sábado, octubre 07, 2017

BLOWING OFF THE ROOF / EURO PACIFIC CAPITAL

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Blowing Off The Roof

By: Peter Schiff


Of all the absurd Washington pantomimes none has been as reliably entertaining and maddening as the annual debates to raise the debt ceiling. Although the outcome was always a foregone conclusion (the ceiling would be raised), the excitement came when fiscal conservatives bemoaned the perils of runaway debt and “attempted” to exact spending restrictions through threats “to shut down the government,” (which often led to news coverage of tourists being turned away from national parks.) On the other side of the aisle Democrats would rail that the ceiling must be raised “because America always pays her bills.” Lost was the irony that “paying” bills with borrowed money was fiscally responsible, and that raising the ceiling actually enabled America to continue to avoid paying its bills. After these amateur theatrics, the ceiling would be lifted and Washington would go on as if nothing happened. But at least the performance threw occasional light on the nation’s debt problems.

But this week the news dropped that President Trump had made a “gentleman’s agreement” with Senate Minority Leader Chuck Schumer to permanently scrap the “debt ceiling” so that government borrowing can occur perpetually without the need to air the nation’s fiscal dirty laundry. Given how much the national debt has exploded in recent decades, and how reluctant Congress has been to address the problem, it should be no surprise that the proposal has finally been made. The only shock is that it happening when the Republicans control the White House and both houses of Congress.

The news came just a day after the President stunned the Republican party by abruptly siding with Congressional Democrats over the best way to deal with current debt ceiling negotiations.

These developments should make it clear, as I described in the weeks after Trump moved into the White House, that budget deficits during the Trump administration will be far larger than just about anyone predicted. In fact, the self-proclaimed “King of Debt” is reaching for his crown and the coronation profoundly affect the fate of the U.S. dollar and the American economy.

Trump came to the White House with essentially no history of stated aversion to government spending and debt accumulation. Instead, he won the votes of Republicans and some independents by staking out extreme positions on immigration, terrorism, and economic nationalism, and by thumbing his nose at a political establishment much deserving of ridicule.

Unlike almost all other Republicans, he had nothing to say about fiscal prudence, limited government, entitlement reform, spending cuts, or balanced budgets. In fact, he very rarely criticized government for being too large, but simply for being too stupid.

But as a businessman Trump had made his successes by borrowing, and then by borrowing even bigger when his ventures fell deeply into the red. There really should have been no doubt that he would bring those instincts with him into the Oval Office. Republicans who thought otherwise have no one but themselves to blame for what the future holds.

The debt ceiling came into existence just a few years after the Federal Reserve was created in 1913. At the time that the bank was established many politicians, and certainly many citizens, were concerned that it could potentially lend unlimited funds to the government, a capacity that could short-circuit constitutional checks and balances and lead to the development of a Federal behemoth. As a result, the Fed’s original charter prevented the bank from buying or owning obligations of the U.S. Treasury. This provision allayed the fears of unlimited borrowing and it helped Congress approve the Act.

But just a few years later the United States entered the First World War. The massive expenses associated with quickly waging war on an unprecedented scale was too much for the government’s ability to tax or borrow directly from the public. Instead Congress changed the charter to allow the Fed to buy debt from the government. But to prevent this power from being absolute, Congress set limits. This “debt ceiling” has been with us ever since. But since it has been raised so many times in the past 100 years (every time the issue has come up), the intent of the law has been essentially neutered and now appears to be an archaic vestige with no real purpose; the fiscal equivalent of an appendix.

But in reality it is much more than that. For years Republicans have paid mountains of lip service to the need for a Balanced Budget Amendment as the only way to force government to live within its means. But the existence of the Debt Ceiling had given them that power all along. Like Dorothy in the Wizard of Oz, all conservatives had to do was click their heels together three times and not vote to raise the debt ceiling. And just like that our budgets would have had to be balanced. But Republicans just like to talk about balanced budgets. They never really wanted to actually balance them.

But even the possibility helped. One of the primary reasons that annual government deficits declined by two thirds between 2010 and 2015 (from $1.4 trillion to $450 billion) was because the Republican-controlled Congress was able to get the Obama administration to agree to the so-called “sequester” which capped the level of growth in a variety of Federal programs, including social programs and the military. Absent the leverage provided by the debt ceiling, sequester never would have seen the light of day. It is clear however that most of those negotiations were political in nature: Republicans beating on a Democrat president with any club they could find. But the end result was good for the country. Now that a “Republican” is on the other end of Pennsylvania Avenue, no clubs are being sought.

