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Authored by Andrew Bacevich via TomDispatch.com,

Irony, paradox, contradiction, consternation — these define the times in which we live. On the one hand, the 45th president of the United States is a shameless liar. On the other hand, his presidency offers an open invitation to Americans to confront myths about the way their country actually works. Donald Trump is a bullshit artist of the first order. Yet all art reflects the time in which it’s produced and Trump’s art is no exception. Within all the excrement lie nuggets of truth.

Well before Trump rode the down escalator to the center of American politics, there were indicators aplenty that things had gone fundamentally awry. Yet only with the presidential election of 2016 did the chickens come home to roost. And with their arrival, it became apparent that more than a few propositions hitherto accepted as true are anything but.

Let me offer seven illustrative examples of myths that the Trump presidency has once-and-for-all demolished.

Myth #1: The purpose of government is to advance the common good.

 In modern American politics, the concept of the common good no longer has any practical meaning. It hasn’t for decades. The phrase might work for ceremonial occasions — inaugural addresses, prayer breakfasts, that sort of thing — but finds little application in the actual business of governing.

When did politics at the national level become a zero-sum game? Was it during Richard Nixon’s presidency? Bill Clinton’s? While the question may be of academic interest, more pertinent is the fact that, with Trump in the White House, there is no need to pretend otherwise. Indeed, Trump’s popularity with his “base” stems in part from his candid depiction of his political adversaries not as a loyal opposition but an enemy force. Trump’s critics return the favor: their loathing for the president and — now that Trump’s generals are gone — anyone in his employ knows no bounds.

It’s the Mitch McConnell Rule elevated to the status of dogma: If your side wins, mine loses. Therefore, nothing is more important than my side winning. Compromise is for wusses.

Myth #2: Good governance entails fiscal responsibility. 

This is one of the hoariest shibboleths of modern American politics: feckless Democrats tax and spend; sober Republicans stand for balanced budgets. So President Ronald Reagan claimed, en route to racking up the massive deficits that transformedthe United States from the world’s number one creditor into its biggest debtor. George W. Bush doubled down on Reagan’s promise. Yet during his presidency, deficits skyrocketed, eventually exceeding a trillion dollars per annum. No apologies were forthcoming. “Deficits don’t matter,” his vice president announced.

Then along came Trump. Reciting the standard Republican catechism, he vowed not only to balance the budget but to pay off the entire national debt within eight years. It was going to be a cinch. Instead, the projected deficit in the current fiscal year will once again top a cool trillion dollars while heading skywards. The media took brief note — and moved on.

Here’s the naked truth that Trump invites us to contemplate: both parties are more than comfortable with red ink. As charged, the Democrats are indeed the party of tax and spend. Yet the GOP is the party of spend-at-least-as-much (especially on the Pentagon) while offering massive tax cuts to the rich.

Myth #3: Justice is blind. 

The nomination of Brett Kavanaugh to the Supreme Court and the controversies surrounding his confirmation affirmed in unmistakable terms what had been hidden in plain sight since at least 1987 when Robert Bork was denied a seat on the court. The Supreme Court has become a venue for advancing a partisan agenda. It serves, in effect, as a third legislative body, consisting of unelected members with lifelong tenure, answerable only to itself. So politically active Americans of whatever stripe believe. Justice impartially administered is for people who still believe in the Tooth Fairy.

As a result, the Supremes now wear invisible labels on their black robes, identifying members as either liberal or conservative, aligned, in effect, with Democratic or Republican positions. On hot-button issues — gun rights and abortion rights are two examples — their job is to act accordingly. Hence, the consternation caused when a member violates those expectations, as was the case when Chief Justice John Roberts voted to preserve the Affordable Care Act.

So both parties engage in unapologetic court packing. In recent years, Mitch McConnell and the Senate Republicans, who blocked dozens of Obama appointees to the federal bench and prevented Merrick Garland’s nomination to the Supreme Court from even being considered, have done so with considerable skill. But Democrats are merely biding their time. Hence, the imperative of ensuring that Justice Ruth Bader Ginsberg, now 86 and ailing, won’t retire until a Democrat once again sits in the Oval Office.

