. They're merely interested in snatching FICA taxes to stuff into the maw of Maul Street to support a stock market investment scheme that has absolutely no assurance of avoiding losses.  Interestingly,  the WSJ authors dodge who will compensate you if a bear market comes along and you lose half of your invested money.   (Let's also bear in mind you'll need a 100 percent gain to get to breakeven after a 50 % loss.)

Letter writer Stuart also points out, reinforcing Steve Rattner's earlier observation about people not doing their own surgery either:

"Yes, wealth is created saving and investing over a long period of time. But this is hard for individuals on their own."

Especially in the stock investment sphere! Speaking for myself, I self-studied finance, stocks, mutual funds and bonds for over five years before investing in Janus Worldwide Fund once we left Barbados and moved to the U.S. in 1992.   This was in a 401(k) provided by the (then) radiotherapy software corporation for which I was a technical writer and regulatory specialist.  The insight provided by education paid off and this Janus fund racked up huge returns for the time I was in it (pulled out in 1996, before leaving the company) and as fate would have it, before the Fund earnings tanked.

The point is not everyone in a 401(k) will have the time or energy to study investment strategy, the ins and outs of mutual funds and their expense ratios, whether 'front loaded' or 'back loaded',  and the nature of P/E ratios. Hence, they won't be able to make an informed decision - as Mr. Bernstein puts it -  "To know when to take the money off the table".

Again, this is why the 401(k) was designed as a savings vehicle, not an investment one, and neither is Social Security.  Imagine, for example, if you're a truck driver at age 45 and could take the WSJ hucksters' advice of diverting your FICA taxes into a private account. What if a bear market or stock crash hits 5 years before you retire?  Think you will escape that Alpo at age 85? Think again.

The value of Social Security is precisely because it provides a stable income stream that will not go down the next month or the one after.  Retirees can make financial decisions precisely because they know what this income flow will be.  Indeed, a second WSJ writer (Robert J. Sartorius, an FCA) also takes issues with the authors noting:

"The 10 percent to which Messrs. Yass and Moore refer is simply not available to be saved and invested because Social Security is currently funded on a 'pay as you go' basis."

The writer adds that in order to make a stable transition to the private accounts scheme invoked by Yass and Moore, would require "an additional federal debt approximating $800 billion per year."

This would be needed "to pay current benefits no longer covered by the 10 percent of payroll being diverted."

Interestingly, this is a critical aspect  - the addition to the deficit - most of the snake oil salesmen ignore.   One therefore wonders if they just expect current retirees in the existing system to just suck salt....or eat Alpo.

In ending, may I also remind people, that  if they DO have 401(k) money in equities they are referred to as "dumb order flow" and "chickens to be plucked" by the Maul Street wizards, quants and casino operators? (Referenced in a WSJ piece from 2010). Like the 'Wizard' in the land of Oz, these folks never want you to see what actually goes on behind their curtains, including the high frequency trading (done by special algorithms) which triggered the "flash crash" of May 6, 2010.

How influential is flash or high frequency trading? According to a The Wall Street Journal   article from 9 years ago: ('Fast Traders Face Off with Big Investors over ‘Gaming’, June 30, 2010, p. C1) it accounted for two-thirds of total stock market volume. All other things being equal, that meant unless one had access to a flash trade system or algorithm himself, he had a 2 in 3 chance of being victimized by flash trade.  That probability is even higher now given the much greater extent to which HFT is used. 

Yass and Moore mention none of this, nada, they only expect the semi-educated and gullible  to take their word that they have the ticket to transcending inequality. 

Don't believe it for a nanosecond!

