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Financial Elites Seem Oblivious To Threat Of Economic Calamity

This article was produced by Economy for All, a project of the Independent Media Institute.

Can runaway booms descend into busts absent monetary tightening by the world’s central banks? I pose this question in the wake of an extraordinary exchange on January 22 at Davos between Bloomberg editor-at-large Tom Keene and Bob Prince, co-CIO of Bridgewater Associates, in which the latter posited the notion that “we’ve probably seen the end of the boom-bust cycle.”

It is striking that one of today’s titans of finance has given us what appears to be another version of “this time it’s different,” which the famous investor Sir John Templeton once described as “the four most expensive words in investing.”

My own basic take has been that the U.S. economy over the past three years has been weaker than the underlying quantitative data suggests and that there is ample historical precedent to suggest that credit cycles can end, even in the context of a low interest rate environment, notably via a deterioration in the quality of credit itself, as the great economist Hyman Minsky once explained in his financial instability hypothesis. The truth is that for decades, the U.S.—indeed the entire global economy—has been characterized by an economically unsustainable model in which larger and larger portions of GDP gains have been going to a smaller number of people at the top (who also have a higher propensity to save than people with lower incomes, which means the “trickle-down” effect is minimal to nonexistent). Wage gains also appear to be leveling off, which could have ominous implications for sustainable future growth. Yet many investors like Prince seem to accept today’s buoyant asset bubbles as a given in the absence of a concerted effort by the central banks to “take away the punch bowl just when the party gets going” (in the famous words of former Fed Chairman William McChesney Martin), via higher interest rates.

In the words of Bob Prince (quoted in Doug Noland’s Credit Bubble Bulletin):

Bob Prince…: “2018 I think was a lesson learned. The tightening of central banks all around the world wasn’t intended to cause a downturn—wasn’t intended to cause what it did. But I think lessons were learned from that. And I think it was really a marker that we’ve probably seen the end of the boom-bust cycle.”

Bloomberg’s Tom Keene: “Is it the end of the hedge fund business in modeling portfolios off the guesstimates of what central banks will do?”

Prince: “That won’t play much of a role nearly as it has. You remember the ’80s when we sat and waited for the money supply numbers. We’ve come a long way since then… Now we talk 25 plus [BPS Fed rate increase], 25 minus. We’re not even going to get 25 plus or minus and we got negative yields. That idea of the boom-bust cycle—and that history that we’ve been in for decades—is really driven by shifts in credit and monetary policy. But you’re in a situation now where the Fed is in a box. They can’t tighten, and they can’t ease—nor can other central banks, particularly the reserve currencies. And so where do you go from here? It’s not going to look like it has.”

Prince goes on to acknowledge that “cycles in growth are caused by the boom and bust in credit: Credit expansion, credit contraction,” but makes the assumption that “those expansions and contractions of credit are largely driven by changes in monetary policy.”

That may have been the case for much of the post-World War II period, but if we look back further, there is evidence to suggest that Prince’s hypothesis is another variant of the dangerous “this time it’s different” truism.

Why have so many people gotten this wrong?

The misconception probably stems from a famous statement made in 1997 by the MIT economist Rudi Dornbusch: “None of the U.S. expansions of the past 40 years died in bed of old age; every one was murdered by the Federal Reserve,” and this was more or less true of the U.S. economy from 1946 until the 2000s.

But then economic dynamics changed. Yes, the Federal Reserve raised the Fed funds rate by 400 basis points in the mid-2000s, but it reversed almost all of that move and began opening the floodgates of bailout financing by early May 2008. Nevertheless, the U.S. and global economy fell off a cliff in the second half of that year as global financial fragility erupted into a full-blown global systemic crisis to a degree unseen since the 1930s.

Why was it different that time? The reason is that there had emerged myriad asset bubbles and a related unprecedented rise in private indebtedness in the U.S. and other economies. These supports to cyclical demand expansion were unstable and unsustainable. In other words, these were conditions very similar to those that prevail today.

Hyman Minsky and Irving Fisher described how once the debt “disease” goes metastatic there will come a “Minsky moment” when euphoria gives way to concern and then to panic liquidation and credit revulsion. When that dynamic is in full flower, the Fed is powerless, no matter how much they want to bring the punchbowl back.

