Elon Musk and Humor

 

I support Elon Musk’s idea that Twitter should allow free expression. Social media tends to suppress posts that are not in line with East and West coast progressive concepts. This is a lot different from restricting things like crying, “Fire!”  Musk is facing pressure from both the left and the right. The right is posting inflammatory texts about race and gender; the left is screaming at Musk for not blocking such posts.   

 

Kudos to SNL for allowing Dave Chappelle to host the show and tell jokes about anti-Semitism.  Today most Jews have no sense of humor, although some of the greatest 20^th Century comics were Jews. 

Lula's Foreign Policy

 The following is from a email from Foreign Policy magazine:

When former—and now incoming—Brazilian President Luiz Inácio Lula da Silva took to the podium in São Paulo on Sunday night following his razor-thin election victory over incumbent President Jair Bolsonaro, he first stressed that he would govern for all Brazilians. Then he proceeded to speak extensively about foreign policy.

In his recent international travels, Lula said, “What I hear the most is that the world misses Brazil. They miss that sovereign Brazil that talks to the richest and most powerful countries like an equal and at the same time contributes to the development of poorer ones.”

Lula alluded to his role in past efforts to integrate South America and Latin America by strengthening customs union Mercosur and the now-defunct regional organ Unasur; carry out technical cooperation with African countries; and create the BRICS grouping of Brazil, Russia, India, China, and South Africa. Going forward, he pledged to work for fairer international trade, take an active role in fighting the climate crisis, and campaign for including more countries as permanent members of the U.N. Security Council. Brazil has for decades sought a permanent seat on the council.

Celso Amorim, Lula’s foreign minister during his 2003 to 2010 presidency, has often described Lula’s foreign policy of that period as “tall and active”: Brazil opened 35 new embassies and launched new cooperation initiatives with countries including the United States, Iran, and Russia. Amorim remains Lula’s top foreign-policy advisor and stood near him on stage on Sunday; he is expected to continue to advise Lula on foreign policy in the new administration.

But the world has changed dramatically since the two were last in office: Sharp geopolitical tensions between Washington and both China and Russia make Brazil’s previous constellation of alliances more difficult to maintain, and Brasília’s global standing has also diminished dramatically under Bolsonaro. Still, Lula appears set to try to resurrect his wide-ranging foreign policy.

In an early sign of goodwill, Lula received a stream of congratulations from the leaders of countries including the United States, France, and Australia in the minutes after his election victory was confirmed. In at least the U.S. case, Reuters reported that the quick recognition was an effort to stave off any potential attempt by Bolsonaro to contest the election result. Bolsonaro’s chief of staff said Tuesday that the administration had agreed to a transfer of power, but some of the president’s supporters have continued to demonstrate against the election results.

In his calls with foreign leaders such as U.S. President Joe Biden, Lula has emphasized climate cooperation. He pledged in his victory speech to reach zero deforestation and, according to Reuters, has been in talks with authorities in Indonesia and the Democratic Republic of the Congo about creating a global alliance for forest protection since before his victory. Norway and Germany have already signaled they plan to unblock environmental aid that they froze over Bolsonaro’s poor climate record. The president of Lula’s Workers’ Party also said Lula will attend next week’s U.N. climate conference in Egypt; Bolsonaro, who presided over soaring deforestation in the Amazon, had not announced plans to attend by Thursday.

In an interview in the September/October issue of Nueva Sociedad, Amorim waded into today’s thornier foreign-policy topics, offering clues as to how Lula may navigate them in office. He expressed a nonaligned position on U.S.-China tensions. On trade—with both China and the European Union—Amorim said Latin American countries should push for guarantees that help local industry. He also emphasized the threat of nuclear weapons use in Russia’s war in Ukraine; in a separate interview, Amorim supported negotiations to end the conflict and said BRICS members could back them.

Latin American countries should especially work to strengthen their ties with Europe, Amorim said, calling the continent “very important in the multipolar game.” As a starting point, it now appears far more likely that a long-stalled trade agreement between the EU and Mercosur—paused in part over concerns about Bolsonaro’s environmental record—will be approved.

Amorim has stressed that Latin American integration is crucial to Lula’s foreign-policy doctrine. True to form, Lula’s first in-person meeting with a head of state as president-elect was with Argentine President Alberto Fernández on Monday. “I want to give him the hug he deserves,” Fernández said, calling Lula a “leader in the region.”

When I was the science officer at the American Embasy in Brasilia, Celso Amorim was the foreign ministry's adviser to the science ministry. The US wanted to hold a joint science meeting of senior scientists. Celso Amorim was not helpful; he was was not a big fan of the US. However, the meeting did happen. There was some agreement, but nothing much was prodiced as a reult. Fortunately, the science minister was a lot friendler towards the US than Celso Amorim was.

EU Warns That Fed Rate Rises Could Lead to World Recession

 The Financial Times reported that the EU warned that Fed rate increases could lead to world recession. It said:

The Federal Reserve is leading a worldwide rush of central bank rate rises that risks tipping the world into a recession, the EU’s top diplomat said, as he warned the union is not fighting its corner in the world.

Borrell’s words on US monetary policy follow the World Bank’s warning last month that rate rises by multiple central banks could trigger a global downturn in 2023, as it argued the “degree of synchronicity” by central banks was unlike anything seen in five decades.

His warnings come as the World Bank and IMF kick off a week of joint meetings in Washington, where officials will discuss the multiple threats to the global economy. The fund is expected to downgrade its global economic forecasts for the fourth consecutive quarter.