An Unspoken Travesty: How BOTH Parties Are Feeding The Pentagon's Bloated Coffers

Perhaps the biggest howler in WSJ editorial history appeared in one skewed sentence yesterday ('A Bad Budget Deal',  p. A16):

"Entitlements are already squeezing defense spending, and that squeeze will get worse without reform"

Thereby pushing one of  the most noisome and erroneous tropes, i.e.  that the poor little military budget is "small relatively as a percentage of GDP" and is being "squeezed" by them monstrous "entitlements".  If only!  But the true fact is that defense spending has more than doubled since 2000, from 2.4 % of GDP to nearly 5.9%. This uptick in GDP percentage led former Pentagon Analyst Chuck Spinney (the same person who exposed the unaccounted for $1.2 trillion) to remark nearly two decades ago that the increase was nothing less than "a war on domestic programs, including Social Security and Medicare".

Fast forward and the congress is now on the cusp of approving a budget that will literally break the bank with deficits - up to $2 trillion in the next two years - according to Steve Rattner this morning on MSNBC.   This is given the debt ceiling has now been "suspended" until July, 2021 (cf. WSJ, today, p. A1).  What happened to spending caps?  Why is the debt ceiling now abolished, errr.... suspended? What happened to financial sobriety?  What happened to 'Deficits matter!' ? Well they vanished, first with the Trump -GOP tax cuts, which were never going to "pay for themselves".  That was a financial fantasy much like the laughable "Laffer curve". And  second, in the race for both parties to avoid another gov't shutdown by erasing spending caps, especially for military spending. Much of which is misappropriated and plain old waste - as I will show.

Left unsaid, or at least under-reported - at least until Fareed Zakaria's CNN report Sunday morning -   has been:  a) How no military funding should be based on GDP % but on actual threats, and b) How both parties have shamelessly fattened the Pentagon's cash cow of shameful spending and waste, but for differing reasons.  As Zakaria pointed out on his Sunday a.m. show: 

 "Last week, the Democratic House - filled with radicals according to the Republicans-  voted to appropriate $733 billion for 2020 defense spending. The Republicans are outraged because they along with Trump want that number to be $750 billion.  In other words, on the largest item of discretionary spending in the federal budget,  Democrats and Republicans are divided by 2.3 percent."

Of course, this is totally batshit nuts, or as Zakaria so aptly put it:

"That is the cancerous consensus in Washington today."

Adding, in a description I can't improve upon:

"America's defense budget is out of control. Lacking strategic coherence.  Utterly mismanaged. Ruinously wasteful. And yet, eternally expanding. Fourteen thousand dollar toilet seat covers, and one thousand three hundred dollar cups. Yes cups!  Are par for the course."

Most abominable of all is how the Pentagon has clearly broken free from even congressional oversight, as if fulfilling Eisenhower's warning about the military industrial complex and its cancerous metastasis.  As Zakaria went on to note, last year the Pentagon finally subjected itself to audit, "after a quarter century of resisting".   And "in true Pentagon style, cost over $400 million."

And what, pray tell, was the outcome of this gargantuan costly audit?  I will let Zakaria tell it:

"Most of its agencies: Army, Navy.  Air Force, Marine, failed. The then Defense Secretary Shanahan admitted 'We never expected to pass'. "

Well, why the hell not?  As Chuck Spinney would have put it, the Pentagon has become a power unto itself even surpassing congressional checks and authority.    Reinforced by Coward Dotard's attitude to them, i.e. as an "indulgent parent".  As when he tweeted  not long ago in typical Trump-tardian style: "We love and need our military - and give them eveverything and more."

In Zakaria's parlance, "opening the piggy bank while trying to slash spending by almost every other government agency."

How explain for why a military coward would do such a thing? A putz who had his doc five times sign a release-excuse medical form based on "bone spurs" - without ever formally having to take a draft physical, as I and millions of others had to. My psychologist great niece Shayl as usual has the answer: "It's easy! He's using a compensation mechanism.  Making up for his cowardice then - by enabling huge military spending now - to ingratiate himself with the Pentagon's bigwigs so they will now respect him."