The U.S. and much of the global economy still have quasi-bubbleized assets and very high levels of private (and quasi-private) indebtedness. Bob Prince and many of his investment cohorts appear to remain oblivious to the threat of a Minsky/Fisher debt deflation dynamic, which the Fed and the central banking fraternity can do little to stop, if one is to judge from today’s current buoyant stock markets.

There is yet another way in which global economic growth can slow or even falter this time around, which I have discussed before (in the context of China’s economy): This thesis dates from “a very old idea from business cycle theory prior to the Second World War that private sector over-investment can become so unsustainably high that even without a fiscal/monetary shock, there could be a fall in autonomous investment. Once that begins,” a weakening edifice of highly suspect and marginal lending activity “can lead to a cumulative economic contraction even if interest rates plummet and monetary conditions ease.”

This old idea from the history of economics has largely been forgotten due to changes in the fads and fashions in academic economics. But there are grounds for thinking it is an idea whose time has come once again.

Globally, we have a glut of consumer goods, much of it emanating from China, but given increasingly weakening demand from an economy that is growing more and more skewed to the top 1 percent, we have fewer consumers able to buy it. Moreover, in China itself, modest fiscal stimulus measures undertaken at the end of last year could well be overridden by the onset of the coronavirus, which risks undermining the impact of these recent upticks in infrastructure investment, along with the potential benefits accrued from the cessation of the trade war with the U.S. government.

It follows that the world has a condition of over-investment that is unsustainable. This means there will be less investment to produce additional goods. Much like a rickety building on shaky foundations, therefore, a decline in global autonomous investment threatens to plunge us into a global economic slowdown, independent of actions by the global or national monetary authorities.

Are there any signs of this? Over the past year, global growth “recorded its weakest pace since the global financial crisis a decade ago,” according to the International Monetary Fund. This, despite buoyant risk asset markets, credit and money growth in key economies well in excess of nominal GDP, super-easy monetary policy everywhere, and an end of the fiscal restriction of recent years. Therefore, we cannot attribute this surprising softening to a “murderous Fed” (to paraphrase Dornbusch) or its cohorts in the global central banking fraternity. It is, however, possible to posit that we may be seeing a cresting of excessive global fixed investment, which eventually could cause a global recession. There is no question that our central banks and governments will try to do “whatever it takes” to postpone such a decline.

The point is that, relative to the post-war business cycle patterns in most people’s minds, the end of this global expansion does not need a “murderous Fed.” Excessive risk asset valuations and high indebtedness, even in a world of low prevailing interest rates and unprecedented central bank intervention, can nonetheless lead to negative financial and economic dynamics. And given excessive global capital spending in a world where the warranted rate of growth has now downshifted, an autonomous decline in excessive investment can do the same. Add to this the increasing risks brought about by the spread of the coronavirus, and you’ve got the ingredients for an incipient global economic calamity.

Marshall Auerback is a market analyst and commentator

Trump’s EPA Prepares Another Gift For The Coal Industry

Reprinted with permission from DCReport

Trump’s EPA administrator wants to redraw our nation’s mercury standard to benefit coal-fired power plants that belch out nearly half the nation’s mercury emissions. But the agency’s Science Advisory Board is balking.

The board, headed by Trump administration appointee Michael Honeycutt who previously opposed tougher mercury standards, told the EPA it needed to look again at how much mercury people get from fish and the harm from mercury.

“EPA should instigate a new risk assessment,” the board wrote.

Under former President Barack Obama, the EPA only looked at IQ losses in children born to mothers who ate freshwater fish caught by amateur anglers from lakes where the EPA had information on fish tissue. This excluded most of the fish eaten in our country, much of it imported or fish from the ocean.

“It’s absolutely incorrect,” said Elsie Sunderland, a professor of environmental science and engineering at Harvard.

Ellen Kurlansky, a former EPA air policy analyst, said the board recommendation isn’t clear about whether ocean fish should be included in a new assessment.

“What does that actually mean?” she asked.

The Trump EPA packed the Science Advisory Board with industry-friendly appointees like air pollution researcher Robert Phalen who said air can be “a little too clean” for children’s health and consultant Brant Ulsh who claims radiation at low doses may not be dangerous.

The mercury report mentioned a discredited study by consultant and board member Tony Cox that claimed soot in the air can be beneficial.

But even this tainted board couldn’t stomach what the Trump EPA wants to do to our planet. The board also questioned a proposed rule that would limit which wetlands and waterways are protected by the Clean Water Act and the rollback of clean car standards.

