Monday, February 17, 2020

What Happened to Honest Abe?

Popular Economics Weekly

What happened to honesty in personal behavior and in politics is a good theme to discuss on this Presidents Day that commemorates our two Presidents most touted for their honesty—Washington and Lincoln? They were celebrated for their honesty, whereas today we have a President and his subservient political party that not only tolerates, but enables the most dishonest president in history.

We are not just talking about President Trump’s 16,000 plus documented lies—many of them done for mostly propaganda purposes; but the dishonesty manifested during the impeachment hearings and trial, when Republicans parroted Russian propaganda tropes that Ukraine opposed the Trump election, and was behind the Democratic Party hackings rather than Putin’s Russia.

Why didn’t Republicans question whether Trump’s call for Ukraine and China to aid in his reelection by digging up dirt on his political opponents was somehow ethical and allowable for a President seeking reelection?

What has happened to Republicans that abet Trump’s propaganda machine which is based on outright lies, when young American children were brought up on stories of Presidential honesty; whether it was Abraham Lincoln the honest politician, or George Washington’s honesty in confessing to cut down the cherry tree as a six-year old child?

“Honest Abe’ was a nickname Lincoln adopted early in his career as a lawyer. In his Notes for a Law Lecture his entire series of notes speaks to honesty, integrity, and to do what is right.  Lincoln wrote, “resolve to be honest at all events; and if in your own judgment you cannot be an honest lawyer, resolve to be honest without being a lawyer.”

The honesty of George Washington has become almost mythical, and a beacon that we all learned as young school children.  The cherry tree tale was probably a children’s tale, but Thomas Jefferson once said of Washington, "his integrity was most pure, his justice the most inflexible I have ever known, no motives of interest or consanguinity or friendship or hatred, being able to bias his decision. He was indeed in every sense of the words, a wise, a good, and a great man."

Why wouldn’t Republicans want to live up to their standards? It is in essence an admittance that Republicans cannot maintain their power and privileges without the aid of outright lies that other authoritarian regimes use to maintain their power with propaganda machines that also suppress truth and promote ‘alternate facts’—because their power and privileges were not always honestly acquired.

It only took America 244 years to go from "Honest Abe" and “I cannot tell a lie” to 16,241 false or misleading claims, said USA Today recently. How can we recover from such blatant dishonesty, unless we keep telling our children at the earliest age that “honesty is the best policy,” and building character the only road to a truly successful life?

Harlan Green © 2020

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Why Are Retail Sales Struggling?

Financial FAQs

Retail sales have slowed markedly since the fall of 2019, with monthly overall sales up just 0.3 percent, and rising 3.9 percent annually without volatile gasoline prices. This means the U.S. is basically stuck in a slow growth mode, since more robust GDP growth (+3 percent) would mean 5-6 percent annual retail sales. And that is worrisome to financial markets that have been pushing down bond yields as a hedge against a further slowing of economic activity.

Consumers seem to remain optimistic, however, in part because they love the very low consumer prices, hence low inflation, which boosts spending. But optimism is also fueled by plentiful jobs, per the University of Michigan sentiment survey.

“Consumer sentiment rose to 100.9 in early February to nearly match the expansion peak of 101.4, set two years ago in March 2018,” said its press release. “The Expectations Index, the main gauge of future economic conditions, rose to 92.6, also its second highest level in this long expansion. (But) both measures were still significantly below the levels recorded twenty years ago when the Sentiment Index reached a peak of 112.0 and the Expectations Index peaked at 108.6.”
Part of the sluggishness in growth comes from the decline in manufacturing, now in its fifth month of shrinkage. Employment in construction, mining, logging and manufacturing industries ramped up sharply in Trump's first two years in office, according to the latest figures released Friday by the Bureau of Labor Statistics, but overall output fell 0.3 in January, with the biggest negative impact coming from a weather-related 4 percent drop in utility usage.  

Motor vehicle and parts production did post a 2.4 percent increase last month, but even that was a little disappointing, with Reuter’s forecast having called for a 4 percent rise.  On the other hand, the mining sector was a positive surprise, posting a solid 1.2 percent increase, per Reuters ICAP update.
Some blue-collar jobs have come back in Trump’s first two years, but not nearly as many as had been lost. Most of the jobs have been lost forever to automation or cheaper manufacturers around the world.