Crucially, neither the left nor the right acknowledges the possibility that a politicized judiciary, however useful in advancing a partisan agenda, might not serve the nation’s long-term interests.

Myth #4: The “wise men” are truly wise. 

To keep America safe, protect core U.S. interests, and promote peace, presidents since World War II have sought advice and counsel from a small self-perpetuating group of foreign policy insiders claiming specialized knowledge about how the world works and America’s proper role atop that world. In the 1960s, thanks to the disastrous war in Vietnam, the reputation of this cadre of “wise men” cratered. Yet they weren’t finished, not by a long shot. Their ranks now including women, they staged a remarkable comeback in the wake of 9/11. Among the ensuing catastrophes were the wars in Afghanistan, Iraq, Libya, and Syria.

As a candidate, Trump made his contempt for this elite clear. Yet fool that he is, the president now employs a bargain-basement version of the “best and brightest”: a national security advisor who believes that “To Stop Iran’s Bomb, Bomb Iran”; a secretary of state whose conception of history derivesfrom the Bible; an acting defense secretary on loan from Boeing who reportedly spends time trashing his former employer’s competitors; and a CIA director who earned her stripes supervising secret torture chambers.

Members of this posse may carry all the requisite security clearances, but sound thinking or foresight? One might do at least as well and perhaps better consulting a class full of college sophomores. Thanks to Trump, only the truly gullible will persist in thinking that the foreign policy establishment has a lock on wisdom.

Myth #5: The Persian Gulf is a vital U.S. national security interest. 

For decades now, Americans have been fed this line with unhappy results. Dominating the Persian Gulf, we’ve been told, is essential to preserving our way of life. Stripped to its essentials, here’s the gist of the argument: They have the oil and we need it.

In fact, we don’t need their oil. There’s plenty right here in our own hemisphere — in, that is, “Saudi America.” Moreover, burning all that oil accelerates climate change, which poses a greater proximate threat to the well-being of the American people than anything likely to happen in the Gulf. Meanwhile, several decades of U.S. meddling in that region have produced the inverse of what policymakers promised. Instead of order, there is instability; instead of democracy, illiberalism; instead of peace, death and destruction. In terms of lives lost and damaged and treasure wasted, the costto the United States has been immense.

To his credit, Trump has now explained the actual basis for the continuing U.S. interest in this part of the world: the Saudis, as well as other Gulf states, have an insatiable appetite for made-in-the-USA armaments. It’s all about the Benjamins, baby, and we can’t allow Russia or China to horn in on our market. Only to the military-industrial complex and its co-conspirators is the Persian Gulf a vital interest. Trump relieves us of the burden of having to pretend otherwise. Thank you, Mr. President.

Myth #6: Prospects for an Israeli-Palestinian peace depend on Washington playing the role of honest broker. 

Here, too, let’s give President Trump his due. He has definitively exposed the entire peace process as a fiction and a fraud. In fulfilling the promise made by previous presidents to move the U.S. embassy to Jerusalem and by endorsing the Israeli claim to the Golan Heights, Trump has stripped away the last vestiges of pretense: Washington favors just one side in this festering dispute, as it has since at least the 1960s.

Why this should even qualify as news is a bit of a mystery. After all, for decades, the United States has been providing Israel with diplomatic cover at the U.N. Security Council and elsewhere, along with an annual gift of billionsof dollars in weaponry — other customers pay cash — even as droves of non-Jewish politicians compete with one another to profess their undying love for and devotion to a country other than their own. Talk about dual loyalty!

Yes, of course, son-in-law Jared is busily hammering out what Trump himself has called “the toughest of all deals.” Perhaps there is genius in turning to an amateur when the professionals have failed. If Kushner pulls this off, we’ll wonder why Richard Nixon didn’t send daughter Tricia to Paris to negotiate an end to the Vietnam War and why Jimmy Carter didn’t dispatch wife Rosalynn to Tehran to sort out the hostage crisis. Yet whether Jared succeeds or not, thanks to Trump, we can now say definitively that when it comes to Israel, the United States is all in, now and forever.