Mercury exposure at its worst can mimic cerebral palsy. When airborne mercury settles on water or land that’s often damp, microbes convert it to methylmercury which is highly toxic and becomes more concentrated as it moves up food chains to people and predators.

Mercury raises the risk of diabetes and causes cardiovascular problems for adults, including higher chances of a fatal heart attack. Even how birds sing is affected.

EPA Administrator Andrew Wheeler twisted the math for a proposed federal rule to knock out the legal justifications for limiting mercury emissions, claiming that “the only health benefit” to reducing mercury emissions “that the EPA could quantify and monetize” was children’s IQ loss.

In March 2017, coal magnate Robert Murray, who donated $300,000 to Trump’s inauguration, gave the Energy Department a wish list that included rescinding or revising the mercury standard, which Murray Energy had sued to block. Wheeler is a former lobbyist and Murray Energy was his best-paying client.

Murray Energy, once the largest privately held coal company in the country, filed for bankruptcy in October. At least seven coal companies filed for bankruptcy in 2019.

EPA is required by law to base decisions on the “best available science.”

The Obama restrictions on mercury have worked. Mercury emissions from U.S. power plants plunged by 65 percent from 2015 to 2017. The standards prevent up to 11,000 premature deaths a year, 4,700 heart attacks and 130,000 asthma attacks, according to EPA estimates.

The Trump EPA also wants to quash rules on sulfur dioxide emissions from coal-fired power plants which cause acid rain.

Right-Wing Media Smear Vindman’s Twin Brother As Leaker

Reprinted with permission from MediaMatters

On January 26, The New York Times reported on leaked portions of an unpublished manuscript from former national security adviser John Bolton, which the paper says revealed that President Donald Trump told Bolton he wanted to continue with a hold on Ukrainian military aid until the country opened investigations into Democratic presidential candidate Joe Biden. 

The same night, Breitbart News swiftly posted a conspiratorial smear against the brother of Army Lt. Col. Alexander Vindman, the National Security Council expert on Ukraine who testified in the House impeachment inquiry in October. Breitbart claimed “a source close to the Trump administration” told the outlet that Lt. Col. Yevgeny Vindman, Alexander’s brother, “is in charge of reviewing all publications by current and former NSC officials,” which would include Bolton’s book manuscript. 

Right-wing media have attacked Alexander Vindman with detestable smears since October, when he testified to Congress that he “did not think it was proper to demand that a foreign government investigate a U.S. citizen” and that he “was worried about the implications for the U.S. government’s support of Ukraine.” His testimony led to a swarm of right-wing media accusations that because he had immigrated from Ukraine as a small child, the Purple Heart winner may be more loyal toward Ukraine than the United States. 

Now, right-wing media outlets are turning their attention toward Yevgeny. While Breitbart‘s report is accurate that Yevgeny is a “senior ethics lawyer” for the NSC, there is no evidence that he saw the manuscript. In fact, Fox News’ John Roberts tweeted on January 27 that his sources say Yevgeny “is NOT part of the NSC team vetting John Bolton’s manuscript.”

Still, that didn’t stop right-wing media figures — including some from Roberts’ own network — from promoting the smear that the leak of Bolton’s book manuscript was a conspiracy stemming from the Vindmans. Conservative media outlets including The Washington TimesRedState, and Biz Pac Review reported the story, citing Breitbart. Prominent figures in conservative media tweeted about the conspiracy theory, including Turning Point USA’s Charlie Kirk, Fox News host Mark Levin, and right-wing radio host Bill Mitchell.

Rep. Andy Biggs (R-AZ), one of Trump’s strongest defenders in Congress, also promoted the smear:

The War Room podcast co-host Jason Miller also tweeted about the smear, writing, “No such thing as coincidences in politics.” Conservative giant Rush Limbaugh also promoted it as fact on his radio show, saying, “Yevgeny Vindman is the guy vetting Bolton’s book.” Newsmax’s Emerald Robinson tweeted the Breitbart article, sarcastically adding, “What a coincidence … if you believe in coincidences.” Fox News prime-time host Sean Hannity claimed on his radio show that “we’re hearing that the brother of a key Schiff impeachment witness” was allegedly involved in the leak, though he also said he had not confirmed the report and was getting it from Breitbart

Fox Business host Lou Dobbs similarly offered a disclaimer that a source denied the allegations to Fox News, but he mentioned that only after sharing the smear, saying, “Both Bolton and [Robert] O’Brien led the National Security Council that employed the likes of the infamous, anonymous whistleblower, never-Trumper Lt. Col. Alex Vindman, and his brother, Yevgeny Vindman, the security council senior ethics lawyer. Yevgeny is also in charge of reviewing publications for former or current NSC employees to ensure [removal of] confidential information — say, that sort of thing, well you know, that happens at the National Security Council, the CIA, and other secretive agencies.” Frequent Dobbs guest Ed Rollins then promoted the smear, effectively rendering Dobbs’ brief disclaimer moot. 

