If last month’s 10Y, and yesterday’s 3Y auction, were mediocre at best, today’s 9-Year, 11-month reopening was nothing short of blockbuster.
Printing at a yield of 2.615%, and stopping through the 2.623% When Issued by 0.8bps, this was the lowest yield since January 2018, and a long way below the recent cycle high of 3.225% hit in October.
The internals were just as impressive, with the Bid to Cover jumping from 2.35 to 2.59, the highest since June, and obviously well above the 6 month auction average of 2.45. But most notable was the surge in foreign official demand as Indirect bidders took down 69.4, up from 59.5, the highest since November, and above the 63.6 average. Meanwhile, as in yesterday’s 3Y auction the Directs dropped from 12.2% to 9.1%, leaving Dealers holding 21.5% of the auction, down from 28.4% last month.
Overall, a very strong 10Y reopening, and one which sets the stage favorably for tomorrow’s 30Y auction.
via ZeroHedge News https://ift.tt/2J9eGN0 Tyler Durden
A Norwegian Air 737 Max 8 flying from Stockholm, Sweden to Tel Aviv, Israel made a dramatic mid-flight U-turn on Tuesday after the low-cost airline temporarily suspended all 18 of its Boeing 737 Max 8s.
The move comes as 31 airlines and several countries announced the grounding of the Max 8 following a deadly Sunday crash in Ethiopia which killed 157 people – the second in less than six months after an Indonesian Lion Air Jet plunged into the ocean last October, killing 189.
“In response to the temporary suspension of Being 737 MAX operations by multiple aviation authorities we have taken the decision to not operate flights using this aircraft type, until advised otherwise by the relevant aviation authorities,” said Tomas Hesthammer, operations chief in an email to AFP.
Flight number DY4545 was a little more than halfway to Israel on Tuesday when it turned around and returned to Stockholm’s Arlanda Airport.
Norwegian air acted immediately after the United Kingdom’s Civil Aviation Authority announced that the 737 Max 8 would not be allowed in British airspace.
According to the Associated Press, the following list of countries and airlines have grounded the plane:
AUSTRALIA
Australia has announced a temporary ban on flights by Boeing 737 Max aircraft, although none of its airlines currently operate them. The Civil Aviation Safety Authority said Tuesday that the ban will affect two foreign airlines — SilkAir and Fiji Airways — that use them for flights to Australia. The authority said Singapore’s SilkAir has already grounded its 737 Max jets, and that it is working with regulators there and in Fiji to minimize disruptions. It said that Fiji Airways has two 737 Max 8 jets in its fleet. The airline had hoped to continue flying the jets to Pacific destinations.
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BRAZIL
Brazil’s Gol Airlines has suspended the use of seven Max 8 jets. The airline said it is following the investigation closely and hopes to return the aircraft to use as soon as possible. Gol said it has made nearly 3,000 flights with the Max 8, which went into service last June, with “total security and efficiency.”
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CAYMAN ISLANDS
Cayman Airways, a Caribbean carrier, said it stopped using its two Max 8 jets starting Monday. President and CEO Fabian Whorms said the move will cause changes to flight schedules. Cayman is the flag carrier of Cayman Islands, a British overseas territory.
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CHINA
China has 96 Max 8 jets in service, belonging to carriers such as Air China, China Eastern Airlines and China Southern Airlines. The civil aviation authority directed the planes to be grounded indefinitely on Monday. It said the order was “taken in line with the management principle of zero tolerance for security risks.” There were eight Chinese citizens on the Ethiopian Airlines flight that crashed shortly after taking off on Sunday. The authority said it will consult the U.S. Federal Aviation Administration and Boeing before deciding when to lift the ban.
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ETHIOPIA
A spokesman for Ethiopian Airlines says it grounded its remaining four Max 8 jets as an “extra safety precaution” while it investigates Sunday’s deadly crash. The airline is awaiting the delivery of 25 more Max 8 jets.
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FRANCE
No French airlines use the Boeing 737 Max, but as a precautionary measure, French authorities decided to “forbid all commercial flights on a Boeing 737 Max departing from, traveling to, or flying across, France.” In a statement Tuesday, the French Civil Aviation Authority said that “France is carefully following the progress of the inquiry” into the crash.
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GERMANY
German Transport Minister Andreas Scheuer told n-tv television safety is the priority, and “until all doubts are cleared up, I have ordered that German airspace be closed for the Boeing 737 Max with immediate effect.”
