We have been monitoring China closely since March 2017. We were one of the first to show that China had driven the global business cycle since 2009 and that the remarkable recovery of the world economy from the 2015 slump was mostly China’s doing.
Now that the world economy is, again, heading down, many are wondering, what will China do? The unfortunate answer is that it can most likely do very little. Her ability to stimulate the economy by increasing debt is almost completely gone. This means that the world economy is heading into a recession.
The limits of stimulus
China has been very aggressive in its efforts to curtail any deeper contraction in its economy. This has produced some remarkable trends, like the relationship between China’s GDP and total debt shown in Figure 1.
Figure 1. Nominal gross domestic product and the total private sector and government debt in China. Source: GnS Economics, Mbaye, Moreno-Badina and Chae (2018), World Bank
It has been clear for quite some time that China’s economy is on an unsustainable path. We warned about this in September 2017, and summarized our findings bluntly:
Because of the massive levels of the debt and unproductive investments, the economy of China is heading to a crash.
Since late 2018, China’s economic policy has been to engage ‘spurts’ of stimulus, which have kept the economy growing (although it’s an open question how fast the economy is actually growing). But, 2019 brought a monumental change.
Figure 2. Yearly cumulative aggregate financing to the real economy (flow) in China. Source: GnS Economics, People’s Bank of China
In 2019, China enacted record-breaking debt-stimulus, with the growth of both aggregate social financing to the real economy (see Figure 2) and financing through the shadow banking sector surpassing previous high-water marks. And yet, China’s GDP growth rate kept falling. It seems evident that China has reached the point of ‘debt saturation’.
Where to go, when the road ends?
Due to massively unproductive investments made in previous stimulus cycles, the effectiveness of additional Chinese stimulus to bolster economic growth has now collapsed. This is the main message of China’s 2019 record-breaking and mostly ineffective stimulus.
Some are hoping that China would launch similar aggressive infrastructure and investment spending, which was seen in 2015 and 2016. However, this is something China may simply not be able to do.
In 2015, the official budget deficit of China was less than one percent. When the “shadow-financing” of local governments was taken into account, the deficit was around five percent. Now, the official budget deficit is over five percent, but if financing by local governments through the “shadow” banks is included, the deficit mounts to over 11 percent—a very significant number.
This quite simply means that China does not have the ability (financial space) to launch a massive infrastructure stimulus programs á la 2015, unless it seeks to finance them directly through the central bank via pure debt monetization. We consider this to be an extreme emergency measure (the “last-option”), which China is very unlikely to take up at this point.
Towards the correction (crash)
So, what options remain for the world economy? Central banks have already reverted to massive easing by restarting their QE and “Not QE!” programs, and by cutting rates. What’s notable that this has been done outside actual recession conditions. In a way, that is worse. It’s a sign of sheer panic—a very human reaction to the spectre of losing control.
Central bankers are, justifiably, horrified by the prospect of the collapse of the ‘everything bubble’ in global asset markets which they are primarily responsible for having created. As we explained in Q-Review 3/2019, central banks are unlikely to survive such a calamity—at least in their present form.
The thing is that, unlike in 2009 and in 2015/2016, monetary stimulus will be ineffective, because China’s stimulus will not be able to resuscitate the global economy this time around. Alas, the monetary easing may—as it has for the past ten years—lead to booming asset prices, but the real economy will continue to deteriorate.
It’s not hard to imagine how this divergence is likely to play out, when investors finally realize that a recession is close. Think 1929.
This week, I co-authored two essays with Seth Barrett Tillman on somewhat obscure legal questions. First, what happens if the Chief Justice is unable to preside at the presidential impeachment trial? Second, can the Speaker of the House be elevated to the Presidency? The former piece was occasioned by the spurious claim that Chief Justice Roberts might have to recuse given his comments about President Trump. The latter piece was based on the increasing likelihood that Vice President Pence may also face an impeachment inquiry.
This post won’t rehash our admittedly unorthodox position on offices and officers. Rather, this post will opine on yet another way that Twitter degrades academic discourse: the subtweet. Merriam-Webster defines the term as “a usually mocking or critical tweet that alludes to another Twitter user without including a link to the user’s account and often without directly mentioning the user’s name.”
Subtweets are very common on Twitter. Often, a person will criticize someone’s writing, but not “tag” him or her. (Twitter only notifies you if you are tagged in the tweet.) The subtweeter may include the person’s name, but not his username. Or, the subtweeter may add a screenshot of the offending person’s tweet.
Why subtweet? Some people on Twitter are prone to block critics. A subtweet avoids the blockage. In other cases, the subtweeter may want to avoid getting into a lengthy Twitter fight with the person. A subtweet preserves social-media sanity. In any event, subtweets are designed to avoid notifying the person who is being criticized. Subtweeting provides a small degree of anonymity, even when posting from a public account. That is, you can avoid confronting the accused. (My research assistant wrote her law review note on whether a subtweet could give rise to Title IX liability.)
