How Quickly the Geopolitical and Economic World Has Changed
The past few months have seen astounding geopolitical and economic events. I provide my take below. But first, two announcements.
I’m holding a FREE webinar for MaxiFi Planner users as well as any Economics Matters subscribers who wish to attend. The Economy, Inflation, and how MaxiFi can help, will feature special guest Jay Abolofia, CEO Lyon Financial Planning. Join us on Tuesday, December 13th at 2 PM EDT. Registration is now open here. We’ll briefly review the state of the economy, particularly inflation, quickly show participants how to use MaxiFi Planner to adjust their finances for inflation, and then have an extended Q&A where you can ask me, via chat, any questions you’d like about the global economy, the national economy, or your personal economy. Feel free to also ask questions about my company’s software tools — MaxiFi Planner and Maximize My Social Security.
Second, in addition to Economics Matters — the Newsletter and Economics Matters — the Podcast, I’ve just launched Economics Matters — The Money Quiz. The Quiz is a test of your financial knowledge. Don’t worry about getting things wrong. Losing is winning. You’ll learn what you don’t know, learn what you can’t know, and learn how you can know what you can’t know.
Nancy Pelosi Has Stepped Back
Following the horrific attack on her husband and the nauseating conspiracy theories floated by Elon Musk and others as well as the Democrat’s loss of the House, Nancy Pelosi effectively ended her political career. In so doing, she removed a huge albatross from the neck of the Democratic party — herself. Pelosi has been a divisive figure for reasons I don’t fully get except that there are lots of people who feel their purpose on earth is to hate.
Despite her opponents, Pelosi has had a hugely successful political career capped by becoming the first female Speaker of the House. She’s a person of enormous intellect, compassion, and good intent. But good intent doesn’t substitute for good policy. Her great failure, in my view, was failing to address the valid concerns of the reddish half the country — that big government is too often bad government as well as insolvent government.
Take the 18 major federal and state welfare programs established to assist the poor. The list includes Medicaid, Social Security, Food Stamps, TANF, Housing Assistance, Child Care, Supplemental Security Income, and the Affordable Care Act. These programs, together with our explicit and implicit taxes (e.g., Medicare premiums) have locked the poor into poverty. Indeed, a quarter of the poorest fifth of Americans are stuck in marginal tax brackets of 70 percent or higher. Yes, this reflects having to pay more taxes on additional earnings. But the primary source of the poverty lock is having one’s benefits clawed back due to earning more money.
Did Speaker Pelosi give even one speech in her long career about the need to ensure the poor have decent incentives to work? Did she give even one speech about our nation’s long-term fiscal insolvency? Did you give even one speech about Social Security’s now $61 trillion red ink? Did she ever purpose any of the fundamental policy changes our country so desperately needs? Not that I recall.
This said, each of us should sincerely thank Speaker Pelosi for her truly remarkable service. One can argue over policy, but history will remember Speaker Pelosi’s immense courage on January 6th in defending our country’s democracy.
Donald Trump No Más
President Trump may not know it, but he’s also political history. He cost the Republicans a massive election win. They lost the Senate and have a small, unworkable majority in the House. A host of prominent Republicans with Presidential ambitions smell blood and are all but announcing their candidacies. Name-calling and whining about the last election will get Trump exactly nowhere. Neither will slogans like “the China virus.” The public has tired of his act. Even his own daughter has abandoned ship. So will major Republican donors.
The President craves attention. He’s now getting that from a Special Prosecutor. The elephant in the room is that a Special Prosecutor wouldn’t have been appointed to investigate potential charges of sedition and espionage unless Attorney General Garland and his colleagues thought the President should be indicted. Once the indictments come down either in these matters or in the violation of Georgia election laws, Trump will, at long last, lose all his hot air.
Speaking of hot air,
Boris Johnson and Liz Truss, No Más
Boris Johnson is also history. So is his successor, Liz Truss, who didn’t outlast a head of lettuce. The world has lost faith not just in British politicians, but in the British economy. Brexit has been an unmitigated economic disaster. But having convinced the British public that the EU was the boogeyman, the current sad sacks in Parliament are ill-poised to speak the truth. It may take the threat of Scotland, Wales, and Northern Ireland leaving the “United” Kingdom to get the pols to change their tune. Or it may take the arrival from France of even more boats loaded with immigrants — immigrants who, thanks to Brexit, can’t be returned to France.