This treatment of the Vindmans illustrates the harassment, lies, smears, and vitriol right-wing media will employ to attack any critic of Trump, particularly witnesses in the impeachment proceedings.

In The Senate, An Explosion Of Phony Indignation

Rep. Adam Schiff, lead House manager of the impeachment case against President Donald Trump, delivered a tour de force last week, painfully, crushingly detailing the president’s obvious guilt and decimating his defenses. It’s fair to say, however, that this did not go over all that agreeably with Senate Republicans who, determined to sidestep the evidence of Trump’s abuse of power and obstruction of Congress, opted for phony professions of outrage at being called to account.

Leading the charge was Sen. Susan Collins (R-ME), whose depressing forfeiture of a once-meaningful reputation for independence has led former admirers to shake their heads at what fear of a Republican primary can do to a person’s conscience. Collins claimed to be appalled at Congressman Jerry Nadler’s use of the phrase “cover-up” to describe conduct by Senate Republicans that can’t easily be described otherwise. Trump’s “defense” of the mountain of evidence against him is the patently false assertion that none of it is “first-hand.” But Republicans have not merely looked the other way at Trump’s blanket order that the documents reflecting his conduct be withheld and the aides to whom he gave orders be gagged; presented with a simple request that the documents be turned over and the aides be required to tell the truth, they made the request impossible. For his part, the president does not hide the fact that he is hiding the facts. “We’re doing very well,” Trump boasted about the impeachment proceedings last week. “(H)onestly, we have all the material. They don’t have the material.”

Collins is upset about the phrase “cover-up.” Too bad. That is precisely what it is, and her objection to a phrase that fits the GOP’s conduct like a glove makes her look ridiculous. Evidently, in the United States Senate, which Collins claims to revere, it is now permissible to block the truth and impermissible to speak it.

But it wasn’t only the apt use of “cover-up” that Collins and colleagues find offensive. It was Schiff’s reference to a CBS News report that said Republican senators had been warned, “Vote against the president and your head will be on a pike.” “That’s not true,” shouted Collins, and Alaska Republican Sen. Lisa Murkowski complained, “That’s where he lost me.” Whether the White House used the word “pike” or “spear,” there is no doubt that the message has been delivered — forcefully and repeatedly: If Republicans stand up to Trump, they will sleep with the fishes, politically speaking

. “I talk to Republicans all the time, quietly, individually,” said Ohio Democratic Sen. Sherrod Brown on Friday. “(M)any of them tell me that Trump’s a liar … but they’re all afraid of him.” Republicans’ professions of outrage at reports that they are afraid of Trump are, quite simply, as phony as a $3 bill.

Indeed, “phony” is the word that rushes to mind when listening to Trump’s defenses, and one hardly knows which among them is the most laughable. One potential prize winner: Trump’s contention that he had not demanded a quid pro quo from Ukraine. Knowing that he was guilty of the demand, he uttered the words “no quid pro quo” in a conversation in which he expressly confirmed that he was demanding a quid pro quo. This bit of idiocy would not survive scrutiny by fifth graders. “In other words,” observes Brown University constitutional scholar Corey Brettschneider, “if the president is robbing a bank and says, ‘I am not robbing a bank,’ we should believe him.”

Despite the hokum and the fraud served up by the White House’s smoke-blowing machine, polls show that most Americans get what is going on here. Two surveys released before Schiff buried Trump found that 51% want Trump removed right now. Republican senators will no doubt succeed in preventing that. They are unlikely, however, to prevent a verdict from being rendered against them by history.

Jeff Robbins, a former assistant United States attorney and United States delegate to the United Nations Human Rights Council in Geneva, was chief counsel for the minority of the United States Senate Permanent Subcommittee on Investigations. An attorney specializing in the First Amendment, he is a longtime columnist for the Boston Herald, writing on politics, national security, human rights and the Mideast.