Adding, "I believe they still believe he's a coward!"  Well, I agree. Can't get a much bigger coward than this yellow-bellied, orange -hued maggot.  But his compensation cowardice is unfortunately breaking this nation financially, even while exposing a much deeper danger.  As Zakaria went on:

"The much deeper danger is spotlighted by Jessica Tuchman Mathews, in a superb essay in the New York Review Of Books. Mathews points out that we think of defense budgets in an overall erroneous way, tying it to GDP. But the defense budget should be related to the threats the country faces."

Amen!   The key and most salient point being that as time goes on, defense spending as a percent of a growing economy should decline. I.e. as GDP increases by 30 percent the defense budget should not also increase by that amount unless there are very serious, imminent threats. But this isn't what we are seeing, including with this nonsensical budget now on the verge of passing.  

So let's examine Ms. Mathews' piece, 'America's Indefensible Defense Budget' in more detail.   As she writes in respect to the misplaced reference of defense spending as a percentage of GDP:

"If you have read anything about defense spending in recent years, it was probably expressed as a percentage of GDP. At roughly 3–4 percent (it was more than 40 percent in 1944, 15 percent during the Korean War, and over 10 percent in the early 1960s), it seems eminently affordable.

But this almost universally used measure is close to meaningless, except to make rough international comparisons. It makes no sense to expect that external threats will expand in parallel with a country’s economic growth. A country whose economy has grown by, for example, 30 percent has no reason to spend 30 percent more on its military. To the contrary, unless threats worsen, you would expect that, over time, defense spending as a percentage of a growing economy should decline."

She goes on to note:

"Instead, the valid measure of affordability is defense spending’s share of the federal discretionary budget: that is, of all federal spending other than the mandatory allotments to entitlements and interest on the national debt. Discretionary spending is everything else the government does: not just for the military but for the federal judiciary and law enforcement; support infrastructure, education, and agriculture; invest in science and technology; protect the environment, wilderness, and National Parks; manage relations with the rest of the world and with international organizations overseeing everything from trade to arms control; fund the National Weather Service; police the border; explore space; develop energy resources; ensure the safety and soundness of food, drugs, communications, airline travel, consumer products, banks, the stock exchanges, and on and on."

That's a LOT, and the pie chart below -  from 2013 - shows the military's chunk of discretionary spending then, which has since ballooned:

Ms. Mathews adds:

"The budget embodies the country’s core political choices: how much government its citizens want, what their priorities for it are, and how large a debt they choose to shoulder and to pass on. Defense spending now accounts for almost 60 percent of the budget: everything else is accommodated in the remaining two fifths".

That is, $3 out of every $5 for the military, and $2 of every $5 for everything else, which as Zakaria observed is more than the ten next nations combined.  Can anyone say "fiscal insanity" without registering objections as a paper patriot?  That is, a poltroon who wears the red, white and blue when it suits, but lacks any capacity for critical thought.   The most appalling aspect as both Zakaria and Mathews point out, is the abominable waste of money - leaving out for now how many audits the Pentagon has failed.   Let's let Ms. Tuchman Mathews tell us about the case of tanks and  aircraft carriers and money thereby wasted (ibid.):

"Tanks are a classic case. For years, the army has tried to convince Congress to stop buying new ones. They are expensive to build, maintain, exercise, and train troops to use. The army already has more than six thousand of them—far more than it needs for any conceivable future combat. More controversially, the navy remains wedded to new aircraft carriers, but at $13 billion each they are arguably more an outdated symbol of twentieth-century power than an effective weapon system for a future in which they will be increasingly vulnerable to attack by high-speed, maneuverable missiles that can be bought for a minuscule fraction of what a carrier costs."

 What's the reason for this inexcusable waste?  Well, pork barrel spending in red (and blue districts)  to protect defense contracting jobs.  Mathews again on these congress critters:

"They prefer to protect spending and jobs in their districts. The result is funding for weapons systems the armed forces don’t want, bases and facilities they would like to close, and bloated, inefficient back office—that is, noncombat—operations."