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INDIA
India’s Jet Airways says it is “in contact with the manufacturer” of Max 8 jets and has grounded five of them starting Monday. Indian airline SpiceJet also uses the aircraft, but it’s unclear if those planes are grounded. Calls and emails to the company were unanswered Tuesday.
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INDONESIA
Indonesia said it would temporarily ground Max 8 jets to inspect their airworthiness. Director General of Air Transportation Polana B. Pramesti said the move was made to ensure flight safety. A Lion Air model of the same plane crashed in Indonesia in October. Indonesian airlines operate 11 Max 8 jets. Lion Air, which owns 10 of them, said it will try to minimize the impact of the decision on operations. The other Max 8 jet belongs to national carrier Garuda.
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IRELAND
Irish aviation authorities have suspended flights by all variants of Boeing 737 Max aircraft into and out of Ireland’s airspace. Irish authorities say they made the decision “based on ensuring the continued safety of passengers and flight crew.”
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MALAYSIA
The Civil Aviation Authority said in a short statement Tuesday that no Malaysian carriers operate the Max 8, but that foreign airlines are banned from flying the plane in Malaysia, and from transiting in the country, until further notice.
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MEXICO
Mexican airline Aeromexico has suspended flights of its six Max 8 jets. Aeromexico said it “fully” trusts the safety of its fleet but ordered the grounding to ensure “the safety of its operations and the peace of mind of its customers.” It said other planes will take over the routes usually flown by the Max 8.
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NORWAY
Norwegian Air Shuttle said it grounded its 18 Boeing 737 Max 8 aircraft on the recommendation of European aviation authorities. Tomas Hesthammer, the low-cost carrier’s acting chief operating officer, says that “the safety and security of our customers and colleagues will never be compromised, and once authorities advise to cease operations we will of course comply.”
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SINGAPORE
Singapore has temporarily banned Max 8 jets — and other models in the Max range — from entering and leaving the country. The civil aviation authority said it was “closely monitoring the situation” and the ban will be “reviewed as relevant safety information becomes available.” SilkAir, a regional carrier owned by Singapore Airlines, has six Max 8 jets. It said the ban “will have an impact on some of the airline’s flight schedules.”
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SOUTH KOREA
South Korean airline Eastar Jet said it would suspend operations of its two Boeing 737 Max 8 planes and replaced them with Boeing 737-800 planes starting Wednesday on routes to Japan and Thailand. The airline says it hasn’t found any problems, but is voluntarily grounding the planes in response to customer concerns.
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TURKEY
In a statement on Twitter Tuesday, Turkish Airlines CEO Bilal Eksi said all Boeing 737 Max flights are suspended until the “uncertainty affecting safety is cleared.” He added that passenger safety was the company’s priority.
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UNITED KINGDOM
The UK Civil Aviation Authority said in a statement Tuesday that though it had been monitoring the situation, it had as a precautionary measure “issued instructions to stop any commercial passenger flights from any operator arriving, departing or overflying UK airspace.” Five 737 Max aircraft are registered and operational in the United Kingdom, while a sixth had planned to start operations later this week.
via ZeroHedge News https://ift.tt/2UyjIEa Tyler Durden
A New Jersey Transit Police officer was caught on video Saturday night throwing a motionless man to the ground, dragging him, hitting him, and telling him to “get the fuck up.”
The exact circumstances that led to the events caught on camera were not clear. But it doesn’t appear that the man posed any threat to the unidentified officer. “The unresponsive man was accosted and had his face brutally slammed into the pavement for no other apparent reason that the power trip of the Transit police officer,” read the caption of the video, which was originally posted to Facebook, according to NJ.com:
The roughly one-minute video starts with the officer pulling the man up from the ground outside of the Trenton Transit Center, then throwing him back down to the pavement. “Get up, get out,” the cop says. “Get up and get out now.”
The man stays on the ground, barely moving, for roughly 45 seconds while the officer stands over him. Then, the cop drags him by the sweatshirt across the pavement before dropping him to the ground again and hitting him. “Get the fuck up,” the officer says.
New Jersey Transit Police wouldn’t identify the officer or the man he dragged, but did say they were looking into the incident. “The matter is currently under investigation with the New Jersey Transit Police Department Internal Affairs,” spokesperson Jim Smith told ABC News. The officer involved has been suspended, Smith said.