In fact, voting to raise the debt ceiling was always politically embarrassing for Republicans. To provide cover the measures were usually pared with some other politically popular legislation.

In many cases some Republicans would be given the nod from leadership to vote no, as they could cast their votes against it knowing it would pass anyway. But eliminating the ceiling makes it that much easier for Republicans to campaign one way and govern another.

But the potential failure to raise the debt ceiling has never been the problem. It’s the debt that’s the problem, and the ceiling is a tool to solve the problem that vote-seeking politicians are afraid to actually use. If we eliminate the only tool, the problem will never be fixed. If the debt ceiling were to be cut out like an unneeded appendix, we should expect that America’s foray into debt creation, which has already been fantastical, to journey even farther into the looking glass. America’s funded national debt is already just a few clicks below $20 Trillion. If we were able to amass that much debt with a ceiling, even one that could be raised, imagine how much more debt will be run up with no ceiling at all!

In the end we may be able to repeal our self-imposed debt ceiling, but our creditors may not care. When we drop even the pretense of a theoretic limit to our profligacy, our lenders may decide its time to impose a lending ceiling of their own. That is a ceiling we have no power to raise, and it could force our leaders to finally make some very unpopular choices. Massive cuts to government spending, including to current Social Security and Medicare benefits, huge middle class tax hikes, or an actual default on the national debt. Since neither of these alternatives is politically viable, I believe the coward’s way out will be a massive QE program where the Fed buys the bonds our creditors no longer want. This could be the worst possible choice for the U.S. economy, and investors should be prepared. It could produce a dollar and sovereign debt crisis that will dwarf the financial crisis of 2008 with respect to its impact on the American economy. It could make hurricane Irma look like a sun shower.

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sábado, octubre 07, 2017

"THE MOST IMPORTANT CHART IN THE WORLD / CASEY DAILY DISPATCH

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“The Most Important Chart in the World”

By Justin Spittler, editor, Casey Daily Dispatch


Do you own U.S. stocks? If so, you have to see this…

The chart below doesn’t show a stock, a commodity, or even a high-flying cryptocurrency.

Instead, it depicts an unstoppable trend that most investors have never even thought about. See for yourself.

You’re looking at the percentage of people living in the United States who are 65 years of age or older.



You can see that the number of seniors in the United States is about to explode.

This may not seem like a big deal to the casual observer. But it’s going to have profound investment implications.

Don’t just take my word for it, though.

• Two weeks ago, Raoul Pal called this “the single most important chart in the world”…

That’s a bold statement. But Pal knows what he’s talking about.

He used to run hedge fund sales at Goldman Sachs. He later comanaged the GLG Global Macro Fund, one of the world’s biggest hedge funds.

Pal made so much money by the age of 36 that he stopped managing outside money in 2004. But he didn’t completely retire.

Today, Pal writes the Global Macro Investor newsletter, one of the world’s most exclusive investment newsletters. His readers include hedge fund managers, sovereign wealth funds, and pension funds.

In short, Pal is one of the world’s top “big picture” thinkers. It pays to listen to him.

• So, I started researching U.S. demographics immediately after I saw this…

And it didn’t take me long to realize something…

Pal isn’t the only big-league investor who thinks this is a big deal.

Bill Gross is also deeply concerned about America’s aging population.

Gross is one of the world’s leading bond experts. He used to run PIMCO, one of the world’s largest money managers. Today, he manages about $1.9 billion at Janus Capital.

In January, Gross said demographics would likely “dominate investment markets and returns for the next few decades until the Boomer phenomena fades away.”

• Mark Yusko is deeply concerned about America’s aging population, too…

Yusko is another Wall Street legend. He manages $1.6 billion at Morgan Creek Capital.

Like Pal and Gross, Yusko thinks demographics will drive stock performance for years to come…and not in a good way.

He thinks bad demographics will be one of three “killer D’s” facing the U.S. economy. The other two “D’s” are debt and deflation, which are another way of saying slow economic growth.

• These are some of the smartest investors on the planet…

They didn’t climb to the top of Wall Street by thinking like other investors. They got there by being original thinkers.

And yet, they’re worried about the same thing: America’s aging population.

Of course, they have good reason to be.

• Just look at what happened to Japan…

Japan’s population exploded after World War II.

This triggered a huge economic boom. It became one of the world’s most advanced economies.

Then, everything came undone in the early ‘90s.