In short, subtweeting promotes a one-sided attack that avoids an open exchange. This purpose is inconsistent with academic discourse. Professors should not subtweet as a means to criticize other professors. If they wish to critique a fellow scholar they can do so publicly, by tagging them. Let the chips fall where they may. Or critique them privately in an email. I always prefer to contact someone directly if I have a question about their work. You can even send them a link to the tweet!
The best way to criticize another scholar is the old-fashioned way: write a substantive response. Indeed, we chose to post on Balkinzation as a means to respond to Gerard Magliocca, who wrote only the Chief Justice could preside. After reading our post, Gerard changed his opinion, and said we were right.
In my experiences there are two general categories of @replies. First, there are people who are asking genuine questions: Perhaps my post wasn’t clear, or there is a logical followup question, or maybe there is an issue I hadn’t considered. I don’t mind replying to those queries in a thread. The second category are people who are not asking genuine question (even if they preface their tweet with “I have an honest question”). Instead, they are baiting you into making a point, which they will then turn against you (perhaps by setting you up for a hypocrisy charge, see #3), or are simply baiting you into an argument that has no end, because they enjoy public debate. More power to them, but it’s not for me. Most arguments on Twitter consist of two or more people trying to prove that he/she is (1) smarter, (2) wittier, and (3) and more persuasive. Present company included, most people are not nearly as smart, witty, or persuasive as they think they are. Especially on Twitter, when debates become emotional. To avoid this trap altogether, I only respond to questions I see as falling into the first category. I’ll simply ignore the latter category. If you ask a question on Twitter, and I don’t respond, please send the same question to me by email. I promise, I will reply quickly. (My response rate is rapid.) That so few people ever follow up with an email suggests that more often than not, the goal is not to exchange ideas, but to occasion a public Twitter fight.
Since 2018, I have significantly scaled back my Twitter usage. I no longer reply to anyone. It is not a good use of anyone’s time. I will be happy to respond to questions by email.
I do acknowledge one irony of this post. So far, I did not identify the subtweeters! You can read the thread here. This was not the first time I was subtweeted by people know well, and engage with frequently. I welcome emails from any or all of them if they have questions about my work. Or a substantive response.
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“It’s Kind Of Despicable”: Chicago Is Rigging Red Light Cameras To Rack Up Millions In Fines
It appears as though someone figured out that red light cameras could rack up tons more in fines if the number of times a light changes to red increases. This has led to nefariously shorter green lights in certain areas of Chicago.
Intersections where drivers are issued hundreds of thousands of dollars in tickets have been unfairly racked up, according to ABC’s investigative reporting team. The team timed traffic lights at intersections where cameras were present and found that drivers had less time to legally get through intersections in directions where cameras where watching.
In once case, yellow and green lights were only 20 seconds – combined.
The city – which has been in a perpetual state of financial peril thanks to horrifying mismanagement of its pension liabilities – took in $35 million from the city’s 300 red light cameras so far in 2019.
Kevin O’Malley, managing deputy commissioner of the Chicago Department of Transportation, said: “We believe it improves traffic safety which in the end saves injuries and saves lives.”
But on a tip from a group opposing the cameras, the ABC team decided to conduct their own investigation. Mark Wallace of Citizens to Abolish Red Light Cameras (CARLC) said: “The question is why is a green light shorter where the red light camera is at the very same intersection.”
Wallace continued: “That’s really significant and you can just generate a lot more violations by having a shorter green on a red light.”
The green lights are shorter at intersections where there are cameras. “It seems like they’re definitely trying to get people out here,” one driver said.
City records indicate that one light – at 87th and Lafayette in Chatham – generated more than $1 million this year. In the two directions with cameras, the green lights are 20 seconds and 29 seconds. The direction without a camera timed at 1 minute and 9 seconds – a major difference of up to 49 seconds longer.
O’Malley says the timing is “based on traffic flow” and not on the cameras. He says 20 seconds is enough time to keep traffic moving: “It should be enough time, for the traffic flow that is there at the time.”
He says that lights have different times based on traffic patterns and that intersections chosen for cameras are due to their “history of known traffic crashes”.
O’Malley continued, explaining why cameras were only installed in directions where the green lights were shorter: “These three intersections you’ve pointed out are off the Dan Ryan, and they happen to be parallel to the Dan Ryan, and one of the directions is on a bridge that goes over the expressway, and we don’t install cameras on bridges because of the constructability. It’s more difficult, as well as the a little shake, so the enforcement is a little more difficult.”
The investigators also examined an intersection at 79th and State in Burbank, which made almost $800,000 this year alone. The directions that the cameras are facing have green lights that are as short as 22 seconds. The direction without the camera timed at 46 seconds.
The city’s most lucrative camera is at Cicero and I-55. In 2019 it has racked up $1,850,000, or about $6,778 a day, $282 dollars an hour, $4.71 a minute, or 8 cents a second.