Are Central Banks Going Bankrupt?

 The Financial Times-looked at whether central banks like the Federal Reserve can go bankrupt. The answer was no, but there are effects. It quotes from a paper by Seth Carpenter at Morgan Stanley:

Central bank profits and losses matter . . . but only when they matter. Before the 1900s, the subject of economics was called “political economy.” Central bank losses that affect fiscal outcomes may have political ramifications, but the banks’ ability to conduct policy is not impaired . . . . . . 

Starting with the Fed, all the income generated on the System Open Market Account portfolio, less interest expense, realized losses, and operating costs is remitted to the US Treasury. Before the Global Financial Crisis, these remittances averaged $20-25 billion per year; they ballooned to more than $100 billion as the balance sheet grew. These remittances reduce the deficit and borrowing needs. Net income depends on the (mostly fixed) average coupon on assets, the share of liabilities that are interest free (physical paper currency), and the level of reserves and reverse repo balances, whose costs float with the policy rate. From essentially zero in 2007, interest-bearing liabilities have mushroomed to almost two-thirds of the balance sheet.

As the chart below shows, the US central bank’s net income (which have been passed back to the US Treasury) has turned negative, and Morgan Stanley forecasts the losses will rise as interest rates rise.

Money Is Still Free

Real interest rates are still negative, they are way below the rate of inflation.  The last Consumer Price Index (CPI) inflation reading in August was about 8.3%. The current Fed funds rate is about 2.5%.  The current two- year Treasury bond rate is about 4.1%.  The ten-year rate is about 3.75%.  None of the interest rates is nearly as high as the inflation rate.  Many people think the inflation rate is dropping, but even if it has dropped to around 6%, it is still about 2% higher than interest rates.  So, money is still on sale.    

Interest rates have been about zero, and mortgages have been about 3%, but house prices were not going up fast until the pandemic, when they skyrocketed.  If house prices, or other asset prices, increased at a normal rate, the asset price would only go up by about the same amount as the interest rate, about 3%. Of course, the stock market was booming through much of this time, except for the beginning of the Covid pandemic.  In any case, the interest rate, almost zero for big borrowers or a few percent for normal people, was well below the rate of asset appreciation.  That continues today, despite the Fed’s rate increases. 

Now, instead of zero interest, we have 3% or 4% interest, but asset appreciation at 8% or 9% is well above that rate.  Real interest rates are still below zero, although nominal interest rates have gone up.  The economy is out of whack.  Real interest rates should be above zero. 

The Fed should keep increasing interest rates until they are higher than the rate of inflation.  They say they intend to, but Wall Street now thinks the Fed should stop periodically to check the inflation rate, so that interest rates do not get ahead of inflation.  If inflation rates do not slow down, this means that the Fed will continue to maintain a negative real interest rate, which is an enormous gift to investors. 

After the “great recession” of 2008, the Fed embarked on a plan of keeping rates low by buying up trillions of dollars’ worth of bonds, thus keeping interest rates low.  In essence it destroyed the bond market, because the Fed was always buying bonds.  In a normal economy, if there are not customers buying bonds, the interest rate goes up to encourage people to buy bonds.  If a company needs to raise money, they have to offer bonds with a rate that will make people buy them.  But if the Fed will buy anything and everything, there is no reason to offer higher interest.  This has been called quantitative easing, or QE. 

As part of the Fed’s new fight against inflation, it has introduced quantitative tightening, in which it will wind down or sell off its enormous bond holdings.  This will operate in tandem with its raising interest rates the old-fashioned way.  Since QE is relatively new, being used in earnest only after the 2008 recession, QT if even newer.  Janet Yellen tried it in 2017, when it appeared to contribute to a significant stock market fall and was discontinued.  So, we do not have a lot of data on what it likely to happen when the Fed tries it this year. 

The Fed held about $9 trillion of Treasury bonds and mortgage-backed securities on June 1.  It planned to reduce its holdings by $47.5 billion per month for three months, and then to increase reductions to $95 billion per month.  It remains to be seen how interest rate increases and QT work together. 

The one recent example we have was in the UK, where the new government’s economic plan of reducing some taxes led to a run on bonds (“gilts” in Britain), which forced the Bank of England (the British Fed) to step in and buy bonds as it and the Fed had done under QE, in essence a reversal of QT.  QE has been used to increase liquidity, to grease the bond market, in times of economic difficulty.  Could QT create the reverse condition and create market difficulties by removing liquidity?  We may find out by trial and error.  QT might end up being a greater threat to market stability than interest rate increases. 

 

Big National Debt

 

America’s gross national debt exceeded $31 trillion for the first time on October 4.  This happened as interest rates on the debt will be going up and as the US may be sliding into recession.  The debt has grown due to huge government spending during the Covid pandemic and to Trump tax cuts.  Until recently the Administration and Congress were spending like there was no tomorrow, and the Fed was cooperating with them by keeping interest rates historically low.  Low interest rates led to assertions that deficits and debts did not matter.  At higher interest rates, they may matter. 

If the Fed gets interest rates back down to 2%, paying interest on the debt may not be too bac, but if inflation remains at 4% or higher, debt payments will be an increasing burden on paying for other government programs, such as defense or Social Security.  Some programs will have to be cut in order to pay additional interest on the debt.  Otherwise the debt grows bigger. 