According to the woman who took the video (who wanted to stay anonymous): “There was no resisting” and the man “wasn’t even speaking.” The woman told WPVI she stopped filming due to a dead phone battery, though the officer didn’t stop dragging. “After my phone died it continued to happen. The berating. Probably another five minutes. Dragging him on the cement and dragging his face on the ground.”
It’s important to note that this video only captured about a minute of what was clearly a longer encounter. We don’t know what happened before the camera started rolling, as the anonymous woman admitted, and we don’t know why the man was on the ground in the first place.
However, it seems all too clear that it wasn’t necessary for the officer to use such excessive force. The man on the ground wasn’t moving, let alone resisting. It’s difficult to understand why dragging him across the pavement and hitting him was an appropriate response to a man who was mostly immobile.
During the last 100 years, approximately 110 million people have died under the forces of socialist regimes. Today, in Venezuela, citizens who haven’t died of starvation or fled the socialist paradise are rising up en masse against President Maduro’s brutal dictatorship. Incidentally, Maduro himself most definitely is not starving.
Despite these numbers, it is considered chic and intellectually-forward these days in the U.S. to proclaim oneself a socialist. What is it about socialism that makes people hail it at the same time knowing that it eventually will do its best to destroy them?
First, every socialist country has risen on false promises. These promises include untold prosperity, equality for all, and security for its citizens – said security, of course, is provided by gun-toting soldiers of the regime. The promises sound good. Still, every country that has fallen for socialism’s rosy picture has been driven into abject poverty, starvation, despair, and a two-caste social system with a few masters on top and everyone down at heel at the bottom.
Like any Ponzi scheme, socialism must collapse under its own weight. Any initial signs of success under socialism seduce and enthrall, like an enchanting mistress. These successes, however, are quickly eradicated by economic and philosophic reality. Mistresses rarely live up to their initial allure. The record of socialist’s failure is 100 percent and remains unbroken. The result is 100 predictable – poverty, hunger, and a tyrannical government that rules by force instead of rule of law.
Despite the current love affair U.S. millennials have with Venezuela, the country is following in the wake of all other failed socialist dictatorships. At one time, Venezuela was an oil-rich, prosperous and thriving country. Former President Hugo Chavez nationalized many industries, including the oil industry. There were small, initials sign of success when Chavez distributed some of the nationalized – or stolen – property among the happy citizenry. But stolen property can support a nation for only so long. Venezuela’s oil industry collapsed and is currently drawing its last breath. As is Venezuela itself.
Inefficiency and fraud are only part of the reasons no socialist country can survive. The principles of socialism themselves work toward its destruction. There are no incentives under socialism. Under capitalism, incentives are the driving force. Offer a service or product at the best price, and you will prosper. Market forces rule. Under socialism, government imperative rules, so profit and loss and pricing take a back seat. In Venezuela, two week’s wages may buy you a bit of bread, if you are fortunate enough to find any.
Other countries that are still attempting to “perfect” socialism include Cuba, Cambodia, China, and North Korea. Only China’s current efforts at some free enterprise is allowing it to grow economically. Cuba, Cambodia, and North Korea are struggling to survive, with its citizens living under the complete control of its masters.
In the U.S., Bernie Sanders and his somewhat more attractive, newly-elected partisans are preaching a “perfect” version of socialism while living in luxurious homes and enjoying all of the offerings of capitalism. They are calling for 70 percent taxation on the evil rich.
U.S. socialism advocates point a finger of praise at countries such as Sweden and Denmark as “real socialism” while ignoring the misery in Venezuela, Cuba, North Korea, and others. They also ignore the fact Sweden and Denmark are very business and entrepreneur-friendly. They merely have a huge social safety net. Marx would not approve of them.
The problem is, money, consumer products, and services are finite. As former Prime Minister Thatcher famously stated, “Sooner or later, you run out of other people’s money.” That sums up the inherent flaw with the socialist theory. What happens when you run out of stolen goods? That is a question Sanders and his acolytes have yet to answer.
We live in an imperfect world. Capitalism does not guarantee riches. It only promises the opportunity to pursue a better life. Wealth is created through hard work and incentives. By its nature, some people will pursue success more ardently than others, thus creating income inequality. But individuals still have a choice. Under socialism, any pretense of choice is removed. Misery and poverty will be distributed equally. Wealth is destroyed instead of created.