Crippled by the trade war and collapse in investment, job growth in blue-collar sectors slowed to a trickle over the past year. Meanwhile, job growth in the services-producing industries has actually strengthened, especially in health-care and in the quintessential pink-collar and white-collar jobs, per Friday’s unemployment report.

The bottom line is that most consumers can’t spend more because they don’t earn enough to spend more, since most have jobs in the lower-paying service sector these days. And their optimism is held in check by the fact that anything can happen over the coming months, as we have been saying, which is why interest rates are extremely low and could fall further.

The 10-year bond yield slipped back to 1.59 percent Friday, which also means investors are worrying about future stock market gains with current S&P P/E ratio now 20. It is 5 points above its long term average of 15 times earnings, and corporate profits are predicted to decline this year.

Harlan Green © 2020

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Wednesday, February 12, 2020

Who Is Fully Employed in January?

Financial FAQs

It looks like everyone is employed in the service sector, but manufacturing is sputtering. There were 44,000 new construction jobs and a whopping 72,000 in Education and health services. But manufacturing lost another 12,000 jobs in January; the same as in December.

That is why average hourly earnings (i.e., wages) are barely rising above inflation, and interest rates and inflation remain so low. This ‘goldilocks’ scenario must be due to the 2-year trade war, and now China’s coronavirus pandemic that the World Health Organization has called a “global public-health emergency.”

In other words, American consumers are scooping up lots of cheap consumers goods from other countries, but manufacturers aren’t exporting enough to create a positive balance of payments;
therefore stock and bond prices are gyrating when the world economy doesn’t seem to know what to make of China’s coronavirus that has now spread to some 23 countries, according to latest reports.

Here are the latest coronavirus numbers, according to the Washington Post, as it is approaching the SARS pandemic totals of 2003, and may turn out to be more deadly as the virus mutates into a possibly more virulent strain:

Chinese health officials say they confirmed more than 31,000 cases of the coronavirus, more than 4,800 of them considered severe. The death toll surpassed 1000, with fatalities almost entirely confined to China.

● An additional 41 people on board the Diamond Princess cruise liner, which has been quarantined in Japan, have tested positive for coronavirus, bringing the total to 61.
● Another cruise ship, the Westerdam, is at sea, and its crew is unsure where to go next, after being denied entry to the Philippines, Japan and South Korea. Passengers blame an ill-advised port stop in Hong Kong, where the boat took on many new passengers.
● Two charter flights carrying about 300 Americans out of the virus-hit city of Wuhan are expected to arrive in the United States on Friday. A flight carrying mainly Canadian evacuees landed in Ontario on Friday morning.

So let us take some comfort that American jobs aren’t yet at risk. In fact, the 2003 SARS pandemic occurred during the housing bubble, and record economic growth during that decade. But what followed was the Great Recession.

That’s why most economists aren’t touting January’s very robust job numbers as a harbinger of a better year just yet. There may be more bad news coming, and interest rates are still at record lows, which mean the financial markets are hedging their bets for another rainy day.

Harlan Green © 2020

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Wednesday, February 5, 2020

Building Peace in the 21st Century

Answering the Kennedys’ Call

It was a humbling experience to join more than 1,000 Rotarians and other peacemakers at the 2020 Rotary World Peace Conference this January. It gave me hope to see both young and old attending to learn from each other how to make the world a more peaceful place.

Let’s start with the 160 assembled presenters comprised of not only Rotary Peace scholars and Good Will Ambassadors, but representatives from the Peace Corps, CARE International, the UN Refugee Agency, The Carter Center, and even a recipient of the Nobel Peace Prize.

They shared their expertise on how to advance peace in a world of increasing dangers not only from global warming, but populations threatened by human trafficking, child abuse, spousal abuse, cyber-bullying, war trauma, sexual harassment, and violence prevention in our cities, homes and schools.