An article in the Economist said that unless Congress and the Administration work with the Fed by limiting spending, monetary policy (the Fed) eventually loses traction.  Higher interest rates become inflationary, not disinflationary, because they simply lead governments to borrow more to pay rising debt-service costs, i.e., the Fed has  no way to fight inflation alone. 

In the last few years the US has gone on a massive spending spree.  We may now have to pay for it.  We can pay by instituting some sort of austerity, or we can just get on the inflation bandwagon and ride it into the future. 

 

Polls Are Pretty Useless

 

TV news lives on polls, but I don’t think they are accurate.  They show to some extent what some people are thinking, but they don’t necessarily predict the outcome of elections unless there is a substantial spread between the responses.  I would not even trust a 10% differential. 

I think there are many people, like myself, who do not reaspond to poll questions, so the people polled are not representative, and many do not respond honestly.  Those who do respond may strongly favor a candidte and thus tend to respond in wsys they think will help their candidate, e.g. by saying what issues they think are important. 

One big problem is that most pollsters are elite Democrats from left-leaning media or academia.  Conservatives sense this and when these leftist pollsters call, Republicans are not going to cooperate with them, because they see them as the enemy. The pollsters have contempt for the conservatives they interview and the interviewees know that.   Thus, polls tend to confirm whatever the political elite thinks is a likely result.  Pollsters are unable to talk to those who don’t share their opinions. 

Politico has an article by Steven Shepard about the difficulties with polls.  It says:

Pollsters know they have a problem. But they aren’t sure they’ve fixed it in time for the November election.

Since Donald Trump’s unexpected 2016 victory, pre-election polls have consistently understated support for Republican candidates, compared to the votes ultimately cast.

Once again, polls over the past two months are showing Democrats running stronger than once expected in a number of critical midterm races. It’s left some wondering whether the rosy results are setting the stage for another potential polling failure that dashes Democratic hopes of retaining control of Congress— and vindicates the GOP’s assertion that the polls are unfairly biased against them.

“There’s no question that the polling errors in [20]16 and [20]20 worry the polling profession, worry me as a pollster,” said Charles Franklin, the director of the Marquette Law School Poll in Milwaukee and a longtime survey-taker in the battleground state of Wisconsin. “The troubling part is how much of that is unique to when Donald Trump is on the ballot, versus midterms when he is not on the ballot.”

After 2016, pollsters said the problem was their samples included too few voters without college degrees. The polls were better for the 2018 midterms, though they were still too Democratic on balance.

Then came 2020 — which was worse than 2016, and for which pollsters have yet to settle on a definitive explanation of what precisely went wrong. As a result, an easy fix has proven elusive. But pollsters have mostly agreed that, particularly in 2020, the surveys missed a chunk of Trump’s voters who refused to participate in polls.

And the New York Times noted that some of Democrats’ strongest numbers are coming in the states that have seen the greatest polling misses over the past few elections.

Partisan campaign pollsters in both parties suggested Trump voters are again difficult to capture in the run-up to this election.

“There is a good chance that a lot of the publicly released surveys are overstating Democratic strength,” said Glen Bolger, a Republican pollster at the firm Public Opinion Strategies.

But some Democrats are daring not just to believe in the polls — but hoping that the party may actually overperform in November, pointing to two special congressional election wins last month in Alaska and New York, where polls showed Republicans ahead going into Election Day.

“You just saw the polls underestimate the victories in both Alaska and in Upstate New York,” Rep. Sean Patrick Maloney (D-N.Y.), chair of the Democratic Congressional Campaign Committee, said in an interview at a POLITICO Pro Premium Roundtable event earlier this month. “So, if anything, the polls may be showing a conservative bias right now.”

 

Founding Fathers Feared Pure Democracy

 

The Founding Fathers were not enthusiastic about pure democracy.  In his excellent book, The Quartet, historian Joseph Ellis describes James Madison’s views on a democracy that represented the direct choices of “the people.” 

 

“Madison’s experience at both the state and the federal level had convinced him that “the people” was not some benevolent, harmonious collective but rather a smoldering and ever-shifting gathering of factions or interest groups committed to provincial perspectives and vulnerable to demagogues with partisan agendas. The question, then, was how to reconcile the creedal conviction about popular sovereignty with the highly combustible, inherently swoonish character of democracy. Perhaps the most succinct way to put the question was this: How could a republic bottomed on the principle of popular sovereignty be structured in such a way to manage the inevitable excesses of democracy and best serve the long-term public interest?  

 

“Madison’s one-word answer was “filtration.” He probably got the idea from David Hume’s Idea of a Perfect Commonwealth (1754), an uncharacteristically utopian essay in which Hume imagined how to construct the ideal republican government from scratch. Ordinary voters would elect local representatives, who would elect the next tier of representatives, and so on up the political ladder in a process of refinement that left the leaders at the top connected only distantly with the original electorate and therefore free to make decisions that might be unpopular. A republic under this filtration scheme was a political framework with a democratic base and a hierarchical superstructure that allowed what Madison described as “the purest and noblest characters” to function as public servants rather than popular politicians.”

 

 

Originally there was no direct election of Senators, and Presidents were (and are) elected by the electoral college.  In 1913 the 17^th Amendment changed the process to allow for direct election of Senators.  Prior to the 17^th Amendment, Senators were elected by state legislatures.  Madison’s idea was that there would be different levels of voting.  “The people” would vote for the lowest level of legislators, hopefully electing the highest quality men (no women) that they knew.  That level would elect the next level, again hopefully electing the best people they knew, and so on.  Political parties and the primary system have perverted the system the founders envisaged.  The electoral college still exists, but in today’s world, few people know the candidates running to be members of the electoral college.  In general, they are party hacks, not outstanding members of the community as the founders intended. 