 You know we're in deep shit as a nation when the only major jobs program is not the repair of our collapsing infrastructure (a cost now estimated at over $2 trillion) but making cups for defense contractors at  $1300 each and Pentagon toilet seat covers for  $14,000 a pop.   Oh, and 'make work' adding to the 6,000 tanks the army already has which is way more than it'll ever use -  say in a modern war.

And of course, "Dotard the Coward"  Trump -   as Ms. Mathews observes-  fits into this toxic stew of waste and mismanagement as well (ibid.)

"The last ingredient in this political mix is, of course, the White House. After last year’s budget deal, Trump captured the unfortunate national mood when he tweeted, “We love and need our Military and gave them everything—and more.” This year, defending his failure to serve in Vietnam, he boasted that with his $750 billion budget, “I think I make up for that right now…. I think I’m making up for it rapidly.” Trump is not the first president to want to leave his mark on something new and bigger for defense spending. As in everything else, he is simply the least interested in the substance of his policies and the most transparently self-serving."

Meanwhile, as we blow through trillions the real critical needs for the future and asymmetrical warfare go begging, e.g.

"The world that lies ahead of us is unequivocally one in which more and more of the greatest challenges—cyber regulation, arms control, nonproliferation, financial stability and trade, climate change, health and the environment, crime and the rule of law—can only be dealt with multilaterally. Yet since the end of the cold war, the US has rejected most of the international agreements the rest of the world has approved, including the Law of the Sea Treaty, the Comprehensive Test Ban Treaty, the Antipersonnel Landmine Ban, and the International Criminal Court. It has refused to ratify treaties protecting genetic resources, restricting trade in conventional arms, banning cluster bombs, and protecting persons with disabilities. In just two years under President Trump, it has rejected the Transpacific Partnership (TPP) trade agreement and withdrawn from the Paris Accord on climate, the INF Treaty on intermediate-range missiles, the UN Human Rights Council, UNESCO, the Iran nuclear deal, and NAFTA (which was renegotiated).

During this nearly thirty years of sweeping diplomatic withdrawal, America has been engaged in conflict for all but a few months. It has undertaken nine large-scale military actions, including three of the five major wars it has fought since 1945. Of these, the brief Gulf War of 1990–1991 was a clear success. The war of choice in Iraq was a catastrophic mistake. The now eighteen-year-long war in Afghanistan will almost certainly end in failure—if we can ever bring ourselves to let it end.

It has become increasingly clear that the largely intrastate conflicts in which the US has embroiled itself, fighting small groups of shifting, local opponents rather than national armies, have not been the kind of conventional interstate wars for which its weapons systems and doctrine were designed. Every approach the US has tried—regime change, nation-building, counterterrorism, counterinsurgency, redlines, responsibility to protect—alone or in concert with others, has failed to achieve the desired results.

We are now at the point of allocating too large a portion of the federal budget to defense as compared to domestic needs, tolerating too much spending that doesn’t buy useful capability, accumulating too much federal debt, and yet not acquiring a forward-looking, twenty-first-century military built around new cyber and space technologies. We have become complacent and strategically flabby about adapting to a profoundly altered world. Major change will require a quality of leadership we haven’t seen in a long time, from men and women in the White House, Congress, and the Pentagon who are respected for their knowledge and national security experience and who are willing to pay a political price for what must be done. Even then the process will be tough, slow, and painful, but it is surely overdue."

In other words, Ms. Mathews has accurately spelled out our path to collapse as a nation because of our misplaced priorities and lack of vision  engendered by venal politicians, their associated poltroons, a cowardly unfit "resident" and a myopic citizenry - often too invested in their own gadgets and comforts, and an inability to do critical thinking.  Especially after 63 million in the last general election put into office - with the aid of  an archaic system - an unqualified buffoon who isn't fit to be a dog catcher,  far less leader of the 'free world'.  (Since joined by another buffoon, Boris Johnson, in the UK.)  

