Saturday, January 26, 2019

Brexit & the Wall


Brexit & the Wall


In a sense we’ve come to our nation’s capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness. It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked insufficient funds.
But we refuse to believe that the bank of justice is bankrupt.  We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation.

-       MLK, I Have a Dream



By:  JM Hamilton  (1-27-2019)


A person can learn a great deal about one's own government by observing other governments around the globe.  The UK Tory government, presently led by PM May, not only provides a basis of comparison, but echoes many of the problems Americans see w/in their own government.  Namely, how the legislative body - in the UK, the Parliament, and the US, the Congress - consistently fails the people.

If we study the Brexit phenomenon - the truest form of a democracy, whereby the British people voted to stay in or out of the EU, via referendum - and Parliament's subsequent reaction, and ongoing behavior - we see similar parallels w/ our own US Congress.

The British government has torn itself inside out over the referendum, where a majority of the UK's citizens voted to leave the EU.  Tories, like Republicans & Establishment Dems, typically align themselves w/ banks, big business, neoliberalism, and globalism.  But Brexit and the ongoing wave of populism - seen throughout the West – have turned that dynamic on its head. To such an extent that when May entered power, shortly after the referendum, we saw the Prime Minister attacking the BOE (the Bank of England, the US equivalent is the Federal Reserve), as aiding the banks and the wealthy, post 2008 banking crash, at the expense of ordinary British citizens. Observers also saw the PM recommend several populist themes, not the least of which was placing labor representation on corporate and multinational boards.  More recently, PM May announced that government austerity - at the expense of the 99% - was dead.  

Amazing what one simple referendum can do to shake up the establishment.  The subsequent gridlock - since the referendum in 2016 - arrives from two corners: The EU elites are hell bent on making the UK's exit, or Brexit, from the European Union as painful as possible (and in the process, the EU aristocracy is confirming the very reason why those British, who voted to leave, did so); and the second source of gridlock is the UK Parliament, itself. Here, the Parliament doesn't quite know what it wants.  The House of Commons can either cave into the demands of the EU & UK elites - big banks, The City, multinationals, etc. - and defy the referendum (that is, do a deal w/ the EU on the EU's terms); or it can quit the EU Customs Union cold turkey, what is often referred to as a hard Brexit (that is to say, honor the referendum, since the EU refuses to negotiate in good faith).

Does the UK Parliament then respect the wishes of the donor class - the elites, or does it honor democracy and the vox populi?  One thing is certain, the House of Commons has no idea of what the solution should be, and probably resents, greatly, being put in this predicament by the proceeding Tory government.  Of course, the UK elites would have never voted to leave the EU, which defines crony-capitalism.

And this is where what is happening in the UK is quite instructive, as to why the US Congress seemingly is found w/in a permanent stasis.

Note, all the happy talk of reining in the Bank of England is gone; note, the populist reforms originally suggested by the May government, like labor representation on corporate boards, gone.   Austerity... still alive and very much well in the UK, except for the welfare handed out to The City, and the banks, and the well-to-do continue unabated.  If you think banking deregulation is a problem in the United States, you should see what goes on in London (but - hand it to the Brits - at least London will place bank CEOs on trial for their crimes).

Where is JMH going with this:  Parliament - intentionally or unintentionally - likely the former - has allowed Brexit to suck all the oxygen out of the House of Commons.  It seems that Brexit, for the House of Commons, has become an excuse to do nothing.  What of the issues that drove British citizens to vote for Brexit in the first place (?): wage & wealth inequality; the complete lack of opportunity or possibility for upward mobility w/in British society; open borders that suppress wages; and the rigged system that favors the elite and the financial aristocracy?  

The Parliament is no where to be found, and of course, we'd expect this from the Conservative Party in power, the Tories. 










See the parallels yet?  We just went through two years of our own ultra-conservative US government, where Republicans dominated all four branches of government, including the Federal Reserve.  And the rich got richer, and the only thing the Republican led Congress did was pass tax cuts for the wealthy, and stack the federal judiciary w/ right-wing politicians wearing black robes.  It's almost as if the legislative branch of both the UK and US governments are no longer coequal but subservient to their respective executive branches, party leaders, and the donor class.  It's almost as if gridlock - or the crisis du jour, be it Brexit or presently in the states, the government shutdown & the wall - is a get out of jail card for the legislative body to do absolutely nothing.  And what role does the MSM play in all this?