Imperfect though it may be, capitalism is the only economic system to offer the incentives to pursue success through market forces. By contrast, socialism everywhere has destroyed its wealth and financial markets.
via ZeroHedge News https://ift.tt/2u0P5vx Tyler Durden
In President Donald Trump’s proposed 2020 budget, released Monday, here’s how the White House talked about funding for criminal justice reform:
The Administration is committed to breaking this cycle of recidivism by better preparing individuals to reenter communities and to mitigating the collateral consequences of incarceration. In addition to backing criminal justice reform through the FIRST STEP Act, the Administration supports efforts to bolster evidence-based programming in Federal correctional institutions. The Budget provides approximately $754 million for reentry programming in the Bureau of Prisons, including funding for education, career and technical training, substance abuse, and residential reentry centers. Of this amount, the Budget provides $14 million for the development of new and innovative pilot programs designed to address the needs of individuals incarcerated in Federal prisons.
There is a bit of a problem, here, though. That $14 million for new pilot programs is all well and good, but when the FIRST STEP Act was passed, it called for $75 million per year for five years to implement all its changes. The money doesn’t appear to be listed here.
Reason’s Eric Boehm noted in February that the omnibus spending bill passing through Congress did not have this money in it, and the bipartisan groups that pushed for the passage of the FIRST STEP Act were alarmed by its absence.
Now, groups are further alarmed that while Trump’s budget proposal specifically invokes the Act’s name, it doesn’t clearly delineate that $75 million as part of the proposal. This doesn’t mean it isn’t going to be fully funded, but it’s not clear where and how, and according to The Marshall Project, the White House is declining to answer their questions. Justin George notes:
Money for the law’s costs could be set aside by the Department of Justice, but it was awaiting the confirmation of a new attorney general. That didn’t happen until last month when William Barr was confirmed.
Monday marked the start of the lengthy budget process, which lasts into the fall and involves additions, subtractions, negotiations and redrafts between federal agencies, the White House and Congress. It is Congress that allocates funding. While nothing has been written in stone, Trump’s plan indicates what the White House considers important, and it may foretell political fights to come over empowering the law or leaving it toothless.
The $754 million referenced for reentry systems refers to existing programs, and it’s a $15 million increase over 2019’s spending. Even if that increase all goes to expanded job training and other programs in the FIRST STEP Act designed to ease federal prisoners back into the real world, help them become functioning members of society, and hopefully not commit new crimes, that’s still only half the money called for in the legislation.
To be clear, because we’re big on reducing government waste and cutting spending, the Justice Department’s budget doesn’t have to increase by exactly $75 million to cover the expenses of the FIRST STEP Act. And it most certainly doesn’t need to. We can say with confidence that there’s already enough money sloshing around in the Justice Department to fully fund the legislation’s new programs.
We should be concerned, though, that this budget summary doesn’t indicate it has any plans to do so. Criminal justice reformers on the left, center, and right all came together to push through these very, very modest changes. Trump signed the bill and praised it, even referencing it in his last State of the Union address. He wants credit for the bill’s passage, but that credit also requires that it actually be implemented, not just passed.
Here’s a suggestion! The White House is proposing in this budget plan shifting responsibility for tobacco and alcohol enforcement entirely out of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) to the Treasury Department instead. Why not put the rest of its duties in the hands of the FBI and kill the agency entirely?
In perhaps the least-surprising political headline of the day, The Hill reports that a senior Democratic lawmaker told them today that former Vice President Joe Biden will run for president in 2020.
“I’m giving it a shot,” Biden said matter-of-factly during a phone call with a House Democratic lawmaker within the past week – a conversation the congressman recounted to The Hill and interpreted as a sure sign that Biden will run in 2020.
However, Biden spokesman Bill Russo refuted the idea that the former vice president is absolutely running:
“He has not made a final decision. No change.”
But, as The Hill notes, at an event with firefighters Tuesday morning, Biden teased a 2020 presidential run as the crowd chanted, “Run, Joe, run!”
“I appreciate the energy you all showed when I got up here,” Biden told an energetic crowd at the International Association of Fire Fighters’ annual conference in Washington, D.C.
“Save it a little longer, I may need it in a few weeks. Be careful what you wish for.”
His entry into the race has been largely expected. In recent weeks, the 76-year-old Biden (would be the oldest President if elected) has been laying the groundwork for what would be his third and final presidential bid, seeking support from Democratic donors, lawmakers and others in his political circle. Biden, who served as President Obama’s vice president for two terms, also has a team of campaign aides already assembled for the moment he decides to launch a White House bid, which is expected in early April.