Timothy Galarnyk, a traffic safety expert with Construction Risk Management, Inc. who reviewed all three intersections the I-Team examined and is familiar with national standards for traffic light control devices, said: “It’s actually, it’s kind of despicable.”
He concluded: “That’s a trap. The green should be the same length, but if there’s no camera they give you more time, if there’s a camera they give you half the amount of time, which means they’re going to catch you running that light. They’re going to catch you at their trap.”
I always find this time of year to be self-reflective. Year-end provides a natural point for critiquing past performance and fitting it into a broader investing context. These holidays in particular have a way of foisting this perspective upon me, and with deep meaning. As a parent of two young kids, my holidays now kick off with Halloween. Perhaps stuck in this spirit, I find myself wondering: Why are we so scared?
I can’t seem to shake this sense that we live in a culture that’s scared. I see a number of signs across the economic, political, and investment landscapes that seem support this observation. To be sure, this is not universally true on an individual level. However, as a culture we seem to have lost our mojo, our swagger, and the confidence that fuels significant economic advancements.
Why Scared
Scared is psychological state. It connotes being afraid or frightened. Scared feelings typically arise when one feels helpless in a situation or believes he/she is unable to improve it via action. Thus, it’s closely associated with victimhood. Scared is not a feeling that accompanies independence, confidence, and capability.
By all accounts this is the best time in human history to be alive. It’s never been easier to access information, collaborators, and different perspectives, nor in such abundance. These conditions should enable self-reliance and wealth creation. They are a perfect crucible for unbounded development and prosperity.
Yet, economic independence doesn’t seem as valued today as it once was. The cultural impetus shies away from proximal challenges and looks to others for solutions—and in particular, for political solutions. This doesn’t square with the times.
In my view, this shift is a matter of confidence and self-esteem. It’s not the shirking of responsibility that’s telling; it’s the unwillingness to engage with the issues. Confident individuals face challenges head-on. Scared ones look to others. Problem solving often requires creativity, not reverting to staid and ineffective ideas. The former is a strength of the market; the latter is a politician’s. To be sure, there’s a time and place for politicians and bureaucrats to assist. However, economics is not the place and these are not the times. The obsession with finding political fixes for economic underperformance suggests to me that we lack the self-confidence to tackle it ourselves. We seem scared.
Central Bank Dependence
The clearest example of this in the investment markets is the neurotic obsession with central banks. I commonly hear people critique their ignorance and ineffectiveness only to follow with—the same people, mind you—what central bankers ought to do next. I thought central bankers were ineffective?
It’s time we stop looking to central banks for solutions. They don’t have them. In fact, I see no need for them at all. In theory, central banks were created to oversee the money supply. Dual mandates were afterthoughts. Since the money supply merely reflects economic activity, this should be a fairly mundane task and one that decentralized private banking centers performed quite well(despite the popular narrative).
Today, however, our opinions of central bankers are quite different. They are viewed as omniscient, economic alchemists. We look to central bankers to manipulate business cycles, control inflation, and prescribe prosperous economic conditions. Where did this come from and when did it become so prevalent? Central banks can’t create money let alone produce these other conditions. They fall under the purview of the productive economy and thus are products of our actions alone. The perception of central bank dependence is false and marginalizes our own economic efficacies.
Political Dependence
The central bank obsession is, in my view, part of the more general, cultural shift towards increased political dependence. This can be observed by the rise of populism writ large. From Trump’s presidency in the U.S., to Brexit, to the Five Star Party in Italy, to the yellow-vest movement in France, there’s a clamor for retrenchment within national borders. The U.S.-China trade war is just another iteration of this, justified rationalized or not.
To me, there’s a common theme to these movements. They are indicative of a reversion to tribalism, the cutting of global ties that underpin modern day prosperity, and represent a fear of “the other” mentality common in all primitive and destructive cultures.
Why is it important where the human who produced your steel resides? Seriously, why does it matter to you? If that person’s so evil the solution is simple: deal with someone else. I promise you there is no greater commercial influence than that. Just put yourself in the shoes of a business owner to see (go ahead, close your eyes and imagine).
Why are we suddenly seeking politicians to protect us from the ever-changing world? Economic issues are those of voluntary exchange and they are dynamic. Very few problems require political fixes. Seeking them indicates that one is too scared to trust his/her actions. It’s a skepticism over the power one commands in the marketplace. It’s cowardly.
The Monetary Policy—Fiscal Policy False Dichotomy
It’s often helpful to compare and contrast ideas against extreme conditions. Doing so can surface the essential issues for easier analysis. This is especially true for complex concepts such as those found in economics. Oftentimes, impacts are not obvious and secondary and tertiary effects must be considered.
In the investment markets we often hear about fiscal or monetary policy initiatives. Whenever the economy needs a boost, commentators opine that more accommodative monetary policy might be needed (such as lower interest rates). Or perhaps this particular instance requires a fiscal policy response (like lower taxes and/or greater government spending). Whatever the case may be, prescriptions are framed as being a matter of monetary policy or fiscal policy initiatives.