The Constitution gave to the states the right to determine who could vote in elections.  Most states originally limited the right to vote to property-owning or tax-paying white males.  Over the years, more and more classes of people have been granted the right to vote, so that elections are now pretty much the voice of “the people, ” which Madison feared would lead to the election of demagogues and other poor leaders. 

 

We Can't Stop Global Warming

 

The Paris Agreement on Climate Change said that the increase in global average temperature above pre-industrial levels should be held well below 2 degrees Celsius.  It called for efforts to limite the temperature increase to 1.5 degrees Celsius. 

We will not achieve this goal. 

Achieving this goal would require strenuous efforts by all the countries of the world, particularly the rich, industrialized countries.  Very few, if any, countries are making the required effort.  This means that we are likely to pass the limits set by the agreement, with the accompanying disruptions of the climate – storms, droughts, heat waves, floods, polar melting, sea level rise, etc. 

Achieving the goal is further complicated by the energy crisis brought on by Russia’s invasion of Ukraine and the reduction of Russian energy exports to Western and Central Europe.  The European energy crisis is forcing Europe to turn to polluting fossil fuels – even coal --  that increase global warming. 

Renewable energy sources, mainly solar and wind, will not come on line fast enough to replace fossil fuels.  Nuclear plants also take a long time to build and need a long lead time to come on line.  In the short term we will continue to rely on fossil fuels that increase global warming. 

According to the NOAA climate.gov website, the 2021 surface temperature was 0.84 degrees Celsius warmer than the twentieth century average of 13.9 degrees Celsius and 1.04 degrees Celsius warmer than the pre-industrial period (1880-1900).  The earth’s temperature has been increasing by 0.18 degrees Celsius per decade recently.  So, we don’t have many years to go before we reach and pass the limits set by the Paris Agreement.   

The Fed and the Economy

The Federal Reserve has been playing fast and loose with the American financial system since the “great recession” of 2008, buying immense amounts of bonds and keeping interest rates near zero.  The last 15 years have been so different from the previous hundred years that it is difficult to predict what will come next.  Based on what happened in the 1990s dot.com market crash and the 2008 housing market bond crash, I am concerned that an unpleasant surprise is waiting. 

One feature of the market has been unlimited liquidity.  Money is readily available to anyone with credit because the Fed has been buying everything in sight.  Since the Fed has been buying government and high-quality bonds as soon as they come on the market to soak up any excess, there has been no reason to raise interest rates to entice other buyers to buy them. 

Quantitative Tightening

Because the Fed has been buying so many bonds for so long under QE, when it switches to disposing of bonds under Quantitative Tightening (QT) the result my be more significant than expected.  QE has meant that the hond market has not been a truc market, matching willing buyers and sellers.  The Fed has had its finger on the scales, influencing price for years.  Now, when it dumps tons of bonds on the market, willing buyers may insist on lower bond prices since there will be so many, which means interest rates will go up as bond prices go down.  How will this pressure to raise rates interact with the Fed’s usual method of simply raising the federal funds rate.    

Junk bonds

On the other hand, businesses that want to raise money have been able to sell their bonds to willing buyers, flush with cash.  Because interest rates on high-quality bonds were so low, investors snatched up low-quality (junk) bonds because they paid slightly more interest.  So, companies with less-than-ideal credit ratings were able to sell bonds without having to pay a high premium for being a new or less stable business.  If credit becomes tighter and the economy slows down (due to the Fed fighting inflation) will these questionable companies be able to continue to pay off the bonds?  Even for solid companies, people holding their bonds may have to sell them at a discount because interest rates have gone up.  However, many of these companies have loaded up on low-interest loans in the last few years, which means they will not have to refinance at higher rates for several years.

Historical Interest Rates

Besides the Fed, another reason interest rates have been low could be the increasing wealth of the extremely wealthy.  They have enormous savings, more money than they can ever spend.  In a more balanced economy where normal people share more of the wealth, they spend for everyday expenses and don’t have so much excess savings to invest.  Thus, there is an upper-class savings glut chasing the same old (or even fewer) things to invest in. 

The following graphs show how low interest rates have been in the last few years by historical standards.  Low interest rates change the way the economy works.  For example, it works against conservative investment strategies.  Bonds and savings accounts pay almost nothing.  So, people invest in riskier assets.  The fact that they are riskier may come back to haunt the economy.  In any case, the economy looks different than it did fifty years ago.  The old-style financial system brought us the Great Depression during the 1930s. Will the new economy be more successful in avoiding a disaster?

50 Year Chart

20 Year Chart

Leverage

When money is chaap, it is an invitation to use leverage to invest more in the markets.  The amount of borrowed money is leverage.  Most ordinary margin accounts for buying stock have a limit of 50%, but wealthy individuals or groups can leverage much more, perhaps only invsting 10% or 20% of their own money and borrowing the rest.  But this means that if the investment goes bad, they may owe much more than they have invested.  The crash of Bill Hwang’s Archegos Capital Management hedge fund in 2021 cost five big banks about $10 billion in losses.  Hwang had leverage of about five times his investment; he had about $10 billion of his own money but bought $50 billion of investments.  The banks all survived their losses. 