Myth #7: War is the continuation of policy by other means.

So, in a riff on Prussian military theorist Carl Von Clausewitz’s famous maxim, generations of American statesmen and military officers have professed to believe. Yet, in the present century, the challenge of making armed force politically purposeful has turned out to be daunting. Nothing illustrates the point more clearly than America’s never-ending war in Afghanistan.

Like the clutter of online ads that our eyes automatically ignore, Americans have learned to tune out this longest war in our history. Originally styled Operation Enduring Freedom, the war itself has certainly endured. It began when this year’s crop of high school graduates were just leaving the womb. In terms of total length, it’s on track to outlast the Civil War (1861-1865), U.S. participation in the two world wars (1917-1918, 1941-1945), the Korean War (1950-1953), and the Vietnam War (1965-1973) combined.

The Pentagon has never demonstrated more than minimal interest in calculating the war’s cumulative costs. While researchers do their best to keep up with the mounting tally, their numbers possess almost no political salience. Congressional Democrats get exercised about the handful of billions of dollars that Donald Trump wants to waste on building his wall, but few members of either party attend to the hundreds of billions wasted in Afghanistan. So like the Energizer Bunny, the war there just keeps on going, while going nowhere in particular.

In his State of the Union Address earlier this year, the president opined that “Great nations do not fight endless wars.” It was a commendable declaration. Indeed, Trump has made it unmistakably clear that he wants out of Afghanistan as well as Syria, and the sooner the better. The boss has spoken: We’re leaving, pronto, sayonara, gone for good.

Yet as is so often the case with this president, words have not translated into action. So, contrary to Trump’s clearly expressed intentions, the Pentagon is planning on keeping 7,000 U.S. troops in Afghanistan for another three to five years while also sustaining an active presence in Syria. In other words, the endless wars won’t be ending any time soon.

There’s a lesson to be learned here and the lesson is this: while senior military officers will never overtly disobey their president — heaven forbid! – they have evolved a repertoire of tricks over the decades to frustrate any president’s intentions. On the eve of his retirement from office in 1961, President Dwight D. Eisenhower went on national television to tell the American people how it’s done.

Credit the present generation of generals with having gone one further. Remarkably enough, they have inverted Clausewitz. No longer does discernible political purpose serve as a necessary precondition for perpetuating a war. If generals (and militarized civilians) don’t want a war to end, that suffices as a rationale for its continuation. The boss will comply.

We can therefore thank Trump for inadvertently laying bare the reality of civil-military relations in twenty-first-century Washington: The commander-in-chief isn’t really in command.

Historians are never going to rate Trump as a great or even mediocre president. Even so, they may one day come to appreciate the Trump era as the moment when things long hidden became plain to see, when hitherto widely accepted falsehoods, fabrications, and obsolete assumptions about American democracy finally became untenable. For that, if for nothing else, we may yet have reason to thank our 45th president for services rendered.

via ZeroHedge News http://bit.ly/2UlQEUe Tyler Durden

First it was JPMorgan, then Morgan Stanley, now it’s Goldman Sachs.

Late last week, JPMorgan’s “other” quant, the house bear Nikolaos Panigirtzoglou – never to be confused with the permabullish Marko Kolanovic – published a report in which he said that while he maintains a risk-on, he warned that “investors should start building up hedges against the risk of a repeat of the past two weeks’ yield curve inversion episode.” Panigirtzoglou also observed that “the relative signs of complacency in US equity markets relative to rate markets implied by Figure 1 illustrate the need to hedge our equity overweight.” As the chart below shows, whereas equity markets now price in just an 8% chance of recession and junk bonds only 6%, bond markets are virtually certain a recession is coming, with implied odds of over 70%.