Japan’s economy imploded and entered a vicious downturn.

Times were tough. So, many Japanese people stopped having children. And that’s left huge scars on its society.

• Last year was the eighth year in a row that Japan’s population shrank…

It was also the first time on record that less than 1 million babies were born in Japan. Meanwhile, the number of deaths in Japan hit a record high of 1.3 million.

Japan’s rapidly aging population is killing its economy.

Just look at this chart. It shows Japan’s annual economic output over the last two decades.




You can see that Japan’s economy has barely grown. It’s only 1% bigger than it was in 1997.

• Bad demographics have also plagued Japan’s stock market…

You can see what I mean below.

This chart shows the performance of the Nikkei 225, Japan’s version of the S&P 500, since 1997.




The Nikkei is up just 4% over this period.

In other words, Japanese stocks have been “dead money” for the past two decades.

• Now, the United States is about to get stung by the aging-population bug…

By 2030, more than 20% of the U.S. population will be at least 65 years old. That’s up from about 15% today.

By 2050, the U.S. will have twice as many seniors as it does today.

And many of these people will retire. They’ll stop producing for the economy.

They’ll also buy fewer godos and services. That’s what happens when people retire. Seniors spend about 38% less on consumer goods and services than people in the workforce.

That’s a serious problema.

After all, consumption makes up 70% of the U.S. economy. So, the economy could take a major hit if millions of people start buying fewer goods and services. If that happens, U.S. stocks could come crashing down, too.

• Just to be clear, I’m not saying the U.S. will become the next Japan…

But demographics in the U.S. are certainly getting worse. There’s no denying that.

And there’s nothing the government can do to stop it. The trend is in motion.

The good news is that there’s still time to prepare. Here’s what you can do today…

Lighten up on U.S. stocks. Now, I’m not saying you should hit the panic button. But now is a good time to reduce your exposure to U.S. stock holdings.

You can start by trimming your stake in risky U.S. stocks. You should also allocate less money to U.S. stocks going forward.

Move some money abroad. Focus on countries with improving demographics. That means countries with young and growing populations. Here are three countries that check those boxes…

• India

• Vietnam

• Indonesia

If you take these steps today, you’ll be miles ahead of most investors.

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sábado, octubre 07, 2017

AN AMERICAN POLITICAL TRAGEDY / PROJECT SYNDICATE

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An American Political Tragedy

Helmut K. Anheier


BERLIN – US President Donald Trump’s nearly eight months in office have been characterized by a series of disturbing political developments. But Trump is not entirely to blame. His presidency is just the latest act in a long-running political tragedy.
       

From a foreign-policy perspective, the problem began in the 1990s, when the United States squandered the post-Cold War peace dividend. With regard to domestic policy, the failures began even earlier: from Reaganomics in the 1980s to Obamacare in the 2010s, major policies have often overpromised and underperformed, while failing to address underlying problems.
 
Of course, US politicians are rarely short on lofty rhetoric – from Ronald Reagan’s “Morning in America” campaign to Barack Obama’s “Yes, we can” slogan to Donald Trump’s “America First” refrain. And, beginning with John F. Kennedy, presidents have likened the US to a “city upon a hill” – an example to the rest of the world.
 
Yet it is hard to remember the last time the US produced a policy that could serve as a model for others to emulate. The country has not had a pro-active, forward-looking government since the 1960s. Since the 1990s, it has not invested sufficiently in human capital to meet the fast-changing economy’s shifting skill requirements; undertaken no effective education, environmental, or labor-market reforms; and launched no new urban initiatives or future-proofing infrastructure policies. The list goes on.
 
The reason is simple: Americans’ longstanding suspicion of “big government” morphed into a kind of political self-hatred, with policymakers and citizens alike led to believe that government is at its best when it does not govern. And, as the US government has retreated from society, the US has retreated from the rest of the world.
 
These trends have culminated in Trump, whose most popular policies focus on destruction, rather than creation. Deregulation will supposedly slay the “deep state” chimera, while enabling the US to achieve energy independence. A US-centered foreign policy focused not on reshaping America’s role in the world, but on reducing it. From the Affordable Care Act (Obamacare) to the Deferred Action for Childhood Arrivals (DACA) policy, Trump likes to reverse past policies, without devising anything to replace them.             
               
American conservatives have so far failed to read Trump’s intentions accurately. In July, Robert W. Merry wrote that Trump had “yet to score anything approaching a serious legislative victory – or to demonstrate any serious political momentum.” But the truth is that Trump’s agenda has plenty of momentum; it is just focused on demolishing Obama’s legacy.
 