Financialization of the economy

People are using a new term to describe the economy, financialization.  Investopedia defines it as “the increase in size and importance of a country’s financial sector relative to its overall economy.”  In the US the financial sector grew from 2.8% of GDP in 1950 to 21% in 2019.  Critics of financialization say that it emphasizes short-term profits over production of goods.  It has also created many new and different financial instruments, such as the packaging of mortgages which led to the 2008 financial crisis and the “great recession.”  Today, the financial status of housing and mortgages seems safer, but the Fed has been a heavy investor in mortgage-backed securities.   With its bond buying program (Quantitative Easing – QE), the Fed has been deeply involved in many aspects of the US economy, more than in any previous generation, so that it remains to be seen whether there any unanticipated results of that involvement. 

Private Equity/Venture Capital

The liquidity slush fund for rich investors has brought us private equity funds, which do huge transactions buying private companies (unlisted on a stock exchange), or they may take public companies private and into their holdings.  Because these private companies are not publicly listed, they do not have the same disclosure requirements that public companies have, which means that not as much is known about their financial situation.  There could be some risky clunkers hidden in with profitable jewels. 

The huge amounts of wealth held by the wealthiest investors has also led to the creation of veture capital firms, which invest in new companies before they go public or make any profits.  These firms try to identify a new Apple or Google and get in on the ground floor.  Many of these investments will not pan out, but the ones that do should more than pay for the ones that don’t.  If the economy goes south, there may be less venture capital money, and it may be harder for new ideas to get funded, or for new start-ups to make it to profitability. Like the companies financed by junk bonds, the venture capital companies have loaded up on cheap loans so that they will not have to refinance for some time., according to the Economist magazine.

SPACs

SPACs, or special purpose acquisition companies, are a relatively new financial tool, again one developed because of all the liquidity, or money laying around the accounts of extremely rich individuals.  They pour money into a empty company listed on a stock market, and then use it to buy a new, small company and make it a public company under the umbrella of the SPAC registration.  Because this is a new tool in addition to the old method of using initial public offerings (IPOs) to take companies public, we do not know whether these companies are as sound as those that met the IPO requirements. 

National Debt

Finally, as a result of all of this “liquidity” cash bounty handed out by the Fed, the Congress, and the administration, particularly during the COOVID pandemic, the national debt has increased greatly.  Today the national debt held by the public stands at about 77% of the country's gross domestic product (GDP), or about $20.5 trillion, according to Wikipedia.  The Congressional Budget Office expects both the dollar amount and the percentage of GDP to rise in coming years.  The United States has the largest external debt in the world; as of 2017, its debt-to-GDP ratio was ranked 43rd out of 207 countries and territories

See the graph below:

Inflation decreases national debt

While inflation has the disadvantage of making goods and services  more expensive, it has the advantage of making the national debt less expensive.  If inflation is running at 10%, each year debt is worth 10% less.  The dollars paying it off are worth 10% less.  Although the dollar amount of the debt stays the same, it is much less in 2022 dollars, and probably also as a proportion of GDP, which would grow because of inflation, even if the amount of goods and services stayed the same.  Of course, the downside is that if inflation continues, interest rates rates will go up, so that the interest rates on bonds sold in 2023 will be much higher than they were in 2020.  But debts incurred in the past basically become cheaper. 

Commentators

Two of the many commentators on economic and financial issues have been particularly insightful, and I believe they are right about where the economy is heading: Larry Summers and Mohammed el-Erian.  They both believe that the Fed has failed to react quickly enough to rising inflation.  Because of its initial hesitation, it may be more difficult for the Fed to get inflation under control, probably requiring the US to go through a deep or shallow recession before returning to an even keel.  I worry that in the process the US may encounter more serious problems like it did during the great depression and the great recession.  The pandemic should have imposed financial damage to the US economy, but the extreme actions taken by the government prevented that damage, for the time being, but may have just delayed it. 

Offshoring of Production

One reason for the extraordinarily good economy of the last two decades has been te transfer of production from high-wage countries like the US and Europe to low-wage countries like China and other Asian nations.  This has meant that goods have been produced much more cheaply but sold in more prosperous countries.  As Asian wages rise, the benefit will be reduced; goods will become more expensive.  In addition, the pandemic interruption of the overseas supply chains has made goods in America less available and more expensive.  America talks about returning manufacturing to the US, but the US is far behind in production facilities and skilled workers.  Onshoring production may turn out to be harder than expected. 

Too Much Reliance on Fed

There has been too much reliance on the Fed to keep the US economy running well.  The main contribution of Congress and the administration has been to hand out cash several times during the pandemic.  While it eased hardship in the short term, it has contributed to inflation now.  It probably would have been better to physically hand out food and arrange shelter, rather than hand out cash.  Also, there should have been more controls on the cash, since many horror stories are coming out about fraud in claiming the government handouts.  The Fed needed more thoughtful help from Congress and administration.  Building infrastructure was a good idea, but right now we don’t have workers to fill existing jobs, much less big infrastructure projects.  The government needed to figure out how to incorporate the work-from-home movement in its redevelopment plans.  Infrastructure cannot be built by people who work from home. 

Putin Says Ukraine Can Join EU

 Putin said he has no objection to Ukraine's joining the EU.  This is surprising since EU membership has been something that Russian-friendly politicians have opposed since the beginning of the rivalry between them and the Western-friendly politicians began almost ten years ago.  

Brazil wll investigate Petrobras

Bloomberg reports that Brazilian President Bolsonaro said that Brazil will investigate Petrobras' gas pricing policy.  Investors are worried that the government may force Petrobras to lose money in order to further the government's fight against inflation in Brazil.   