Panagirtzoglou’s warning must have struck a nerve among JPMorgans clients, because just two days later, another JPM strategist, Mislav Matejka, published a report that directly debunked the conclusions of his JPMorgan colleague, suggesting that equity investors have been worried about the wrong yield curve. Specifically, instead of using the inverted 3-month/10-year inverted Treasury yield difference that has stock traders on edge, he recommended looking at the spread between the 10-year and 2-year Treasury yields – which is about 18 basis points away from inversion – and which apparently is great news: “Far from being bearish, the current 10-year to 2-year spread of 18 basis points is consistent with 12 percent S&P 500 appreciation over the next 12 months.”

It wasn’t just JPMorgan however, because on Sunday, Morgan Stanley’s chief equity strategist, Michael Wilson, who also lately has been moonlighting as the bank’s in house bear, wrote that “institutional investors seem preoccupied with what everyone else is doing, trying to figure out whether every last dollar is already in the market or if there’s more to go. To say that FOMO – the Fear of Missing Out – is alive and well would be a gross understatement.” And when looking at this investor euphoria from the side, Wilson concluded that “when investors are more focused on what others are doing than on fundamentals, the trend has probably run its course. Naturally, this anxiety was also present in December, but on the downside. Then it wasn’t Fear of Missing Out, it was just plain fear!”

Wilson’s warnings did not end there, and the report warned that despite the market’s tremendous rally since Christmas Day, “it’s misguided to assume that the profits recession has magically ended, and I see an increasing chance that it turns into an economic one if companies decide they want to protect profits by cutting labor, capex and inventory.”

In short: Morgan Stanley joined JPMorgan in warning investors to hedge equity exposure now.

And now it’s Goldman’s turn.

In a note published on Monday afternoon, Goldman strategist Alessio Rizzi discussed something we have repeatedly touch on, namely that despite being one of the strongest rallies for risky assets, flows into equity funds have been abnormally weak YTD. In fact, as BofA recently noted, 2019 has been the worst year for stock outflows since 2008.

Expounding on a paradox first touched upon by Deutsche Bank in February, the Goldman strategist writes that “historically fund flows tend to be closely correlated with equity performance, but the recent divergence is one of the largest since the GFC.” And so, echoing the bullish thesis presented by JPM’s Marko Kolanovic, Rizzi writes that “this metric suggests a lot of investors have not participated in the equity rally and this has increased “FOMO” (fear of missing out).” And while investor sentiment measured by risk asset inflows appears to have picked up marginally, in particular in credit where fund flows have recovered from end of year outflows, fund flows into ‘safe’ assets have continued, led by flows into government bond funds resulting in the market “jaws” that Goldman’s David Kostin recently said is the biggest concern to Goldman clients.

The explanation for this divergence is obvious: a more dovish Fed has boosted the fixed income aggregate, which attracted most of the flows YTD – roughly $55 bn in credit funds and $30 bn in government bond funds. Meanwhile, within equity, fund flows in EM equity remained stronger than DM, supported by better China data, while Europe continued to be the least favored region.

To Goldman, the combination of worse macro fundamentals, or “bad news is good news”, investor preference towards the growth factor and political uncertainty explains the declining positioning toward equities. However, other risk sentiment metrics are  suggesting a more constructive view among investors in recent weeks. In particular, future positioning is now close to January 2018 highs, and RAI momentum – which tracks risk aversion over short-term horizons – has increased materially. As a result, whereas overall investor positioning continues to pick up, it remains relatively neutral and still less bullish compared to January 2018 levels.

Which brings us to the main Goldman point, one which Morgan Stanley noted earlier today, namely that going forward only “good news will be good news” – as Rizzi writes, while “risk appetite can pick-up further” it will only happen alongside better growth data, which Goldman’s economists expect in the second half of the year, contrary to Morgan Stanley which expects the earnings recession to drag on for much of the year.