Nothing, in my view, illustrates cultural fear more than this false dichotomy of monetary policy—fiscal policy. They are conceptually similar and not appropriate book-ends of a conceptual dichotomy. Rather, monetary and fiscal policies are different flavors of central planning. Both seek government intervention in the economy, differing only by their preferred branch. Monetary policy utilizes central bank action while fiscal policy seeks legislative cures. They are not opposites.
The true opposite to central planning is economic liberty. Thus, the proper spectrum, in my view, has economic freedom on one side (deregulation and less controls) and central planning—i.e. fiscal and monetary policy, which are greater controls—on the other. One side reflects independence and confidence while the other forceful paternal shelter. Considering monetary or fiscal policy actions only rejects self-reliance as an option altogether. It’s a scared perspective.
Pacifying Investment Decisions
I also see the shift to passive investment strategies to fit into the fear of independence theme. To be sure, there are virtues of passive investing. Track records and fees relative to active management are compelling enough. But are these the sole motives?
Source: Morningstar
What if a fear of underperforming popular indices or standing out plays a part? Speculating on the future often yields wrong outcomes; it’s part and parcel with investing. As a colleague of mine is fond of saying, “we’re not bootstrapping treasuries.” By this he means that earning returns requires taking risks. Sometimes things don’t pan out as planned and losses occur. The trick, of course, is to minimize the losses; not neurotically seek to avoid them.
Are allocators more concerned with finding the comfort of consultants’ consensus rather than investing according to their own observations? Could career risk play a part in this trend? Are we too scared of being wrong to invest in themes that might play out over longer time horizons?
Share Buybacks Are Safest
What about share buybacks? Much has been made about the magnitude at which corporations have repurchased their shares. Why is this happening at such an unusually high level?
Source: 13D Research
To be sure, I take no issue with share repurchases and see them as a legitimate use of capital. However, even accretive buy-backs have short-lived impacts. They last only a year when year-over-year comparisons are made. Why aren’t businesses investing in projects that could yield multi-year benefits? Are executives simply playing it safe, too scared to commit capital to projects that might fail? Are the majority of shareholders really so shortsighted?
Scared As An Investment Theme
It’s easy to roll your eyes at this article and dismiss it as another meme. However, my intention is neither to seek scapegoats nor to emotionally vent. Rather, I’m interested in exploring whether this behavior is part of a larger cultural phenomenon of fear. If so, the next downturn could push us further from economic liberty and more towards political controls. This would surely have investment implications.
Of course, there is no such thing as “we.” We is just an aggregation of “I’s.” Thus the real question is: Why am I so scared? While an uncomfortable, if not antagonistic question to ask, it’s critical to understanding this emergent theme.
The world is in constant flux. No one should appreciate this more than investors. Change is the essence of our jobs—to profit from the movements in asset prices. Prices don’t move in stagnant conditions.
Yet, as a culture we seem terrified by change. I find this puzzling since we’ve never been better equipped to adapt and capitalize from it. Those investors who embrace change will survive and thrive. Those who don’t could perish from this business. What could be scarier than that?
In Landslide Vote, US House Joins Senate In Defying China, Backing Hong Kong Protesters
One day after the Senate unanimously passed a Bill backing Hong Kong’s pro-democracy protesters, and spawning a wave of complaints and threats from China which warned it would retaliate, moments ago the U.S. House of Representatives followed in the footsteps of the Senate, and in a nearly unanimous vote cleared legislation supporting pro-democracy protesters in Hong Kong by requiring an annual review of whether the city is sufficiently autonomous from Beijing to justify its special trading status, defying objections from China.
The bill, S. 1838, which would require annual reviews of Hong Kong’s special status under U.S. law and sanction officials deemed responsible for human rights abuses and undermining the city’s autonomy, passed the House 417-1 late on Wednesday afternoon setting up a confrontation with Beijing that could imperil a long-awaited trade deal between the world’s two largest economies.
The bill now goes to Trump as soon as Thursday to be vetoed or signed into law, according to a congressional aide.
While the White House declined to comment on whether Trump will sign the legislation, Trump’s position is now acutely precarious because Congress would easily be able to override any veto. If Trump signs the bill, he could torpedo the trade talks, while refusing to sign it would give his political opponents a chance to attack him for being weak on China, while at the same time facing an ongoing impeachment process.
“The Congress is sending an unmistakable message to the world that the United States stands in solidarity with freedom-loving people of Hong Kong and that we fully support their fight for freedom,” Speaker Nancy Pelosi said on the House floor. “This has been a very unifying issue for us.”
Trump has been silent as the Hong Kong protests escalated into violence in recent weeks, even as lawmakers of both parties demanded action on the measure. Chinese officials quickly responded to the bill’s Senate passage Tuesday, saying Beijing “firmly” opposes the congressional action, which it considers a grave violation of international law.
“We stand in solidarity with the people of Hong Kong,” said Republican Representative Chris Smith, who has been pushing the legislation since Hong Kong protests in 2014. “There will be strong sanctions, other ramifications for this crackdown.”