Interestingly, per ballotpedia.org, the 116th Congress, headed up by Speaker Pelosi, is expected to be in session less time than the 115th Congress, headed up by Speaker Ryan.  That’s so the Congress can spend more time raising money.  What are we paying these people for?  Oh, that's right, their government salaries are chicken feed compared to the money received by their true paymasters, the oligarchy. 

There are 330 Conservative Party members in the lower house of Parliament; and in the US House of Representatives, there are 235 Democrats. It's almost as if these Parliamentarians and Representatives have never heard of the division of labor, or empowering committees to bring legislation to the floor, post-haste.  These legislative bodies appear too fearful or timid to make laws for the benefit of the people.  Then again, K-Street isn’t likely to support a people’s agenda, and it is K-Street lobbyist who write a great deal of the legislation passed by Congress anyway.

And who benefits most from the status quo, the rigged system, the capture of the UK and US governments, particularly the legislative bodies?

Here's a hint, they were all at Davos last week.

And just like PM May's happy - populist talk, there's been a great deal of happy talk among Dems about catching up w/ their electorate, which has, allegedly, shifted left in short order.

So just as Brexit sucked the energy out of Parliament, the POTUS's and House Speaker's bitter feud - over the government shutdown and the wall – appears to have sucked the life out of the American people's agenda and the US congress.

At this point, if the Dems truly were interested in championing the people - instead of serving the donor class - they'd walk and chew gum at the same time.  They'd fight Trump's wall, but they'd also pass and send a raft of legislation over to the Senate, and humiliate the Senate Republicans for not passing same.  There is so much low hanging political fruit - policy positions the American people support, overwhelmingly -  that, if House Dems acted, it would likely all but certify the 2020 POTUS as a Democrat.


Glad you asked:  For starters, the majority of Americans support a Green New Deal and renewable energy; a majority of US citizens support ending credit card wars in the Middle East (where's the revised AUMF?); a majority support raising taxes on the super-wealthy (but I guess that would mean raising taxes on Speaker Pelosi and many other congresspersons, unless they exempted themselves); where's the federal legislation to protect women's reproductive rights, and gay rights (again, supported by the majority of Americans); and the House bill backing America’s support for a higher minimum wage?  Wasn't Chuck & Nancy, and Dem leadership, highly supportive of reining in cartels and monopolies... or was that all campaign BS?

Crickets.

(That’s because the Dem Establishment does not want to acknowledge the failure of Clintonian economic & foreign policies  --– that is, globalism, neoliberalism, and the embrace of Silicon Valley & Wall Street, as well as, its ongoing & present love affair w/ the Deep State & endless credit card wars --- for what they are, political malpractice.  Instead, Dem eminentos are betting the farm that the Trump campaign’s Russian ties will vindicate - or at least distract from -  years of failing forty percent of Americans, and one in five children.  And given the POTUS’ level of popularity that might be a winning Dem strategy for 2020.  But if the Dems enter power then, w/ the same set of sadistic GOP-Lite policies, including mass incarceration - until relatively recently, a Dem establishment favorite - the new Dem emperor will quickly be found out as wearing, yet again, no clothes.  Calls for “hope” – backed by no political action, from our elected politicians – only work once.)

Americans increasingly believe they have a right to health and affordable healthcare, and the Constitution says as much (something about unalienable rights to: life, liberty, and happiness).  If nothing else, perhaps, the push for Medicare for All will finally encourage private sector healthcare interests to clean up their act.  America has the most expensive healthcare system in the world, and yet, life expectancy is in decline.

If the Speaker wants to engage in a power play w/ the POTUS (aka biz as usual w/in Washington) - a president who will do anything to distract from the Mueller probe, and solidify his base of support - that's fine.... go at it, but at least take care of the American people along the way.  I know, the Speaker has only been in power a matter of weeks; but if past is prologue (this is Nancy’s second go as House leader), don’t expect a burst of energy, or a surge of progressive legislation under Pelosi’s stewardship.  The ACA, premised upon a right-wing think tank's white paper, and bailing out Wall Street banks - Speaker Pelosi's signature achievements, to date - are not exactly what one would call advancing FDR's cause.