Yeppers, we are in seriously deep shit, especially if Dotard Donnie somehow manages to bamboozle enough simpletons to get in again!

See also:

War

Why We Must Restore the Title, “War Department”

And:

America's Indefensible Defense Budget | by Jessica T. Mathews | The ...

https://www.nybooks.com/articles/2019/07/18/americas-indefensible-defense-budget/

Why January's "Best Stock Performance in 30 Years" Is A Mirage

The WSJ font page article Friday ('Stocks Post Best January In 30 Years'.)  babbled shamelessly:

"Banks and smaller companies propelled stocks to their best January in 30 years, a sign investors are favoring sectors tied to the U.S. economy....The Fed's statement Wednesday that interest rate increases are on hold helped ease investors' worries that higher rates would lead to higher borrowing costs and curtail corporate profits."

Well, of course the Federal Reserve's statement would do that, given - god forbid - it doesn't want to halt the cheap money bandwagon. Or, for that matter, toss cold water on the manic leverage that now dominates stock purchases as well as corporate expansions.  It seems every  manjack now wants to go into debt to achieve a gain - and of course at the hoi polloi's expense.  Because they are the ones that will have to do the bailing out. (Think of the AIG bailout in 2008, and Long Term Capital Management before that.)

Off the financial media's radar is the other part of the cheap money equation: quantitative easing ("QE") which has undergone several iterations since the credit crisis.  Most ordinary people are not even aware of the amount, the magnitude - of the crutches the Fed has provided to prop up the markets. Most  investors, ignorant though they may be,  have been beneficiaries of the Fed's infusion of "crack" in the form of  QE  cheap money "crack".  Notice especially how the DOW stopped dropping once the buzz began about QE3  (following QE1 and QE2)   - back in 2012- which have together infused $4.3 TRILLION in bond purchases.

But at some point, the cheap money flow has to stop and we know even if it's done slowly Maul Street will respond hysterically. This  is what has prompted discussion of how large a future correction will be   But let's get back to the Journal's blabber - woky of the greatest January in 30 tears. We agree the Fed deciding not to raise interest rates is part of it - but the other part ("that which must not be mentioned") is the quantitative easing - and rolling it back to get the Street off its addiction.

Flash now to an article on the same day (p. B12,  Heard on the Street, 'The Fed's Balance Sheet Needs Taming')  whereupon we learned:

"The famously plain-spoken Mr. Powell  left the market with little doubt that the probability of tightening has shifted, noting on Wednesday that the 'case for raising rates has weakened'.  But policy rates are only part of the story.

Since the financial crisis the Fed has used its balance sheet as a powerful tool, buying bonds to affect the yield curve. Since late 2016, it had begun to slowly unwind those purchases, most recently at a pace of $50 billion a month.  The Fed's balance sheet has shrunk by only 10 percent."

Okay, let's do the math: if the original balance was $4.3 trillion and the QE balance sheet has shrunk by only ten percent - according to the WSJ - then than means only about $430b  has been removed.  That leaves $3.87 trillion still to be unwound.  Now, at the rate of $50 b a month how long will it take to remove all that excess crack?

Again, we can do the math:   

Y   =   $387 trillion/  ($50 b x 12) = 6.45 years

And that only holds up if we don't get yet another recession.

And this may well be lowballed because "the actual amounts have been closer to $40 billion in recent months" (WSJ, January 29, ibid.).

How is this unwinding happening?  Well, by allowing the purchased Treasury and mortgage securities to mature without replacing them.  But even this tortoise -paced process has some prominent investors rattled, such as Stanley Druckenmiller who claims it's "a big factor behind the return of market volatility".  ('Fed: Stock Swings Not Tied To Bond Moves', p. A2, WSJ, January 29).