After dropping 24 hours ago when the Senate first passed the bill, US equity futures dipped modestly following news of the bill’s passage in the House.
Meanwhile, as markets keep an eye on what Trump will do now, they will also be looking at China’s response. As we reported earlier, the Global Times editor in chief Hu Xijin tweeted early on Wednesday that “China wants a deal but is prepared for the worst-case scenario, a prolonged trade war.”
Few Chinese believe that China and the US can reach a deal soon. Given current poor China policy of the US, people tend to believe the significance of a trade deal, if reached, will be limited. China wants a deal but is prepared for the worst-case scenario, a prolonged trade war. https://t.co/7KPp5cUOIQ
To be sure, any aggressive response by China to the bill’s passage will not only make the passage of any trade deal in 2019 impossible, but will likely lead to even more antagonism and escalation in the coming months, something which Trump has been eager to avoid with the presidential elections less than a year ago.
On the other hand, even though China’s Xi Jinping doesn’t have to worry about electoral pressure – as he recently crowned himself ruler for life – he also wants to stop the bleeding and avoid more tariff increases, including one still due to take place in December. And Xi may be under pressure within the Communist Party: A rare leak to the New York Times this week of internal documents showing human-rights abuses in Xinjiang signaled some dissent in China’s opaque political system.
Beijing has other options too: beyond merely delaying trade talks, it could hit out at U.S. companies (most notably Apple), halt cooperation on enforcing sanctions related to North Korea and Iran, recall the Chinese ambassador to the U.S. or downgrade diplomatic relations. It could also further tighten rare earth metal exports.
Yet according to many, the most likely outcome is that for all its huffing and puffing, China will do, well, nothing. After all, when it comes to Hong Kong, Trump already has enormous leverage, and as Bloomberg notes, under the Hong Kong Policy Act of 1992, the U.S. president can issue an order removing the special trading status that underpins its economy, potentially with devastating consequences.
And since Beijing realizes will only do that if extremely provoked, it is likely to limit itself to “very high-sounding, rhetorical responses” rather than concrete actions hitting American economic interests, according to Willy Lam, an adjunct professor at the Chinese University of Hong Kong’s Centre for China Studies, who has authored numerous books on Chinese politics.
“The Chinese will, of course, cry foul, but the real reaction may not be that severe,” Lam said. “They will watch the situation and make a judgment later.”
We’ll find out in the next several days if this take was correct.
DNA Test Reveals Hunter Biden Fathered Arkansas Child
Hunter Biden is many things; international businessman, alleged connoisseur of crack cocaine, and now – father to a child in Arkansas according to a recent DNA test revealed in a Wednesday court filing by the mother, Lunden Alexis Roberts.
According to the Arkansas Democrat Gazette, the test established Biden’s parentage “with scientific certainty,” and Biden “is not expected to challenge the results” or the testing process, according to the filing.
The baby’s “paternal grandfather, Joe Biden, is seeking the nomination of the Democratic Party for President of the United States of America,” the mother notes. “He is considered by some to be the person most likely to win his party’s nomination and challenge President Trump on the ballot in 2020.”
Hunter Biden, who initially denied having sexual relations with Roberts, eventually agreed to take a DNA test, according to documents filed by Roberts’ attorney, Clint Lancaster. –Arkansas Democrat Gazette
Hopefully Hunter saved some of that Burisma money.
Is This What’s Behind Pete Buttigieg’s Tremendous Ascent In The Polls
It has been a rough two months for Elizabeth Warren, whose formerly insurmountable lead according to PredictIt has all but melted away, leaving her tied with Joe Biden for the Democratic presidential nomination.
But as Warren’s star was setting, that of Pete Buttigieg has rising, with his nomination odds staging an impressive run in the past month, leading to what is effectively a three way tie between Warren, Biden and Buttigieg.
One possible reason for the Indiana mayor’s run was laid out by Cowen analyst Jaret Seidberg, who said that the democratic presidential candidate is being well-received by markets due to his pragmatic approach to governing and his “appreciation for the benefits of capitalism.” As a reminder, Buttigieg is due to take the debate stage on Wednesday night as the emerging front-runner in Iowa.
In a field that involves staunch leftists such as Warren and Sanders, the Indiana mayor is probably one of the better Democratic candidates for financial and housing stocks, Seiberg wrote adding that Buttigieg’s “experience is solving problems rather than partisan brawling,” while he hasn’t endorsed “some of the more radical policy plans that other Democrats are advocating.”
Seiberg also pointed out that though Buttigieg hasn’t articulated many views on financial firms while campaigning, he’s “Harvard and Oxford educated and worked for McKinsey on economic stabilization in war-torn areas.”
That is a point made previously by Jeff Gundlach who said that two weeks ago that “Mayor Pete is very smart. His Hunger Games “let them kill each other” strategy is perfect. Can you name a single policy Pete’s advocating?”