Nuclear Power Plants in Wars

 In an article in the Economist magazine, Ukrainian history professor Serhii Plokhy argues that nuclear power reactors pose an unacceptable risk to soldiers and civilians if they are damaged and release radioiactivity. He says:

No commercial nuclear reactors, as opposed to those which produce plutonium, have been built to withstand military attack. No protocols or regulations have ever been created to deal with the possibility of warfare at a nuclear power plant, and no body of international law, including conventions and agreements relating to conduct in war, adequately deal with the possibility.

 It is too easy today to make a credible case for the legality of any attack on a nuclear reactor. This is a dangerous situation.

Yet the war in Ukraine has raised new questions about the future of nuclear energy. To the dangers of nuclear accidents and unresolved issues over spent nuclear fuel, add one more problem: the possibility that nuclear reactors operating today could become dirty bombs in a war. Ukraine demonstrates how such a scenario could come to pass. For the first time, operational civilian plants were attacked by ground forces. It was pure luck that the shells fired by the Russian National Guard, who have little or no combat experience, did not hit any of the reactors at the Zaporizhia station.

The threat posed to nuclear plants in Ukraine raises uncomfortable questions about whether we should continue building them in the future, and the degree to which we can turn to nuclear energy as a means of mitigating climate change.  These questions deserve serious consideration. But one answer seems to be obvious even now: we should not build new nuclear plants unless we can find a way to protect existing ones in war.

Putin and Proliferation

 Foreign policy wonks are concerned that Putin’s war in Ukraine is undermining the nuclear non-proliferation regime, embodied primarily in the Nuclear Non-Proliferation treaty.  The Economist magazine and the Bulletin of the Atomic Scientists have both warmed about the increasing danger. 

Non-nuclear countries like Ukraine that are threatened by nuclear powers like Russia may believe that in order to protect themselves they must develop nuclear weapons.  Countries with nuclear weapons may believe that like Russia they can use those weapons to intimidate potential enemies.  The Economist worries that as memories of World War II fade, the moral resistance to the use of nuclear weapons will weaken. 

At the moment the two countries that might be most influenced by this new acceptance of nuclear arsenals are Iran and North Korea, both of which have on-going nuclear programs. 

The Bulletin of the Atomic Scientists points out that when the Soviet Union collapsed, Ukraine had 4,400 nuclear weapons, the third most after the US and Russia.  After extended negotiations, Ukraine agreed to return the nuclear weapons to Russia in return for security assurances from the US and Russia.  Ukraine agreed to join the Non-Proliferation as a non-nuclear state.  Ukraine may now regret its decision to give up nuclear weapons, which would have been a bargaining chip in its relations with Russia.  

Tucker Carlson and Immigration

The three-part hatchet job done on Tucker Carlson by the New York Times shows how worried they are about him.  Carlson’s defense of Vladimir Putin and the January 6 attack on the Capitol are wrong and baseless, but some of his other targets are legitimate, particularly immigration. 

As a former consular officer who issued visas for two years in Sao Paulo, Brazil, I think the immigration system is broken.  In two years, I issued only one visa to a person who filed for asylum after he arrived in the US.  It was a bad case; I never should have issued the visa, but I issued it at the request of an American missionary who said he wanted to send this man to the States to tell his supporters what good work he was doing in Brazil.  This case generated more legal questions and paperwork than any other visa I issued during my assignment in Brazil.   Knowing how much time and effort this one case consumed, I can’t image how much the thousands of applications filed on our southern border must require.  The system is overwhelmed and broken. 

Even forty years ago in Brazil, I was upset that if I refused a visa to a Brazilian because I thought he would work illegally, it probably meant he would not be able to go to the US, but if a Mexican was refused a visa he would just walk across the border.  It did not seem fair.  Now there are many Brazilians, Africans, Arabs and others who just walk across the border, although they have to travel much farther to walk the last few hundred yards. 

The US should admit immigrants, but it should decide which immigrants to admit.  When I issued visas, some of the tests for a visa were whether the immigrant would go on welfare after arriving, whether he would displace an American worker, whether he was healthy or had any contagious disease, for example.  It sounds like the last test is the only one still applied, and when Title 42 no longer applies, that test will disappear, too.  Basically, the US has no immigration requirements; it’s an open border.  With unemployment at 3%, foreign workers will not likely displace Americans, but how much longer will full employment last?  How many new arrivals will receive some sort of public assistance within a year or two of their arrival? 

This may be the immigration system that Americans want, but no one has voted for it either at the polls or in Congress.  I don’t know whether this is the immigration system that the Democratic Party wants, or whether they have just acquiesced in what the immigrants have forced on them.  I tend to think that Tucker Carlson is right, that this is what the Democrats want, because most of these immigrants will vote Democratic as soon as they are able to vote.  But this is not a fair representation of all Hispanic voters, because many Hispanics came to the US legally and at least some must resent the fact that the new arrivals did not, and have been shown extreme favoritism by the American government.  So, all Hispanics may not vote as a block, but newly arrived Hispanics will vote as a Democratic block.  You don’t have to be a racist white nationalist to believe that immigration is a problem, as the New York Times article claims. 

The Times’ series on Tucker Carlson fails to recognize that immigration is a serious problem that the American government has failed to deal with.  Carlson is justified in saying that will affect the future of the United States.  The Times calls this a racist viewpoint, but the Times calls everything racist.  It has its prejudices and refuses to look beyond them.  The Times gushes over how wonderful a Somali community is that lives a few miles from Mr. Carlson’s house in Maine but fails to note how the arrival of Somalis in Minneapolis has transformed that city from NPR’s characterization of it as a Norwegian community where “every child is above average” into a hell-hole of violence and death.  The Times is as blind and bigoted as Mr. Carlson. 