Now, let's back up and process what the yield curve means and how the Fed's QE policy is affecting it and how it could lead to a new recession. As noted in my post of December 5th: the U.S. Treasury yield curve is the spread between the 2- and 10-year Treasury bond yields.  It is taken to be a predictor for recession especially if it becomes "inverted".  (See e.g. 'Fear Of Inverted Yield Curve Stalks Markets', Jan. 10, p. A2)

Prior to that inversion, it becomes "flattened" in other words, the difference between the 2 and 10 year bond yields is minimized.  Specifically, recessions tend to occur once the "flat" yield curve becomes "inverted" - with short term (e.g. 2 -year)  bond rates now higher than long term (e.g. 10 year) rates. As a recent (December, 2018) T. Rowe Price Investor Bulletin noted (p. 4)

"The yield curve is not flat yet ...but it could be by next March if the Fed maintains its 0.25 percent per quarter pace of rate hikes and the 10-year Treasury continues to meet resistance above the 3.0 percent level.  Starting the historical average 16-month clock from the spring of 2019 would raise the specter of a major downturn by 2020."

But ok, you say, the Fed is no longer going to increase interest  rates, so we dodged a bullet. Not so fast.  There's still that huge balance sheet. To make this clearer let's understand that the QE balances are really an alternative to printing more money. (Which we understood used to be done in the old days, or more recently by the last government of Barbados to try to pay all its obligations.) 

According to one technical financial paper

Monetary easing is the Fed’s way of putting in more money into circulation in the economy....and it does not involve the printing of new banknotes

True, but still it effects the yield curve. How?   According to the same Market Research paper:

The Fed’s QE initiatives have successfully shifted the yield curve downward, that is, lowered the Treasury yields across maturities.

In other words, shifted down as in flattened the yield curve.  More worrisome - from the earlier cited WSJ article on the Fed's balance sheet needing taming:

"Moreover, he (Powell) raised the possibility that the balance sheet  could be an 'active tool' if warranted. In other words more bond purchases if markets or the economy cry out for more help."

In other words, merely postponing the 'big one' while other recessionary signs build - and the "insurance" of QE itself becomes a ticking time bomb.

What are those other recessionary pressures?  From a separate WSJ article ('Chances of Recession are Rising') they include:

-  Another shutdown following the one for over 4 weeks which sapped GDP at the rate of 0.1 % per week.    That initial "partial" shutdown already hurt "sentiment measures:  - but these ought to rebound provided there are no further shutdowns.  But given the bombastic fool holding office, who can say? We know he will likely try to make another specious case for his ignorant 'wall' tomorrow night. Another reason not to waste one's gray matter or time tuning in to Dotard's lies, bragging and  babble.

- "The tight labor market is another reason the recession chances have risen" i.e. in models including from JP Morgan.    Most economists in addition believe the current rate is unsustainable.

A further cautionary take has been offered by James Mackintosh (WSJ, Jan. 30, p. B1) who notes there is clear evidence the Phillips curve (the statistical link between inflation and unemployment has "broken down".  Mackintosh adds:

"If the relationship is finished economists will need to build new models of how the economy works.  Investors should applaud such a change if it shows that higher wages tempt people back into the workforce.  That would demonstrate more spare capacity than thought, so the economy could grow without sparking inflation"  -  and presumably inciting a Fed reaction like more QE!

Where the biggest risk lies is perhaps in a confluence of factors. That is, the Fed is reducing its bond portfolio at the same time the Treasury is issuing more bonds to fund large federal budget deficits - crowding out capital for other types of investment. This is the same type of risk I forecast after the Trump - GOP tax cuts were implemented.  Basically, a systemic instability triggered by unnecessary deficits from a stimulus not needed when the economy was already humming - thanks to Obama's wise moves in holding deficit spending down. (As finance specialist Steve Rattner  aptly pointed out this a.m. on 'Morning Joe')

Watch for what transpires in the next two weeks and whether Dotard calls for another shutdown. If he does, and renews his temper tantrum, the probability  of a recession increase to more than 90 percent. Especially as over 4 million federal  contractors are still trying to financially recover from the last debacle!