We look forward to Trump’s tweeted response (and to see whether the liberal cognoscenti goes full Schultz/Gabbard against Biden or supports the septuagenarian’s run).
via ZeroHedge News https://ift.tt/2J4NjDQ Tyler Durden
Federal prosecutors announced that they were charging dozens of people, including famous actresses Felicity Huffman and Lori Loughlin, in an alleged scheme to help students get admitted to colleges under false pretenses on Tuesday. They are being charged with conspiracy to commit mail fraud. 38 people have reportedly been arrested thus far.
Prosecutors are alleging that the individuals charged tried to bribe college entrance exam officials in order to cheat on admissions tests and that some conspired to bribe coaches and administrators to label their children as “recruited athletes”. Athletes can sometimes get preferential treatment.
Among the colleges involved were Georgetown University, Yale University, Stanford University and University of California Los Angeles, according to a WSJ writeup. Charitable organizations were used as fronts for the bribery payments, according to authorities. A Newport Beach college counseling business, the Edge College & Career Network LLC, was named as the main facilitator of the bribes.
More than $6 million in bribes were paid, according to The Daily Mail, who also reported that “[Lori] Loughlin and her husband ‘agreed to pay bribes totaling $500,000 in exchange for having their two daughters designated as recruits to the USC crew team'”. Loughlin’s husband Mossimo Giannulli has also been charged. It was also reported that Huffman paid a $15,000 charitable contribution. Her and her husband William H. Macy had planned to do the same for a younger daughter of theirs later this month, according to reports.
It was alleged that Huffman’s daughter was able to cheat on her SATs as a result of the payments. According to the Daily Mail:
Huffman had the site where he daughter took the SATs moved from her own high school to a test center West Hollywood.
Her test was then administered by a proctor who had flown in from Tampa and told investigators that he ‘facilitated cheating, either by correcting the student’s answers after the test or by actively assisting the student during the exam.’
In this case, Huffman daughter scored a 1420, which was a 400 point improvement from her PSAT results just one year prior.
Soon after the proctor was paid $40,000 by the same organization that Huffman would later give a $15,000 donation according to the documents.
The document by authorities filed on Tuesday read:
‘Beginning in or about 2011, and continuing through the present, the defendants — principally individuals whose high-school age children were applying to college — conspired with others to use bribery and other forms of fraud to facilitate their children’s admission to colleges and universities in the District of Massachusetts and elsewhere, including Yale University, Stanford University, the University of Texas, the University of Southern California, and the University of Southern California — Los Angeles.’
Boston authorities called the bust “the largest college admissions scam ever prosecuted by the Department of Justice.”
Boston authorities announce charges in what they call “the largest college admissions scam ever prosecuted by the Department of Justice.”
The authorities continued, stating that the group involved included “CEOs…successful securities and real estate investors, 2 well-known actresses, a famous fashion designer and a co-chairman of a global law firm”.
“These parents are a catalog of wealth and privilege.”
Boston authorities say the parents involved in the scam include “CEOs…successful securities and real estate investors, 2 well-known actresses, a famous fashion designer and a co-chairman of a global law firm” pic.twitter.com/RGfR56zC7O
Bill McGlashan, the millionaire investor and CAA board member who founded The Rise Fund alongside Bono is also reported to be included among the names of those charged. We can’t wait to see what other names wind up being disclosed as part of the alleged scheme.
via ZeroHedge News https://ift.tt/2JaGUac Tyler Durden
President Donald Trump’s 2020 budget request to Congress has been released, and with it is a renewed call for a $1 trillion infrastructure plan. This 13-digit proposal is a notably scaled back version of Trump’s previous plans, both in the amount of new money the president is looking to spend and in reforms he’s hoping to make.
“Decades after building-out the core of our infrastructure, much of it is in urgent need of repair, expansion, and modernization,” reads a fact-sheet released alongside the budget. “Without continued investment and maintenance, America’s infrastructure will continue to age, deteriorate in quality and performance, and gradually contribute less to American economic output.”
To right the situation, the White House’s 2020 budget calls for $1 trillion in infrastructure investments, at least $200 billion of which would be made up of new federal spending.
If this sounds familiar, it is because it is roughly the same plan the administration released in February 2018, which promised $1.5 trillion in infrastructure investments kickstarted by $200 billion in new federal spending.
That plan was fairly detailed, coming with some funding formulas for that $200 billion in new spending that put an emphasis on projects that could attract, state, local, or even private investment, and which would not need ongoing federal support.