But I can’t buy Mr. Carlson’s views on the January 6 attempted coup or on Vladimir Putin.  The Times quotes him as asking why we hate Putin when Putin never called Carlson a racist or threatened to fire him.  Of course, we hate Putin because he has killed thousands of innocent civilians, many women and children, even if he never did those other little things Carlson mentioned. 

For me there is no question that January 6 was an abomination.  It was an attempted coup.  The election was legal, but it was not without problems.  Many of the states where the vote was most in question changed the way they voted shortly before the election, in almost every case to make it easier to vote absentee, which favored the Democrats.  However, these changes were made legally, often justified by the Covid pandemic, and the votes were counted accurately.  The election was legal, but I would say that it was not exactly fair.  I believe that absentee voting should be the exception and not the rule, but I recognize that this may be a minority opinion among the American people. 

I’m sure that there are other issues Mr. Carlson has raised that I may or may not agree with.  I favor a school curriculum that pretty much sticks to the “three r’s,” reading, ‘riting, and ‘rithmetic, not so much sex or politicizing, for example. 

Anything the Times disagrees with, they tend to call “white nationalism” or “white supremacy,” or some other pejorative term.  The Times fails to recognize that many of these ideas they attack made the United States the most successful, freeist, prosperous country in the world during the 20^th century.  If results matter, these ideas should not be trashed because they were not 100% successful.  Maybe everybody was not totally successful or free or prosperous, but if you lived in the US, you probably had a better chance of doing so than if you lived anywhere else.  These virtues should not be discarded. 

Carlson apparently decided early on that Donald Trump the man was unreliable, but Trump the political movement had legs.  Trump was a terrible President, and an even worse human being.  But Trump did see some things that were seriously wrong with the US, like immigration, although he, like his predecessors, failed to fix them.  He probably should go to jail for his financial shenanigans, but he was falsely accused by the Steele dossier, partially funded by the Democratic Party, of being a Russian pawn. 

While I disagree with a lot of things Mr. Carlson says on his program, I also disagree with a lot of things in the New York Times article.  In his heart, Carlson may be racist, but the things he says about immigration problems are not racist; they are real.  The New York Times failure to recognize that is a blot on the fairness of the Time’s reporting.  The Times has sold its soul to the Democratic Party.  If you want truth, look somewhere else. 

 

Financial Calm in the Face pf the Ukraine Storm

The Financial Times questions why the markets are so calm in the face of the Ukraine war. 

 The west’s financial warfare against Russia has been dramatic. Commodity markets are chaotic, stoking already uncomfortably high inflation, and global economic growth forecasts have been marked down as a result. Many businesses face big hits from their exits from Russia. Yet many investors and analysts have been surprised at the remarkably modest fallout for the global financial system, and the lack of broader, serious reverberations so far. After initially deepening the global stock market sell-off, the MSCI All-Country World Index has now jumped back above its prewar level, and the Vix volatility index — a proxy for how much fear there is in markets — has slipped below its long-term average, indicating a fall in anxiety.

More information can be found here.

https://www.ft.com/content/4c4c4c04-151c-467c-b011-136d56546da9

Brazilian Democracy

 The Association of Diplomatic Studies and Training has posted a history of the development of Brazilian democracy.  

Brazil’s path to democracy was far from perfect and often tortuous. In 1961, a “possibly half insane” Janio Quadros was elected to the presidency. One of his more miscalculated moves was to threaten resignation if Congress did not give him more power. Congress instead accepted his resignation, and his successor, Joao “Jango” Goulart became President. Goulart, however, was much too leftist for most people and on March 31st 1964, he was overthrown by Brazil’s Armed Forces; U.S. involvement was suspected, but denied by Ambassador Lincoln Gordon. What followed was a military dictatorship that ruled for twenty years with an iron fist, often torturing its own citizens under the guise of maintaining order. 

North Korean Proliferation

 

The Arms Control Association has published a chronology of North Korean Nuclear and Missile Diplomacy:

For years, the United States and the international community have tried to negotiate an end to North Korea’s nuclear and missile development and its export of ballistic missile technology. Those efforts have been replete with periods of crisis, stalemate, and tentative progress towards denuclearization, and North Korea has long been a key challenge for the global nuclear nonproliferation regime.

The United States has pursued a variety of policy responses to the proliferation challenges posed by North Korea, including military cooperation with U.S. allies in the region, wide-ranging sanctions, and non-proliferation mechanisms such as export controls. The United States also engaged in two major diplomatic initiatives to have North Korea abandon its nuclear weapons efforts in return for aid.

In 1994, faced with North Korea’s announced intent to withdraw from the nuclear Nonproliferation Treaty (NPT), which requires non-nuclear weapon states to forswear the development and acquisition of nuclear weapons, the United States and North Korea signed the Agreed Framework. Under this agreement, Pyongyang committed to freezing its illicit plutonium weapons program in exchange for aid.

Following the collapse of this agreement in 2002, North Korea claimed that it had withdrawn from the NPT in January 2003 and once again began operating its nuclear facilities.

The second major diplomatic effort were the Six-Party Talks initiated in August of 2003 which involved China, Japan, North Korea, Russia, South Korea, and the United States. In between periods of stalemate and crisis, those talks arrived at critical breakthroughs in 2005, when North Korea pledged to abandon “all nuclear weapons and existing nuclear programs” and return to the NPT, and in 2007, when the parties agreed on a series of steps to implement that 2005 agreement.