Speaker Pelosi is the establishment, as POTUS Trump found out this week.

If the energy level we've seen from the 116th Congress, so far, is what we can expect over the next 23 months, what's going to happen when hearings on the POTUS begin in earnest?  

Answer:  Absolutely nothing.  Progressive initiatives and legislation will stall.  The Dem establishment will, likely, show their true colors once again - at least under present management - and the donor class will be pleased. 

Speaker Pelosi all but guaranteed this, when she doubled down on pay-go as one of her very first official acts; that is to say, another round of austerity for the American people, as well as, continued and record rates of low taxation for the uber wealthy (best illustrated by examining the tax tables from the 1950s forward).  Of course, I really hope the Speaker surprises, and proves me wrong on all this.

In short, the more than likely, lack of House-driven progressive initiatives and legislation maybe by design, w/ gridlock being utilized as an excuse for House Dems to not even try.  If you need another example of a comatose – money sucking - legislative body, too fearful to act, just examine the House of Commons from across the pond.


Copyright JM Hamilton Publishing 2019


Sunday, January 13, 2019

Wall Street’s Perpetual Profits Machine



Wall Street’s Perpetual Profits Machine


WASHINGTON — The federal budget deficit continued to rise in the first quarter of fiscal 2019 and is on pace to top $1 trillion for the year, as President Trump’s signature tax cuts continue to reduce corporate tax revenue, data released Tuesday shows.

The monthly numbers from the Congressional Budget Office also show an increase in spending on federal debt as rising interest rates drive up the cost of the government’s borrowing.

The widening deficit comes despite a booming economy and a low unemployment rate that would typically help fill the government’s coffers. Federal spending outpaced revenue by $317 billion over the first three months of the fiscal year, which began in October, the budget office reported. That was 41 percent higher than the same period a year ago, or 17 percent after factoring in payment shifts that made the fiscal 2018 first-quarter deficit appear smaller than it actually was.


By JM Hamilton (1-13-2019)


Why does the yield curve invert, or appear to have nearly flat lined? 

Many economists will tell you that an inverted yield curve, or a flattening yield curve (that’s where the two year Treasury yield is little different than the 30 year), may signify an imminent recession.  But in today’s world, w/ over a decade of hyper-accommodative central bank policy around the globe, it could signify something entirely different.

One thing does appear relatively certain, however.  And that is the global financial aristocracy - perhaps intentionally or unintentionally – have built a perpetual profits machine, and have locked in central bank accommodative policy for decades to come.

A perpetual profits machine?  How?  And does such a thing exist?

Look around you and what do you see?

Ø In industry after industry we see M&A and industry consolidation that all but guarantees a steady flow of profits, given some consideration for elasticity of demand.  Factor in financial engineering – often fueled by record low financing  - and who needs to make the top line grow, when a stock buyback or a LBO can do the job.

Ø Globalization has taken hold, so that supply chains, manufacturing, and patents are housed w/in the country w/ the least onerous regulations, lowest tax rates, and least expensive labor.

Ø We see a very low tax regime that benefits high net worth individuals, and multinationals, at the expense of austerity & higher tax rates for the middle class.  If the plutocracy can’t obtain compounded interest anymore, from fixed income assets…   thanks to crony democracy, there’s the compounding power of lower tax rates over time.

Ø And the piece de resistance, or engine that drives the perpetual profits machine, and the metaphorical gun held to every central bankers head, a global tsunami of private and public sector debt. It’s this ocean of debt that keeps central banks accommodative, interest rates suppressed, and central bank balance sheets expanding… and ironically, the Wall Street perpetual profits machine motoring along.

It’s ironic because a great deal of the US national debt (which more than doubled, from 2008 to present, by some ten trillion plus, dollars) was accumulated bailing out Wall Street banks, financing tax cuts for the wealthy, and fighting an entirely over the top global war on terror.  The bailout, tax cuts for the one percent, and the credit card wars – you guessed it – enriched the financial aristocracy.  And now, these very same robber barons use this cataclysmic debt to insure the Fed Chair doesn’t stray too far from home, that is to say, provides accommodative monetary policy for as far as the eye can see. (Everyone else isn’t so lucky, as debt is the father of inequality, instability, and indentured servitude.  When many of us pay our taxes this Spring take a close look; I can assure you Apple, or GM, aren’t paying anything close to the tax rates you are paying, that’s if they pay any taxes at all.)