The February 2018 plan also included regulatory reforms that would have made it easier to privatize airports and toll interstate highways. Private Activity Bonds—tax-exempt bonds issued by private sponsors to raise capital for infrastructure projects—would likewise have been expanded.
That proposal died on the vine as Congress became preoccupied with other issues and Trump failed to advocate for it.
This new proposal, while still including some broad language about how the federal government shouldn’t be “the primary funder of the Nation’s transportation systems” is otherwise pretty light on details.
Of that $200 billion in new spending, the administration has specific plans for only $10 billion of it. The White House says that it will “will work with the Congress on allocating the remaining amount.”
Unlike the White House’s February 2018 infrastructure plan—which envisioned a $1.5 trillion infrastructure plan as an addition to existing federal efforts—the budget documents released today suggest that the Trump administration will be counting a renewal of current surface transportation spending toward its $1 trillion plan.
This latest budget document is “less specific, and it relies slightly less on the private sector than other proposals” had, says Baruch Feigenbaum, a transportation policy expert with the Reason Foundation, which publishes this website.
That change, says Feigenbaum, could be a nod to the fact that the White House knows it will not be able to get many of its infrastructure priorities through a Democrat-controlled House. It could also reflect an internal change in the administration’s priorities.
“Many of the architects of his original proposal are no longer in the administration,” said Feigenbaum, meaning the White House could have “folks with a different list of priorities that are not as strictly free market as they once were.”
A good example of this can be seen in the portion of Trump’s budget proposal dealing with the Federal Aviation Administration (FAA). The president’s request includes $3.3 billion for updating the agency’s air traffic control operations to improve safety and reduce delays.
Notably missing is any reference to spinning off air traffic control operations, currently run by the FAA, into a separate nonprofit corporation. This is something the administration has supported in the past as a way of modernizing air traffic control services, and references to the idea were included in both previous presidential budget requests.
That it is now missing form this budget proposal is an indication that the Trump administration’s plans for infrastructure reform are now less ambitious and less free market.
Modern Monetary Theory (MMT) has been the most recent fad in politics and a few of my clients asked that I provide my thoughts on its economic viability. I tend to not get into politics but this was an interesting economic question so I’m sharing the following. I will say that I’m not an expert on the theory and even proponents don’t seem to agree on all aspects of the theory, so take the memo with the appropriate grain of salt.
The US has a lot of debt and few options
As of last year, the federal government directly owed about $19 trillion, the state governments owed about $8 trillion, and the pension system had about $23 trillion in entitlements. Social security and Medicare are expected to cost $50 trillion through the next 75 years. We are currently looking at about $100 trillion in projected government liabilities and the deficits are only getting worse and now there is a push for new initiatives that will cost $trillions more.
When faced with ballooning debt we really only have three options short of a direct default:
Tighten the belt, spend less and tax more.
Keep borrowing money and increasing the debt.
Print money.
Our nation has historically pursued some combination of the first two options, keeping an eye on the deficit while increasing the debt ceiling as necessary. However, in the current environment where debt levels are already high, economic growth slow and income inequality wide, the third option seem increasingly attractive to politicians pushing for additional government spending.
Revival of MMT
The recent political push for increased spending found steam behind the revival of an economic ideology called the Modern Monetary Theory. The theory is centered on the idea that a dollar printing press frees the US government from the budgetary constraints facing normal entities. Because America borrows in its own currency, it can always print more dollars to cover its obligations. As a result, the thinking goes, the US can always run sustained budget deficits and rack up an ever-increasing debt burden with the printing press as the ultimate back stop. The Fed can then keep interest rates low to contain the cost of servicing the debt and should there be an inflation problem from too much printed money, simply increase taxes. At the surface, this sounds like a free lunch that the leaders of our country have been either too dumb or too scared to take in the last few centuries. Why worry about balance sheet problems when we can print them away?
I believe MMT is the wishful thinking of politicians
I haven’t done an exhaustive literature review, but I believe anyone who truly understands the balance sheet of the US government will not buy into MMT. For example, in a recent congressional hearing, the Chairman of our Federal Reserve Jerome Powell said the following about MMT and the role of the central banks.
“The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong. The US debt is fairly high to the level of GDP — and much more importantly — it’s growing faster than GDP, really significantly faster. We are going to have to spend less or raise more revenue. And to the extent that people are talking about using the Fed — our role is not to provide support for particular policies. Decisions about spending, and controlling spending and paying for it, are really for you (the congress).”