It’s anyone’s guess how long and how badly British “leaders” will wreck their country. In the meantime, the pound is cheap and there’s never been a better time to visit London. Alas, the Queen is also no más.
Putin Continues to Shoot Himself in the Head
The capture of Kherson — Herr Putin’s singular achievement in his horrific war on Ukraine — is now also history. So are his immediate threats to use nuclear weapons. The best way out for all sides is Putin’s handing over all Ukrainian territory except Crimea. Ukraine should cede that part of its territory conditional on the repatriation of all Ukrainians in Crimea who wish to leave and the return of all Ukrainians taken to Russia, including prisoners of War. Ukraine would need Russia to pay reparations and a firm security guarantee, namely membership in NATO. President Xi Jinping of China should publicly propose this solution. It will rehabilitate his badly damaged reputation and let each side declare victory and cease their fire.
Bringing China In from the Cold
President Biden’s and President Xi’s G-20 meeting in Bali may represent a thaw in today’s frigid Sino-American relations. Now that he’s solidified his autocracy, Xi should return China to the warm embrace of global capitalism. If, instead, Xi invades Taiwan, which he seems itching to do, the developed world will embargo China just as it’s doing with Russia. This will kill China’s golden goose — productivity growth, potentially for decades.
As I co-wrote in a recent article in The Hill, the US is a waning economic power. All China needs do to become the global economic and, surely, military hegemon is be patient. By 2100, i.e., in less than 80 years, China’s economy will be over twice that of the US, this despite a massive — 400 million — decline in population. Xi may be realizing that when it comes to China’s destiny, slow means fast and fast means slow. Certainly, his G-20 outing included numerous highly welcomed statements about avoiding conflict.
President Biden could help bring China in from the cold by supplying it with our powerful COVID vaccines. This should be done as a humanitarian gesture. It will let Xi escape the COVID trap in which he has ensnared his country. As things now stand, opening up the economy will mean millions of deaths from COVID. But getting China fully back to work is strongly in our economic interest.
Inflation is Coming Down?
Last month’s core inflation was just 0.3 percent. On an annual basis that’s 3.7 percent - less than half the 7.7 percent we’ve experienced over the last year. Housing represents over a third of household budgets. And house prices and rents are now weakening. Based on inflation-indexed as well as nominal Treasury bond yields, the market expects inflation to run at 2.5 percent over the next ten years. Hence, we may be turning the corner on inflation. The Fed certainly thinks so. Otherwise, it would be raising rates by far more than has been the case. With labor markets remaining remarkably tight, the prospects for recession seem low unless we talk ourselves into one — something we surely did last time around.
Is Twitter No Más?
Vladimir Putin was counted a genius before he revealed himself to be the village idiot. Elon Musk, like Putin, is actively wiping the floor of himself. Turning a profit on Twitter was going to be tough sledding under the best of circumstances. But Musk seems hell-bent on destroying his $44 billion investment. Perhaps he doesn’t get that half the country wouldn’t appreciate his spreading nasty falsehoods about Paul Pelosi, when the Speaker’s husband was in the hospital having been viciously attacked by a nut bag who listened to people like Musk. Perhaps he didn’t realize that firing half your employees overnight is first-order stupid, that publicly ordering his remaining top engineers and other workers that they had better jump when he says jump would be their last straw. Perhaps he didn’t understand that restoring Trump’s and Majorie Taylor Green’s Twitter accounts would promote the mass exodus of customers and advertisers. Perhaps he didn’t, well, take his meds. Who knows what madness is next to come. But here’s my one cent. Sell your Tesla stock. No one this crazy can be trusted to handle your investment properly.
The World Turns
Think back nine months. Would you have predicted Nancy gone, Trump going (to jail?), Boris gone, the Queen gone, Putin losing, Xi improving?, China still straight-jacketed by COVID, civility winning the election, Twitter imploding, oh, and Bolsonaro gone? This is mind-blowing change, most of which, remarkably, is damn good.