As the international law expert Richard Falk has argued, it is Trump’s “demagoguery” that enables this approach, as it “blinds adherents to their true material self-interests and misidentifies their real social enemies.” Trump’s rejection of “reasoned discourse, including commitments to truth and evidence,” has been accompanied by an unlimited “capacity to manipulate mass opinion and play on such repressed emotions as racism and class envy.”
 
The result of Trump’s approach is that America’s existing problems are worsening and huge opportunities are being missed. But what can stop demons already unleashed? And, even if they are stopped, can the damage they have already wrought be reversed?
 
There was some backlash against Trump when he failed to condemn clearly the white supremacist demonstrators in Charlottesville, Virginia, whose “Unite the Right” rally in August ended with the murder of a counter-protester. But it has done little to weaken Trump’s destructive momentum: just a few weeks later, Trump announced his , a policy that protected from deportation some 800,000 young immigrants who were brought to the US as children.
 
Beyond lamenting the astonishing depths to which a great political culture and system can fall, what can be done? One obvious option, which Democrats largely seem to be taking, is to reject Trump and everything his administration stands for. But that risks ensuring the persistence of the dysfunctional dynamics that brought the US to this point.
 
Another option, however unappealing at first glance, is to accept the Trump administration. The result of such a choice may well be the worsening of domestic problems and the weakening of checks and balances. But it is also possible that checks and balances will hold until the next election, enabling America’s existing political parties to rebuild and new parties to emerge. The result, one hopes, would be a much-needed political realignment – indeed, a political renaissance.
 
To be sure, such a shift would take time – time that, depending on how long Trump remains in office, parties may not have. Republicans may be politically handicapped for years, as they are forced to reckon with the Faustian bargain they struck for the sake of political power.
 
Democrats, for their part, face a broad leadership vacuum and a lack of political vision, owing to their now-internalized fear of being labeled “big spenders.” And, as it stands, no third parties or candidates provide reasonable alternatives.
 
Nonetheless, there are encouraging signs that some Republicans and Democrats are thinking outside the party box. More must follow suit, recognizing that realigning the existing party system may be the only way to break the stalemate of US politics and, potentially, reverse decades of dangerous democratic underperformance.
 
The next act in America’s political drama, following the 2018 congressional midterm election, could be marked by a kind of reckoning, with the 2020 presidential campaign accompanied by civic breakdown and the escalation of violent confrontation that has lingered beneath the surface for years.
 
To rewrite the plot before that scenario plays out requires reshuffling and revitalizing US politics, so that, in the words of the poet Seamus Heaney, “hope and history rhyme” once again in America.


Helmut K. Anheier is President and Professor of Sociology at the Hertie School of Governance in Berlin.

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sábado, octubre 07, 2017

CANADA: A COUNTRY IS ITS PEOPLE /

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A Country Is Its People

By George Friedman


I spent the past two weeks in Canada, north of a town called Nelson in British Columbia. One evening, while nearing sleep, I heard a rumbling that sounded like a train. In the morning, I woke and people were taking about an enormous fireball that had passed overhead. The rumbling had been the result a meteor crashing to Earth.

A bit later, I headed out for a hike. The country north of Nelson was beautiful and very lightly inhabited. That morning it was covered with what seemed like a thick and eerie mist. It was in fact the result of massive forest fires that had ravaged British Columbia.

Where I was, I had a sense of both extremes that nature presents in Canada and also its loneliness. A meteor could fall and not disturb anyone. I had been to Canada many times before, but always in the south. Here I got a sense of loneliness that I had never quite experienced in the United States. The roads were sparse, as were the people. It was that loneliness amid beauty that riveted me. I have, of course, visited most major Canadian cities and they are simply cities, as inviting and confining as most. Obviously, every country has the paradox between the rural and urban, but the first thing you notice about Canada is the profound division between human life and the absolute solitude of most of the country.

(click to enlarge)
 
A Country Is Its People
Canada is the second largest country in the world, larger than China and the United States. But as has been frequently said, a country is its people. If Canada were reduced only to its populated areas, it would be a much smaller country. It would be a narrow strip bordering the United States, stretching unevenly from the Atlantic to the Pacific. The widest point of Canada would be 420 miles in Alberta. The narrowest point would run only a few miles from the border. Most important, the country would be divided into its eastern and western parts, separated by 400 miles of sparsely populated land.