There were ongoing workshops throughout a weekend held by violence prevention experts and ‘peace activators’, such as Aussie Steve Killelea’s Institute for Economics and Peace that has created the Global Peace Index and Positive Peace Report which rank nations for their attitudes, institutions and structures that create and sustain peaceful societies.
Of particular interest are those countries and regions that have been able to increase their Gross Peace Index in 2019: The Ukraine, Sudan, Egypt, North Macedonia and Rwanda. “The 2019 GPI reveals a world in which the conflicts and crises that emerged in the past decade have begun to abate, but new tensions within and between nations have emerged,” said the Global Peace Report.
The Global Peace Index showed the first improvement in 5 years, in part because Rotary with its 1.2 million members has improved health outcomes, giving some $250 million in grants to peace organizations and projects, such as developing drinking water facilities and health clinics in many of the same countries as the Peace Corps.

Rotary clubs have made a major effort in creating a more peaceful world. My local Montecito, California Rotary Club, for example, has raised more than $200,000 in financial aid for a small valley in the South Lake Kivu District of Eastern Democratic Republic of Congo to help women and children in particular recover from the devastating civil wars and rebel militias’ ongoing rape and pillaging that has killed thousands as they fought over the rich supply of so-called conflict minerals like Coltan, a rare mineral essential in cell phones.

But what raised my hope for a more peaceful world above all was the 250 high school Rotary Interact Club members from Southern California and Arizona that were there to learn and train in conflict resolution skills.

Where else should we put that hope for peace but in our children who will inherit this world?

Harlan Green © 2019

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Tuesday, February 4, 2020

Disaster Preparation—Why Irrational Exuberance?

Popular Economics Weekly

Stock and bond prices are gyrating when the world economy doesn’t seem to know what to make of China’s coronavirus that has now spread to some 23 countries, according to latest reports.

And that is not a good time for irrational exuberance to appear in U.S. financial markets, since much of the financial gyrations are driven by excess liquidity—too abundant cash from the 2017 corporate tax cuts are pushing stock prices to record highs, and bond yields to record lows—both signs of price bubbles sure to burst on signals that world trade in particular could be affected by what economists call such an unpredictable, “exogenous” event.

The medical consensus to date is that the coronavirus doesn’t seem as virulent as the 2003 SARS outbreak, yet the number of deaths and infection rate to date has already exceeded that of the SARS virus.

The NYTimes reports this respiratory virus has infected more than 17,000 people, killing “at least” 360. “But the Wuhan coronavirus may be highly transmissible, as contagious as seasonal influenza that kills many more, and the death rate is still unknown.”

Why could this pandemic that the World Health Organization has now labeled a global public health emergency be dangerous to global growth?

Nobel economist Paul Krugman says it’s because China’s economy is many times larger than it was in 2003, so the effect of closing down major Chinese cities until more is known about the virus could be economically devastating to China and other economies that depend on Chinese goods and services. The EU is one such market that is worried because 20 percent of its exports now go to China.

Crude oil imports to China, the world’s largest consumer of oil, have also dropped 20 percent and oil prices are down approximately 10 percent, which has OPEC producers scrambling to cut production quotas.

Other economists are voicing similar warnings. Yale economist Dr. Stephen Roach, former Morgan Stanley chief economist and chairman of Morgan Stanley’s Asia Desk, is making good sense with his predictions of worse things to come.

He’s talking about world trade volumes, which have dropped precipitously. And worldwide growth depends even more today on world trade, which has already been harmed by the Trump trade wars.

Roach in recent Project Syndicate comments, said that from 1990 to 2008, annual growth in world trade was fully 82 percent faster than world GDP growth. And this cushion has shrunk dramatically, to just 13 percent over the 2010-19 period, “leaving the world economy more vulnerable to all-too-frequent shocks.”
“The IMF’s latest assessment put global trade growth at just 1% in 2019 – its seventh consecutive downward revision,” said Roach. “Indeed, last year was the weakest trade performance since the historic 10.4% plunge in 2009, which was the worst contraction since the early 1930s.”
Is Roach being an unnecessary alarmist? I don’t think so, when compared to the Great Depression. Now is not the time for irrational exuberance of any kind with world economies retreating in the face of so much geopolitical uncertainty (e.g., rising isolationism from rising nationalism).

Are we prepared? 

Harlan Green © 2019

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