And judging by Goldman’s conclusion, not even the FDIC-insured hedge fund is especially enamored with its economic optimism, which is why, after JPMorgan and Morgan Stanley, Rizzi writes that “we remain constructive in our asset allocation, but we would add protection hedges as risky assets continue to outperform and volatility resets lower.“

In other words, as of this moment all three big US banks are effectively taking profits. Which, considering we are about to enter the worst earnings season since 2016…

… means that the banks – if one reads between the lines, since the house calls are still all decidedly bullish especially, at JPMorgan which remains convinced that S&P 3,000 is just around the corner – are now actively dumping risk to retail investors, who at least for now, are happy to buy it all.

via ZeroHedge News http://bit.ly/2G0JU4k Tyler Durden

Step aside (fading) trade war with China: there is a new aggressor – at least according to the US Trade Rep Robert Lighthizer – in town.

In a statement on the USTR’s website published late on Monday, the US fair trade agency announced that under Section 301 of the Trade Act, it was proposing a list of EU products to be covered by additional duties. And as justification for the incremental import taxes, the USTR said that it was in response to EU aircraft subsidies, specifically to Europea’s aerospace giant, Airbus, which “have caused adverse effects to the United States” and which the USTR estimates cause $11 billion in harm to the US each year.

One can’t help but notice that the latest shot across the bow in the simmering trade war with Europe comes as i) Trump is reportedly preparing to fold in his trade war with China, punting enforcement to whoever is president in 2025, and ii) comes just as Boeing has found itself scrambling to preserve orders as the world has put its orderbook for Boeing 737 MAX airplanes on hold, which prompted Boeing to cut 737 production by 20% on Friday.

While the first may be purely a coincidence, the second – which is expected to not only slam Boeing’s financials for Q1 and Q2, but may also adversely impact US GDP – had at least some impact on the decision to proceed with these tariffs at this moment.

We now await Europe’s angry response to what is Trump’s latest salvo in what is once again a global trade war. And, paradoxically, we also expect this news to send stocks blasting higher as, taking a page from the US-China trade book, every day algos will price in imminent “US-European trade deal optimism.”

Below the full statement from the USTR (link)

USTR Proposes Products for Tariff Countermeasures in Response to Harm Caused by EU Aircraft Subsidies

The World Trade Organization (WTO) has found repeatedly that European Union (EU) subsidies to Airbus have caused adverse effects to the United States.  Today, the Office of the United States Trade Representative (USTR) begins its process under Section 301 of the Trade Act of 1974 to identify products of the EU to which additional duties may be applied until the EU removes those subsidies.

USTR is releasing for public comment a preliminary list of EU products to be covered by additional duties.  USTR estimates the harm from the EU subsidies as $11 billion in trade each year.  The amount is subject to an arbitration at the WTO, the result of which is expected to be issued this summer.

“This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of U.S. countermeasures,” said U.S. Trade Representative Robert Lighthizer.  “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft.  When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”

In line with U.S. law, the preliminary list contains a number of products in the civil aviation sector, including Airbus aircraft.  Once the WTO arbitrator issues its report on the value of countermeasures, USTR will announce a final product list covering a level of trade commensurate with the adverse effects determined to exist.

Background

After many years of seeking unsuccessfully to convince the EU and four of its member States (France, Germany, Spain, and the United Kingdom) to cease their subsidization of Airbus, the United States brought a WTO challenge to EU subsidies in 2004. In 2011, the WTO found that the EU provided Airbus $18 billion in subsidized financing from 1968 to 2006.  In particular, the WTO found that European “launch aid” subsidies were instrumental in permitting Airbus to launch every model of its large civil aircraft, causing Boeing to lose sales of more than 300 aircraft and market share throughout the world.