Mayor Pete is very smart. His Hunger Games “let them kill each other” strategy is perfect. Can you name a single policy Pete’s advocating?
Buttigieg also presents himself as a “Democratic Capitalist” and has touted his business experience, with Seiberg also pointing out that his national policy adviser Sonal Shah, was formerly with Goldman Sachs and Google, and “sounds like another progressive pragmatist.”
As a result, when it comes to markets, the Cowen analyst believes that Buttigieg would probably pick a Fed chairman who’s similar to Janet Yellen, as he may understand the “importance of an independent central bank that can put the long-term interests of economy ahead of short-term political gains.” More importantly, Buttigieg is unlikely to choose a central banker who endorses modern monetary theory, in contrast to what Warren or Sanders would certainly pursue.
And while little is known about Buttigieg does endorse, Seidberg summarized his known policy views on financials and housing as follows, courtesy of Bloomberg:
Buttigieg has been vocal about ensuring consumers can sue credit card companies rather than having to use arbitration.
He would restore corporate tax rates to 35% to pay for his health care plan, which means that higher taxes aren’t a separate priority, reducing risk.
He has endorsed a transaction tax, possibly aimed at high frequency trading rather than traditional trading.
He supports higher estate and top individual tax rates.
Buttigieg may be good for housing as he wants to create a federal program to provide downpayment assistance for 1 million families.
Buttigieg’s discussion of using affordable housing trust funds to finance two million units of affordable housing may be an “implicit endorsement” of Fannie Mae and Freddie Mac.
Cowen hasn’t heard Buttigieg discuss bank regulation, noting that the candidate hasn’t weighed in on breaking up banks or objected to plans to reduce reliance on leverage ratios in the Federal Reserve’s stress test.
Like most of Democratic candidates, Buttigieg favors legalizing cannabis
After Philadelphia Eagles safety Malcolm Jenkins wrote an op-ed in the Philadelphia Inquirer calling for more police accountability and transparency, the local Philly police union responded by bluntly telling Jenkins to shut up.
Philadelphia is in the midst of a much-needed conversation about police reform. Mayor Jim Kenney was re-elected to another term in office earlier in the month and is now on the hunt for a new police commissioner after Richard Ross resigned in August amid reports of sexual harassment and racial discrimination within the police force.
The Philadelphia Police Department’s mismanagement has led to hundreds of drug cases being dropped due to a corrupt narcotics unit, the creation of an oft-abused asset forfeiture program, and thousands of stops of mostly black drivers by officers who claim to “smell” marijuana in order to justify warrantless stop-and-frisk searches. In 2016, Philadelphia voters elected Larry Krasner, a civil rights lawyer, as the city’s district attorney for the purpose of checking and balancing that oppressive policing system.
Jenkins, meanwhile, is a co-founder of the Players Coalition Task Force, a non-profit organization formed by professional athletes to call for reform in policing and criminal justice. Jenkins submitted an op-ed to the Philadelphia Inquirer that ran on Monday, calling for Kenney to select a new police commissioner who will focus on fighting corruption within the department and reforming the practices of the police to focus on real crimes that affect the community. Jenkins came loaded with stats and facts:
The last commissioner resigned amid allegations of sexual harassment. Over 300 officers posted racist and sexist social media posts. Officers remain on the force despite using physical force against vulnerable people. And rather than solving serious crimes — police here make arrests in just 47% of all murder cases and 23% of all nonfatal shootings — they are busy stopping people over the “smell” of marijuana with over 3,300 drivers in the first quarter of 2019 alone, 84% of whom were black.
He notes that the Philadelphia police’s use of stop-and-frisk searches find guns just one percent of the time. He calls for the police to stop arresting children in school, and for any new commissioner to implement a “zero tolerance” policy for police misconduct and to support a citizen review board.
Here’s how the Philadelphia Fraternal Order of the Police, which represents 14,000 active and retired officers, responded in a letter signed by its president, John J. McNesby:
It’s amazing, but not terribly surprising, that McNesby responded to Jenkins’ critique not by challenging his data, but with a personal attack against him and the Inquirer for publishing his opinion. McNesby then has the gall to complain that “Hurling slurs and false allegations against police offers nothing in the way of improvement.” Yet, there are no insults in Jenkins’ piece, only data and specific recommendations that could reduce violent crime and improve community relations.
Let’s suggest that this one particular paragraph is what is sticking in McNesby’s craw. Jenkins wants a commissioner who is not afraid of McNesby’s bluster:
A commissioner who fights back against the police union. Nearly every time we hear a story of an officer abusing power, whether through violence or racist Facebook postings, the police union is there to defend the bad behavior. We need a commissioner who isn’t in lockstep with the union and who will instead push back when the union tries to hide and justify bad behavior. The commissioner must also support a union contract that allows for more officer accountability, even if that is an unpopular position with the rank and file.
Data shows that hundreds of Philadelphia cops fired for bad behavior have been able to fight their way back onto the police force, thanks to union contracts. Reasonnoted in 2017 how one police officer managed to get back on the force after being fired for killing an unarmed man by shooting him in the back.