MMT doesn’t work because our currency outstanding is tiny compared to our debts
In debates about MMT, I’ve heard a lot of analysis around unemployment, inflation, aggregate demand, taxation and other complicated macroeconomic concepts. My biggest problem with MMT is a simple one. The theory boils down to using the printing press as a last resort to fiscal troubles and if we look at how we’d practically go about using the printing press to pay for obligations, we’d find that MMT is completely implausible. This is perhaps why anyone not stuck in economic theory-land, but understands the US monetary system like an actual business with dollars in and dollars out will not accept MMT.
The magical printing press on which MMT relies is far too small in reality compared to the size of our obligations. Below I show to scale the relative size of our projected government liabilities to the size of our currency outstanding.
Our currency is not meant to be a rainy day fund but rather a medium of exchange. As a result, it is tiny compared to the size of our economy and our obligations. For every $1 of currency there is almost $70 of liabilities. It would take a massive amount of printing by historical standards to make any kind of a dent in the liabilities. For example, to pay for just 10% of our current liabilities with the MMT approach, we’d have to print so much money that the number of dollars in circulation goes up by 700%.
The US is the reserve currency of the world because we have been extremely disciplined about money printing
To get context around what such a large spike in US dollar would do to the economy, we need to look back at the history of money printing in the US. Today, US is the reserve currency of the world and a huge part of the world economy depends on the stability of the US dollar. For example, 90% of all foreign exchange trades include the dollar as one of the pair, 1/3 of the global GDP comes from countries that are directly pegged to the dollar and a substantial other portion comes from countries that are loosely tied to the dollar.
We’ve achieved this privileged status because we’ve earned the trust of the global markets through decades of discipline. Below I show the annual growth of US dollars in circulation compared to the long-term average economic growth. While the growth rate of our money supply fluctuates in the short-term along with the business cycle, we have been extremely disciplined about keeping the long-term currency growth rate in tandem with the economic growth rate. It is inflationary to have money supply grow substantially faster than the economy itself (and deflationary to have money supply grow slower than the economy). Even in the depths of the Financial Crisis, we resisted the temptation to directly print and inject currency into the economy, which is why the currency in circulation did not dramatically change through our recent quantitative easing. Interestingly, proponents of MMT often mischaracterize our recent quantitative easing as an example of how money printing is a free lunch that didn’t cause inflation.
To print enough money at the scale necessary to fund some of the recently discussed initiatives like the New Green Deal, we’d have to massively depart from history. To give you a sense of how much we’d have to print relative to history, below I show the amount of currency in circulation necessary in order to fund the $50 trillion over the next 10 years (the low end of an estimate from a think tank led by a former Congressional Budget Office director). The number of dollars in circulation would have to go up 3200%.
This would undoubtedly lead to massive inflation, spiking interest rates, and crumbling value of the dollar. While MMT directly addresses inflation, I have yet to see proponents discuss the impact on foreign exchange – the US economy doesn’t exist in a vacuum. Recently our former Fed Chairman Alan Greenspan was also asked about MMT, to which he responded, “You’d have to shut down your foreign exchange markets, people will be trying to fly out of your currency.”
If the government then pursues the MMT recommended strategy of increasing taxation in a massively inflationary economy with plummeting currency value, you’d see additional capital flights, further exacerbating inflation and currency problems. It is also interesting that MMT would reverse the roles of the Fed and the Congress, asking the Fed to keep interest rates low to promote government spending while asking the Congress to adjust taxes as necessary to keep inflation in check.
The US has earned the trust of the global markets over the last century. With the privilege of being the reserve currency comes the responsibility of a disciplined currency management. The leaders of this country have never taken the free lunch of the printing press not because they were dumb or scared, but rather because that free lunch does not exist. Dollars are traded in a free market where both the buyer and the seller need to be incentivized to make the exchange. The markets are not so dumb and naïve to blindly hold on to the dollar while the US prints its way out of fiscal trouble. The moment the US resorts to the printing press, the logical move is to ditch the dollar and all dollar denominated assets and the trust the US has built over decades will evaporate in a moment.
So then why is the world still lending to the US at such low interest rates?
There is no doubt the US has a tremendous amount of debt. If we can’t print our way out of our troubles and our liabilities are going up every year, then why is the market still freely lending to the US at such low interest rates? Didn’t I just say the markets aren’t so dumb and naïve?