From this perspective, there are two Canadas. Eastern Canada runs from the base of southern Ontario northeast along the U.S. border and St. Lawrence River. It extends into Nova Scotia and as for north as Newfoundland. This is the most densely populated area in the country, with the population concentrated in cities like Toronto, Ottawa, Montreal and Halifax.

The second Canada runs through Manitoba, Saskatchewan, Alberta and into British Columbia. Its northern border extends in a diagonal line westward until the structure collapses west of Edmonton. The population here is also concentrated along the U.S. border but also runs north in a narrow line toward western and central British Columbia, finding an anchor in Vancouver.

The Canadian Rockies in the Banff National Forest Nov. 30, 2006 during morning sunrise. AFP PHOTO / JEFF HAYNES (Photo credit should read JEFF HAYNES/AFP/Getty Images
The eastern segment of Canada was the area first settled and fought over by the English and French. It has vast areas of farmland, with a social structure similar to the American upper Midwest.

The western segment was settled later. It also has extensive farmland, but extractive industries are a key part of the economy here. The area on the map that shows a major surge in population toward Edmonton is where energy resources are pulled from the earth. This region has long prospered drilling and mining. So, for example, the pattern of population distribution in British Columbia is a remnant of similar activity.

Culturally and economically, some of these western regions have more in common with parts of the U.S. than they do with other parts of Canada. Vancouver is far more in tune with Seattle than it is with Alberta; Alberta has more in common with Texas than it has with Manitoba and Saskatchewan; and Manitoba and Saskatchewan have more in common with their southern neighbors than they do with Ottawa. Culture and economy are determined by the ground a society rests on, and the land in Western Canada links it to the United States more than to other Canadian provinces.

The eastern population bloc also has internal variations in culture and economy, but it’s less culturally linked to the United States. There are three parts of the bloc: the Maritime region, Quebec and Ontario. Quebec is differentiated from the other two regions by language and culture. It has historically been the least comfortable in Canada, and Canada with it. The two English-speaking areas are also wildly different from each other. The maritime region is the poorest in Canada, its economy still rooted heavily in traditional and declining activities like fishing. Ontario, built around Toronto and Ottawa, has the most modern and self-sustained culture of the group.

These profound differences between the provinces have resulted in division within Canadian society. In Quebec, there was a serious movement for secession just two decades ago. Today, when I visit Alberta, I hear occasional talk, mostly wistful, about secession and joining the United States. In British Columbia, the differences with Calgary’s culture are openly discussed and the disdain for its Texas-style culture is clear. There is a general disdain for the Maritime provinces, seen as poor and backward in the eyes of many.
 
A ‘Nice’ Approach to Foreign Policy
Such diverging economic interests and cultural perspectives have torn other countries apart. Reconciling the interests of places as diverse as Calgary, Quebec and Nova Scotia is difficult to imagine. They are too different in every sense to feel part of a single country. Canada’s founders understood this. In a country this diverse, any unity beyond confederation is impossible.

Canada manages this tension in an interesting way. Calling Canadians “nice” is commonplace, but it’s also symbolic of Canada’s approach to coping with this divide. Canada cannot afford to confront its diversity. Different parts of the country look at the world in very different ways, and attempts to delegitimize these interests and values would have explosive effects if pressed to the extreme. There is an unspoken agreement not to understate the differences, and to avoid confronting the tension underlying the country.

We see this in foreign policy as well. Given its proximity to the U.S., the heart of any Canadian foreign policy must pivot around the United States. There are issues with this but the relative weight of the two countries make accommodation difficult to avoid. As to its broader foreign policy, if consensus can’t be reached, no region can be pushed to an impossible point. An aggressive foreign policy would be risky. Canada must therefore establish a nonassertive foreign policy. I do not mean this ironically, but this is a “nice” foreign policy. It is not that Canada is weak. Others are weaker. It is that creating internal stress in Canada would be dangerous.

Canada has built a brilliant strategy recognizing, even respecting, regional differences. And so it is that Canada pursues an imperative it has no choice but to pursue. Underneath the comity of Canada, there is a frailty that would not withstand excessive pressure. This is therefore a nation that will survive by brilliantly balancing forces that would ruin other countries.

Differences can be managed; they can’t be controlled. We see this caution particularly in Canada’s foreign policy. There is a perpetual tension that is managed by asking less of regions than other countries might. Its modest foreign policy therefore is seen by Canadians as a virtue. It is in fact a virtuous necessity.

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