The police union’s overheated response here indicates how little value the Philadelphia Fraternal Order of Police places on developing or maintaining positive relationships with members of its own community. Second, it demonstrates how little regard Philadelphia’s police union places in behaving like responsible, mature adults who will accept accountability for the power to arrest and use deadly force against citizens.
McNesby might be right about one thing, however. Given the Philadelphia Police Department’s practice of planting drugs on suspects, costing the city millions in lawsuit settlements, perhaps the Inquirer should consider surveying drug dealers.
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Owing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.
This past May and August, escalations in the trade and technology conflict between the United States and China rattled stock markets and pushed bond yields to historic lows. But that was then: since then, financial markets have once again become giddy. US and other equities are trending toward new highs, and there is even talk of a potential “melt-up” in equity values. The financial-market buzz has seized on the possibility of a “reflation trade,” in the hope that the recent global slowdown will be followed in 2020 by accelerating growth and firmer inflation (which helps profits and risky assets).
The sudden shift from risk-off to risk-on reflects four positive developments.
First, the US and China are likely to reach a “phase-one” deal that would at least temporarily halt any further escalation of their trade and technology war.
Second, despite the uncertainty surrounding the United Kingdom’s election on December 12, Prime Minister Boris Johnson has at least managed to secure a tentative “soft Brexit” deal with the EU, and the chances of the UK crashing out of the bloc have been substantially reduced.
Third, the US has demonstrated restraint in the face of Iranian provocations in the Middle East, with President Donald Trump realizing that surgical strikes against that country could result in a full-scale war and severe oil-price spike.
And, lastly, the US Federal Reserve, the European Central Bank, and other major central banks have gotten ahead of geopolitical headwinds by easing monetary policies. With central banks once again coming to the rescue, even minor “green shoots” – such as the stabilization of the US manufacturing sector and the resilience of services and consumption growth – have been taken as a harbinger of renewed global expansion.
Yet there is much to suggest that not all is well with the global economy.
For starters, recent data from China, Germany, and Japan suggest that the slowdown is still ongoing, even if its pace has become less severe.
Second, while the US and China may agree to a truce, the ongoing decoupling of the world’s two largest economies will almost certainly accelerate again after the US election next November. In the medium to long term, the best one can hope for is that the looming cold war will not turn hot.
Third, while China has shown restraint in confronting the popular uprising in Hong Kong, the situation in the city is worsening, making a forceful crackdown likely in 2020. Among other things, a militarized Chinese response could derail any trade deal with the US and shock financial markets, as well as push Taiwan in the direction of forces supporting independence – a red line for Beijing.
Fourth, although a “hard Brexit” may be off the table, the eurozone is experiencing a deepening malaise that is not related to the UK’s impending departure. Germany and other countries with fiscal space continue to resist demands for stimulus. Worse, the ECB’s new president, Christine Lagarde, will most likely be unable to provide much more in the way of monetary-policy stimulus, given that one-third of the ECB Governing Council already opposes the current round of easing.
Beyond challenges stemming from an aging population, weakening Chinese demand, and the costs of meeting new emissions standards, Europe also remains vulnerable to Trump’s oft-repeated threat to impose import tariffs on German and other European cars. And key European economies – not least Germany, Spain, France, and Italy – are experiencing political ructions that could translate into economic trouble.
Fifth, with crippling US-led sanctions now fueling street riots, the Iranian regime will see no other choice but to continue fomenting instability in the wider region, in order to raise the costs of America’s current approach. The Middle East is already in turmoil. Massive protests have erupted in Iraq and Lebanon, a country that is effectively bankrupt and at risk of a currency, sovereign-debt, and banking crisis. In the current political vacuum there, the Iranian-backed Hezbollah could decide to attack Israel. Turkey’s incursion into Syria has introduced many new risks, including to the supply of oil from Iraqi Kurdistan. Yemen’s civil war has no end in sight. And Israel is currently without a government. The region is a powder keg; an explosion could trigger an oil shock and a renewed risk-off episode.
Sixth, central banks are reaching the limits of what they can do to backstop the economy, and fiscal policy remains constrained by politics and high debts. To be sure, policymakers could turn to even more unconventional policies – namely, monetized fiscal deficits – whenever another downturn occurs, but they will not do so until the next crisis is already severe.
Seventh, the populist backlash against globalization, trade, migration, and technology is worsening in many places. In a race to the bottom, more countries may pursue policies to restrict the movement of goods, capital, labor, technology, and data. While recent mass protests in Bolivia, Chile, Ecuador, Egypt, France, Spain, Hong Kong, Indonesia, Iraq, Iran, and Lebanon reflect a variety of causes, all are experiencing economic malaise and rising political resentment over inequality and other issues.