With New Revelations On Trump's "Compromise" Dems Can't Bail Even If Their Polling Goes South

"Remember, the Democrats offered Trump $25  billion for a wall if he would do DACA, but President Miller decided that wasn't going to be what he wanted.  And let's bear in mind there's something deeply wrong with Steven Miller. Maybe someday he will have a relationship with a live human woman. He's just this dark and weird figure who wrecks this idea of Trump's that he's this master negotiator...At this point the motivations for the Democrats to compromise are basically zero."  Republican strategist Rick Wilson last night on 'All In'.

As most of us suspected, and another reason we applauded Nancy Pelosi and the Dems spitting on Dotard's recent shutdown proposal, we've since  learned there were many additional odious demands not appearing in the media. Most of these, we've  also since discovered, originated in the brain of Trump's chief Nazi Steven Miller. You know, the Joseph Goebbels look -alike and wannabe, e.g.
https://www.youtube.com/watch?v=pgypWo0DCps

 As I noted in my Jan. 19 post on why Trump's alleged "compromise" proposal was a sham:  "it shouldn't take a Mensa member to figure out Trump is simply using this bottom basement pseudo deal in a PR photo op to put pressure on the Dems. This is in the hope it will alter the public opinion polls."   Now we have further confirmation of how true that was in the wake of  "fine print" additions revealed as part of this asinine effort - which emerged yesterday.   

What are they?    

1)  The bill now revealed in full would bar children from Honduras, Guatemala,  and El Salvador from seeking asylum in the United States.

2) Instead of (1) they'd now have to apply for asylum from abroad, despite the fact there is absolutely no system set up for them to do that. 

 In other words, "President" Stephen Miller and his assistant (Donnie Dotard) have concocted a scheme wherein there is a separate asylum process for children from Central America.  Indeed, enabling such a travesty would take the nation back to before it passed the Refugee Act in the first place.  To remind readers, that was in the World War II era when we actually turned ships laden with children - seeking escape from the Nazis - back to the seas because too many demanded the number of Jews be capped.  That disgrace is now part of our sorry history but Miller, Trump, Coulter and Co. want to revive it.


Gerald Seib ('Wall Marks Deep Divide For Americans', yesterday,  p. A4) put the focus on why Dems cannot deal in good faith with the irascible lunatic occupying the White House.  Seib  noted a settlement a year ago that "would have provided substantial funding for border security alongside legal status for  young immigrants brought here as children. But Mr. Trump backed away  from the deal after his most hard line supporters balked it"

Those would include the likes of Ann Coulter, Rush Limbaugh and the Fox and Friends imps as well as others.  More or less the same lot that got him to bail on the continuing resolution approved barely two months ago that would have kept the gov't open. Point being- certainly by me and the Dems - is no sensible person can negotiate with such a mercurial baboon whose stance changes depending on what the Reich screech crowd demand.  As Chris Hayes put it last night on his 'All In' show:

"With breadlines for federal workers growing, Democrats desperately want to get the government back on track. But they are dealing with a  president who is simply not a trustworthy partner. You cannot make a deal with him because he will hide the truth, and he will lie and he will change his mind over and over again. That is why we are suffering through the longest shutdown in history.  That is why when it comes to immigration in particular the only way to deal with this president is to defeat him."

In other words, we're left to try make deals with  a bombastic cretin who has no mind of his own - far less any self-awareness- and who constantly defers to Limbaugh, Coulter et al.- even as he mounts his own incessant prevarications, distortions, exaggerations.  Not a good national policy!

Now in retrospect we see where Seib got it wrong was when he added (ibid.):  "Then, when Mr. Trump offered a more modest version of the same deal over the weekend, both his most ardent supporters and Democrats rejected it."