In response, the EU removed two minor subsidies, but left most of them unchanged.  The EU also granted Airbus more than $5 billion in new subsidized “launch aid” financing for the A350 XWB.  The United States requested establishment of a compliance panel in March 2012 to address the EU’s failure to remove its old subsidies, as well as the new subsidies and their adverse effects.  That process came to a close with the issuance of an appellate report in May 2018 finding that EU subsidies to high-value, twin-aisle aircraft have caused serious prejudice to U.S. interests.  The report found that billions of dollars in launch aid to the A350 XWB and A380 cause significant lost sales to Boeing 787 and 747 aircraft, as well as lost market share for Boeing very large aircraft in the EU, Australia, China, Korea, Singapore, and UAE markets.

Based on the appellate report, the United States requested authority to impose countermeasures worth $11.2 billion per year, commensurate with the adverse effects caused by EU subsidies.  The EU challenged that estimate, and a WTO arbitrator is currently evaluating those claims.

via ZeroHedge News http://bit.ly/2UqrhRo Tyler Durden

Authored by Mac Slavo via SHTFplan.com,

NASA has warned that a catastrophic supervolcano’s eruption poses a bigger threat to humanity than does an asteroid. An eruption at Yellowstone, for example, would be an apocalyptic event – one which human beings have never experienced.

A supervolcano has the ability to “push mankind to extinction” with an eruption, NASA (National Aeronautics and Space Administration) further warned.  The space agency conducted a “thought experiment” called, Defending Human Civilization From Supervolcanic Eruptions.  In it, researchers stated that a supervolcano eruption was more likely to happen on Earth in the future than an asteroid hitting the earth, according to the Express Daily. NASA added:

“Supervolcanic eruptions occur more frequently than a large asteroid or comet impacts that would have a similarly catastrophic effect to human civilization.”

Jet Propulsion Laboratory researchers found that collisions from asteroids which are more than 2km in diameter occurred “half as often as supervolcanic eruptions.”

A supervolcano is defined as a volcano which is big enough to cause an eruption which could project more than 1000 km3 of material into the atmosphere. The term “supervolcano” was introduced to describe eruptions capable of “plunging the world into a catastrophe and push humanity to the brink of extinction,” according to researchers.

The caldera underneath Yellowstone National Park is perhaps the most famous supervolcano in the United States.  Yellowstone has the capacity to extinct humanity if it ever erupts.

What Would Happen To The World If The Yellowstone Super Volcano Erupted Right Now?

Yellowstone is due for another eruption at any time, and no one knows when. Scientists haven’t even offered much of an educated guess, but NASA did say that they had plansto save the world from Yellowstone previously.  Although they admitted the plan could cause an eruption.

NASA’S Risky Plan To Save Us From Yellowstone Could Trigger A Massive Eruption

As of now, there is no good solution or fix to an eruption.  Continue to be prepared, as many scientists say that an eruption at Yellowstone would cause a nuclear winter and there wouldn’t be enough food stored for everyone. Researchers have found that if a supervolcano like Yellowstone did erupt, then a “volcanic winter” would ensue. The length of said volcanic winter could surpass the “amount of stored food worldwide,”wrote Express Daily. 

Volcanologists claim that MOST volcanoes display warning signs weeks before they erupt, however, some do not.  U.S. Geological Survey Volcano Hazards Program coordinator John Eichelberger told Life’s Little Mysteries: “These signs may include very small earthquakes beneath the volcano, slight inflation, or swelling, of the volcano and increased emission of heat and gas from vents on the volcano. Rising magma causessolid rock to break, sending earthquake signals.”

via ZeroHedge News http://bit.ly/2OXg7NN Tyler Durden

Step side student loans: the Lambda School is the first school to equitize human labor as a business model.

Based in California, the school teaches information technology skills online and charges zero tuition, according to Bloomberg. In fact, it even offers select students a stipend as they attend. The school’s website describes it as a school that “trains people online to be software engineers at no up-front cost.”

But as always, there is a catch: what The Lambda School does ask for, is for students to pay back 17% of their income from the first two years of working, if their earnings exceed $50,000 per year. The school caps a student’s maximum payment at $30,000 and those who don’t earn $50,000 per year aren’t required to pay anything. Students also have the option of a “traditional” schooling arrangement where they pay $20,000 upfront and get to keep their future income (after the government takes its cut, of course).