Those talks, however, broke down in 2009 following disagreements over verification and an internationally condemned North Korea rocket launch. Pyongyang has since stated that it would never return to the talks and is no longer bound by their agreements. The other five parties state that they remain committed to the talks, and have called for Pyongyang to recommit to its 2005 denuclearization pledge.

In January 2018, another diplomatic effort began when North Korean leader Kim Jong Un declared the country's nuclear arsenal "complete" and offered to discuss with Seoul North Korea's participation in the South Korean Olympics. North Korea's delegation to the Olympics included Kim Jong Un's sister, who met with South Korean President Moon Jae-in. That meeting led to a sustained inter-Korean dialouge, including a meeting between Kim Jong Un and Moon Jae-in April 27 that produced a declaration referencing the shared goal of denuclearization of the Korean peninsula.

During a high-level meeting with South Korean officials in Pyongyang in March, Kim Jong Un conveyed his interest in meeting with U.S. President Donald Trump. Trump accepted the offer and the two leaders will meet June 12 in Singapore. 

Putin's Goal

 Putin's goal is probably to replace Zelensky with a Putin hack aided by some Putin goons He would use his surrounding troops to suppress any public uprising. 

Immigration and Voting

 

It appears from the various bills and campaigns that the Democrats are pushing that their goal is to bring millions of Central American immigrants to the US and have them vote for Democrats.  The Democratic effort to bring more immigrants into the US has been going on for years.

It is likely that the Democratic drive to bring Latino immigrants into the US was one of the main reasons that Donald Trump was elected President.  His first campaign speech, when he rode down the escalator at Trump Tower, was about immigration.  Trump is white trash and he knows how white trash thinks.  He knows the Democrats despise white trash and believe that destroying its political power is their road to political victory.  That’s one reason they applaud and encourage the destruction of Confederate statues.  Not all Southerners are white trash, but Democrats think they are. 

By vilifying white trash and stuffing the country with immigrant blacks and Hispanics, the Democrats elected Donald Trump.  To offset the Republican votes for Trump that they are creating, the Democrats are working overtime to get the vote for the new immigrants they have brought into the country.  The latest effort is in New York, where they have said that you do not have to be an American citizen to vote in New York elections.  They are also working to speed up naturalization requirements, working to remove any residency time or knowledge of American history requirements, especially for preferred categories, such as DACA applicants.  It’s all part of a Democratic effort to make America less white, less European, more African, more Latino, and more Democratic (the party, not the political system). 

Voting Rights

The Democratic Party and the talking heads are consumed with voting rights.  They want to write a new law that will make it easier to vote, because they claim that Republicans will write new local laws and elect local officials who will make it more difficult to vote, especially for non-whites.  I believe on the contrary that voting laws should be make stricter.  They should require in-person voting, and a government picture ID should be presented in order to vote.  Absentee ballots should be issued only for special cases when they are applied for ahead of time because of travel, sickness, or some other specific problem on election day. 

The supporters of universal, mail-in voting, which we have here in Colorado, claim that no fraud.  In a CNN special that Fareed Zakaria did on the issue, one spokesman said that one study had found only 31 illegal votes in one billion.  This claim seems ludicrous on its face; nothing in nature is that exact.  Is it absolutely impossible that a husband would accidentally fill out his wife’s ballot while she filled out his, forgetting to check the name on the ballot?  Is it impossible that a neighbor or friend would drop in on an elderly voter with a ballot and say, “Let me fill that out for you.”  Fareed says this sort of thing happened only 31 times out of one billion.  I think it is more likely to happen 31 times out of 1,000 or maybe 10,000.  If everybody is so honest, why do we monitor examinations?  Do teachers just like watching students take tests?  The odds of being struck by lightning are about 1 in 500,000.  This would be about 2,000 in 1 billion; so, it’s about 65 times more likely that you will be struck by lightning than that someone would vote illegally. 

How can Fareed Zakaria and his voting rights supporters make such a ridiculous argument?  Because there is no data to check on the validity of the votes.  They do check signatures, but with millions of ballots, how accurate can that check be, especially if the check is against the signatures on drivers licenses, which may be years out of date.  They can claim that cheating is impossible, but I don’t believe them.  I think there is no proof of cheating because there is no trustworthy evidence trail to test for cheating.   

The Democrats rail at people who say vote by mail is untrustworthy, but I don’t trust it.  If you want me to trust election results, you had better vote in person showing picture ID. 

On the other hand, I think voting is an inexact science, even when voting in person, People spoil ballots, put their X in the wrong place, get the candidates’ names mixed up, etc.  So, I think the results of the 2020 election are close enough that we should accept them and move on.  Joe Biden is President. 

I think there is actually a better argument that Al Gore was elected President in 2000, but as a patriot, he refused to drag the country through months of uncertainly, and conceded.  The Supreme Court in Bush v. Gore basically told Florida to stop counting the ballots, just declare a winner based on the results we have right now, regardless of what the actual count might be.  The Supreme Court said an exact count of ballots is not necessary; just give it your best effort.  The Cornell Law School Legal Information Institute said: “The larger impact of this case was an increased distrust in the voting processes.  Some scholars say that the decision affected the Supreme Court’s image as an independent judicial body and exposed it to accusations of partisanship.”  The chickens came home to roost in 2020.