The problem is we've seen in the past 24 hours it was not a "more modest deal" but an atrocity in which the veneer of "compromise" snookered many pundit, but toxic elements were buried inside.  These included radical provisions - as pushed by Herr Miller - that would have drastically restricted asylum if accepted.  After  reading the bill, legal specialist Gabriel Maier wrote: "This will (and should) get zero votes from Democrats.  This is not the compromise that Trump described"  

But I had already (in my Jan. 19th post) referred to the Trump offer as "not worth an ounce of doggie lickspittle" .  That was even before knowing about the poison pills buried within, because I also suspected we weren't being told everything and more ghastly aspects awaited. 

The new revelations also exposed yesterday's WSJ editorial ('Pelosi's Dreamer Pawns') as codswallop,  claiming in reference to Trump's proposed offer: "Isn't this something Democrats want, or at least profess to? Do they want a deal to reopen government and offer new security for more than a million immigrants or do they want to use them as pawns against Trump?"

Clearly the WSJ editors need to read their in-house columnist William Galston's piece (Trump's Pinned To A Wall Few Americans Want', WSJ,  p. A15, Jan. 17) especially his end remark:

"The art of the deal isn't bludgeoning everyone else into submission. It's providing them incentives to give you what you value most."   

What Trump should be valuing most is not his  nutso  fantasy "wall" but his whole economy (as financial guru Steve Rattner said on 'Morning Joe' this a.m.)  as well as the stock market he constantly brags about.  But the fool would rather self-destruct because of  the bad names some hardline Right wing nuts called him. And this dolt is supposed to be a world leader? He's a world embarrassment! No wonder they're glad not to see him in Davos this week for the World Economic Forum.


And make no mistake this shutdown's ripple effects grows more serious by the day as it is now affects some 1 in 5 Americans.  In addition, the government is "flying blind" in terms of economic data.  That is, the shutdown of critical agencies is impeding the flow of data that would actually gauge how big the daily or monthly hit is. ('The U.S. Economy Is Flying Blind',  WSJ, Jan. 19, p. B12).  Thus: "Think of it as the forecasting equivalent of flying through a storm without instruments."

This is why many economists are predicting Trump's shutdown as well as his trade war will lead to a major recession by the end of next year if not sooner.   So never mind the deliriously deluded op-ed('The Shutdown Won't Stop Growth', p. A13)  in today's Journal written by a nincompoop  (Harold Furchtgott-Roth) who clearly leaves out the 4 plus million gov't contract workers  from his calculations, and the repercussions their lack of spending also has. And bear in mind, none of them will be getting any back pay!

Nonetheless,  as Gabriel Maier put it, no Dem in his right mind can sign on to this latest iteration of Dotard's non-compromise, not now not ever. And that means even if the poll results currently supporting the Dems go South. Again, the shutdown weapon can't be handed to this deranged asshole and de facto terrorist to use in any future negotiations such as the upcoming debt ceiling.  So the shutdown will have to go on until Donnie Dotard breaks, gives in, comes to his senses.  Or grasps that there will be no specious deal that just hands him a 'W' with no accountability of his own.

What Seib did get eminently correct in his column is that the nation is bitterly divided, but based on perceptions of reality, e.g.

"Trump's supporters want him to not merely build a wall but draw a line against changes they dislike - a line other Americans find out of step with reality."

In fact, those "other Americans" translates to an overwhelming  majority - nearly 73% according to a poll on whether the "wall" is worth a federal shutdown, as given on MSNBC this morning. That means we who value reality are going against core Trumpies - barely a a quarter of the population - who don't.  We cannot let that minority prevail, and that's another reason this shutdown will go on until those denying reality yield - even if it means a lot of pain for too many innocent people.

See also:

Donald Trump

Trump Is Wounded, Bleeding, and Destined for a Steadfast Demise

by P.M. Carpenter | January 21, 2019 - 7:23am |