We are blessed with such low financing rates not because of some new theory about money that comes with a magical printing press. Instead, we are like rich kids borrowing on the back of a vast inherited fortune. When assessing borrowers’ credit worthiness, a lender would look at their income as well as total net worth. In the case of the US, we have the luxury of an incredible wealth of infrastructure, intellectual property, land, financial assets and other resources. Below I show the aggregate balance sheet of the entire United States – this is of course an extremely rough estimate that is more for illustration. The first section was collected from a quarterly publication from the Federal Reserve called the Financial Accounts of the United States, which was a fascinating read. The second section is rougher estimates I collected from other sources.
While by normal accounting standards the Federal government is in dire shape with a net worth of -$13 trillion, our nation as a whole is tremendously wealthy. Even with all the liabilities like pension, Social Security and Medicare, our country still sits at over $200 trillion of positive net worth. We’ve had the luck of establishing a country in one of the most productive and resource-rich plots of land in the world and the fortune of having generations of innovative hard workers before us to develop that land and those resources.
From this broader sense, our balance sheet is still reasonable so it is understandable that the markets are still willing to lend us for cheap (though it is up for debate how much of that wealth the US government can really sell or tax). That said, our balance sheet is steadily worsening so the debt may soon lead to higher financing rates if it continues to grow faster than our income. Those higher financing costs will come sooner if politicians don’t recognize the limitations to our finances and rely on a magic printing press to save us.
Final thoughts
I believe that Modern Monetary Theory is naïve and that it would fail, but I do fear that it is like a seductive infomercial that makes hard-to-resist claims and may lead us down a fiscally destructive path. By the time we realize our mistake, it may be too late. I do not know politics well enough to predict which path we’ll end up choosing.
via ZeroHedge News https://ift.tt/2UtUw1n Tyler Durden
While Goldman has mostly recovered from the 1MBD corruption scandal which sent its stock price crashing late last year, its former bankers have yet to face the music, and earlier today former Goldman bankers in charge of the bank’s Malaysia relationship, Tim Leissner and Roger Ng, were banned from the banking industry by the Federal Reserve for their role in helping divert billions of dollars from Malaysia’s den of thieves, also known as the country’s sovereign wealth fund, 1 MDB.
Leissner and Ng arranged bond offerings that allowed funds to be diverted from 1MDB, the Fed said in a Tuesday statement, with some of the money used to bribe government officials in Malaysia and Abu Dhabi, while criminals also used proceeds to pay for lavish lifestyles, the regulator claimed.
Leissner, who agreed to the Fed’s permanent ban, was fined $1.42 million, according to the statement. Playing the scapegoat role to a T, Leissner had already pleaded guilty to charges brought by the U.S. Justice Department, including conspiring to launder money. In October, Leissner’s deputy at Goldman Sachs, Roger Ng was indicted on similar charges. As we reported last month, Malaysia said it will extradite Ng to the U.S. after he has completed legal proceedings in local courts.
Tim Leissner and wife, Kimora Lee Simmons.
As Bloomberg previously reported, the Fed had ramped up its investigation into how Goldman Sachs bankers dodged the firm’s internal controls to raise billions for 1MDB that later went missing, while apparently avoiding a scandal that shook the banking industry several years ago when the NY Fed was secretly leaking regulatory information to, who else, Goldman Sachs.
The Fed accused Leissner of participating in a scheme with Malaysian businessman Low Taek Jho and others to divert money from “several” 1MDB transactions, including three bond offerings underwritten by Goldman Sachs in 2012 and 2013, according to an order dated March 11. Low, a controversial financier, has been accused of embezzling hundreds of millions of dollars from the Malaysian fund and using some of it to buy gifts for famous models and film actors.
Leissner in August pleaded guilty to U.S. charges that he conspired to launder money and violated the Foreign Corrupt Practices Act. As part of the charges, he agreed to forfeit $43.7 million and admitted to bribing officials in Malaysia and the United Arab Emirates to get bond deals for Goldman Sachs.
Leissner said he and others arranged the 1MDB fundraising as debt offerings because it would generate higher fees for the bank. He has said his behavior was in line with the “culture of Goldman Sachs to conceal facts from certain compliance and legal employees.”
So far former Goldman CEO Lloyd Blankfein, who quit as Goldman CEO just as the scandal was ramping up, has not been indicted.
In President Donald Trump’s 