Eighth, the US under Trump may become the biggest source of uncertainty. Trump’s “America First” trade foreign policies risk destroying the international order that the US and its allies created after WWII. Some in Europe – like French President Emmanuel Macron – worry that NATO is now comatose, while the US is provoking rather than supporting its Asian allies, such as Japan and South Korea. At home, the impeachment process will lead to even more bipartisan gridlock and warfare, and some Democrats running for the party nomination have policy platforms that are making financial markets nervous.
Finally, medium-term trends may cause still more economic damage and disruption: demographic aging in advanced economies and emerging markets will inevitably reduce potential growth, and restrictions on migration will make the problem worse. Climate change is already causing costly economic damage as extreme weather events become more frequent, virulent, and destructive. And while technological innovation may expand the size of the economic pie in the long run, artificial intelligence and automation will first disrupt jobs, firms, and entire industries, exacerbating already high levels of inequality. Whenever the next severe downturn occurs, high and rising private and public debts will prove unsustainable, triggering a wave of disorderly defaults and bankruptcies.
The disconnect between financial markets and the real economy is becoming more pronounced. Investors are happily focusing on the attenuation of some short-term tail risks, and on central banks’ return to monetary-policy easing. But the fundamental risks to the global economy remain. In fact, from a medium-term perspective, they are actually getting worse.
After Philadelphia Eagles safety Malcolm Jenkins wrote an op-ed in the Philadelphia Inquirer calling for more police accountability and transparency, the local Philly police union responded by bluntly telling Jenkins to shut up.
Philadelphia is in the midst of a much-needed conversation about police reform. Mayor Jim Kenney was re-elected to another term in office earlier in the month and is now on the hunt for a new police commissioner after Richard Ross resigned in August amid reports of sexual harassment and racial discrimination within the police force.
The Philadelphia Police Department’s mismanagement has led to hundreds of drug cases being dropped due to a corrupt narcotics unit, the creation of an oft-abused asset forfeiture program, and thousands of stops of mostly black drivers by officers who claim to “smell” marijuana in order to justify warrantless stop-and-frisk searches. In 2016, Philadelphia voters elected Larry Krasner, a civil rights lawyer, as the city’s district attorney for the purpose of checking and balancing that oppressive policing system.
Jenkins, meanwhile, is a co-founder of the Players Coalition Task Force, a non-profit organization formed by professional athletes to call for reform in policing and criminal justice. Jenkins submitted an op-ed to the Philadelphia Inquirer that ran on Monday, calling for Kenney to select a new police commissioner who will focus on fighting corruption within the department and reforming the practices of the police to focus on real crimes that affect the community. Jenkins came loaded with stats and facts:
The last commissioner resigned amid allegations of sexual harassment. Over 300 officers posted racist and sexist social media posts. Officers remain on the force despite using physical force against vulnerable people. And rather than solving serious crimes — police here make arrests in just 47% of all murder cases and 23% of all nonfatal shootings — they are busy stopping people over the “smell” of marijuana with over 3,300 drivers in the first quarter of 2019 alone, 84% of whom were black.
He notes that the Philadelphia police’s use of stop-and-frisk searches find guns just one percent of the time. He calls for the police to stop arresting children in school, and for any new commissioner to implement a “zero tolerance” policy for police misconduct and to support a citizen review board.
Here’s how the Philadelphia Fraternal Order of the Police, which represents 14,000 active and retired officers, responded in a letter signed by its president, John J. McNesby:
It’s amazing, but not terribly surprising, that McNesby responded to Jenkins’ critique not by challenging his data, but with a personal attack against him and the Inquirer for publishing his opinion. McNesby then has the gall to complain that “Hurling slurs and false allegations against police offers nothing in the way of improvement.” Yet, there are no insults in Jenkins’ piece, only data and specific recommendations that could reduce violent crime and improve community relations.
Let’s suggest that this one particular paragraph is what is sticking in McNesby’s craw. Jenkins wants a commissioner who is not afraid of McNesby’s bluster:
A commissioner who fights back against the police union. Nearly every time we hear a story of an officer abusing power, whether through violence or racist Facebook postings, the police union is there to defend the bad behavior. We need a commissioner who isn’t in lockstep with the union and who will instead push back when the union tries to hide and justify bad behavior. The commissioner must also support a union contract that allows for more officer accountability, even if that is an unpopular position with the rank and file.
Data shows that hundreds of Philadelphia cops fired for bad behavior have been able to fight their way back onto the police force, thanks to union contracts. Reasonnoted in 2017 how one police officer managed to get back on the force after being fired for killing an unarmed man by shooting him in the back.
The police union’s overheated response here indicates how little value the Philadelphia Fraternal Order of Police places on developing or maintaining positive relationships with members of its own community. Second, it demonstrates how little regard Philadelphia’s police union places in behaving like responsible, mature adults who will accept accountability for the power to arrest and use deadly force against citizens.
McNesby might be right about one thing, however. Given the Philadelphia Police Department’s practice of planting drugs on suspects, costing the city millions in lawsuit settlements, perhaps the Inquirer should consider surveying drug dealers.
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