Together these four items (consolidation, globalization, low taxes, and cheap debt - provided by central banks) all but guarantee that the financial aristocracy can’t lose, or let’s just say the game/monetary policy is rigged and their financing, & refinancing, risks have been immunized & mitigated.  Now, growth and profits may not continue to rise overtime, but profits are all but locked in w/ as much certitude as this world can offer: that’s the power of a monopoly & financial engineering supported by cheap debt.  

Owning the government, via a battalion of K-Street lobbyist, doesn’t hurt either.



Source: US Department of the Treasury


There’s just a couple of problems. Remove anyone of these four components, and the perpetual profits machine begins to malfunction, and the financial elite and Wall Street banks can signal their dissatisfaction, via capital strike or what has become to be known among stock market aficionados, as a taper tantrum.   Distortions, instability, & volatility can occur – or be reverse financially engineered - which can give the Fed Chair heart palpitations, or wreck a President’s career, possibly both.

Remove M&A, financial engineering, disrupt global supply chains, take away the low tax rate regime, or highly accommodative central bank policy…  and all sorts of hell can break loose.  And not just for the financial elite.  As industries consolidate, the leverage these cartels or monopolies hold over the economy, labor, markets, and politicians only expands and grows…. So if they are not happy, nearly everybody else can be made miserable or worse.  As for the federal government, higher interest rates (i.e. higher debt service loads) means much beloved entitlement programs, Social Security & Medicare, come under threat.

(It’s one of the reasons Trump’s moves on trade – during a moment in time when the Fed is seeking to normalize monetary policy – are so bold.  And while Trump has many issues, and a long list of flaws, the necessary renegotiation of US trade agreements, particularly w/ China, takes tremendous courage.  Essentially, Trump & Lighthizer are treading where no administration has dared tread for several decades.)

There’s another problem: theories on perpetual motion machines have been around for centuries, but the laws of thermodynamics guarantee that no such machine can exist.  A machine can only produce as much energy as it can consume; and judging from the manner in which the financial elite continually harvest profits, and manipulate debt, from their perpetual profits machine… we all know this machine will eventually breakdown.  Call this profit taking analogous to the second law of thermodynamics, which states that energy disburses, and, in this world, is subject to friction.  That friction, in this example, being the front loading of profits, bonuses, & dividends that are paid out every time a private equity firm, or C- Suite, loads another company up w/ debt.  Essentially, setting the business up for greater risk than necessary, when faced w/ market disruptions or during the next economic downturn.

Put another way, any number exogenous and/or endogenous shocks – individually or in combination – can disrupt the Wall Street perpetual profits machine.  Add in a global web of derivatives, swaps, and repos, and the odds of contagion only increase, in the event of yet another financial crisis.  (Although at the moment, I’d place my bet on political crisis.  Just ask Mr. Macron about the best-laid plans of mice and Rothschild’s bankers.)

So back to our original question:  Why does the yield curve invert, or nearly flat line?  Or in some countries, like Japan, stray into negative territory.

It’s based upon insider knowledge that central banks are being held hostage by the avalanche of debt they amassed, and created, bailing out banks, the billionaire class, multinationals, and, in the case of the US, paying for multi-trillion dollar credit card wars.

As for when the perpetual profit machine ultimately breaks down, well there’s certainly money to be made in chaos.  That is, when this profits machine, inevitably, runs off the road and ends up in a ditch, if past is prologue, there’ll be some tycoon(s), banks & shadow banking, and private equity fund(s) ready to pounce, pick up the pieces, and we’ll see even greater industry consolidation (which means far greater leverage over the economy, labor, and governments). 

Some folks call this “creative destruction.”  Yes, as JMH has written before, the financial elite’s creativity and our destruction.

In short, buckle up, because the air bags just might deploy.


Copyright JM Hamilton Publishing 2019