As of now, there are about 1300 students enrolled and, confirming the company has investors’ seal of approval, it has already raised nearly $50 million. More importantly, its job placement record has been impressive so far, with 86% of its graduates getting jobs within 180 days of finishing their program. And the piece de resistance: the median starting salary is a whopping $60,000. 

The “free market” style benefits of equitizing labor are obvious: it gives the school incentive to invest in the future of its students. The school has an incentive to train and place students where they will earn the most return on investment for the school. Additionally, students who receive stipends can use them for further investments in training, which can be valuable for hard-working students from lower income backgrounds. It’s simple: higher earners pay back more and lower earners pay back less. 

Already the idea is being considered for broader adoption amid traditional universities. The model would include free or reduced tuition – similar to what Purdue is now offering – in exchange for a share of students’ future income. A second model would allow graduates to use a similar arrangement to pay back their federal student loans.

Those that take exception to promising a share of your future labor (we’re going to take a guess and say it won’t be popular with Marxists) will have trouble arguing against the concept that the idea is voluntary and that the trade off of offering future income in return for assistance is age-old. 

But problems do exist. For example, if less talented individuals are the most likely to sign away their future income, it could create an “adverse selection” problem. But this hasn’t stopped companies and startups from selling equity, and as far as selecting students who will provide a good ROI, the onus is on the school to perform proper due diligence – not on Federal loan officers – just as it would be for any investor in any market. 

In the world of IT, the demand for labor is robust, but it still remains to be seen if this model could work in fields like philosophy, music or gender studies, where incomes can be significantly lower.

via ZeroHedge News http://bit.ly/2G8emuy Tyler Durden

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Last month marked nine years since the Patient Protection and Affordable Care Act (popularly known as Obamacare) became law. Obamacare’s proponents promised that the law would reduce costs, expand access, and allow us to keep our doctors if we liked our doctors. The reality has been quite different.

Since Obamacare was enacted, individual health insurance premiums have more than doubled while small businesses have been discouraged from providing health insurance benefits. The increased costs of, and decreased access to, health care are a direct result of Obamacare’s mandates – particularly the guaranteed issue and pre-existing condition mandates. Another costly mandate forces most plans to cover “essential health benefits.” This mandate is why postmenopausal women must pay for contraceptive coverage.

The increase in health insurance premiums has not helped those who like their doctors keep their doctors. Instead, patients’ choices of providers are restricted to ever-narrower networks. As leading health care scholar John C. Goodman observed, the result is that a cancer patient from my hometown of Lake Jackson, Texas who obtains insurance through Obamacare’s exchanges cannot get treatment at nearby MD Anderson, one of the country’s top cancer treatment centers. If health care were a true free market, insurance companies would compete for the business of cancer patients and others with chronic conditions by developing innovative ways to give them the best care at an affordable price.

Sadly, few in Congress support free-market health care. The Democrats are divided between progressives who want to repeal and replace Obamacare with “Medicare for all,” the latest euphemism for single-payer healthcare, and establishment Democrats who want to save Obamacare by spending more money on subsidies for individuals and insurance companies.

President Trump has made some regulatory changes that make it easier for individuals to find affordable insurance. He has also recently called on Republicans to renew efforts to repeal and replace Obamacare. Most Republicans reacted to the president’s call the way Dracula reacts to a crucifix. These Republicans are terrified of the issue because they believe their half-hearted attempts to enact phony repeal bills cost them control of the House of Representatives in 2018.

President Trump himself does not actually want to repeal all of Obamacare. He just wants to repeal the “unpopular” parts. However, because the popular parts include many of Obamacare’s most destructive mandates, even if President Trump gets his way, Americans will continue to suffer with low-qualify, high-cost health care.

Any system combing subsidies that artificially increase demand with regulations and mandates that, by raising costs, artificially limit supply inevitably results in shortages, rationing, and lower quality. Therefore, no matter how much Democrats spend or how many “reforms” Republicans enact, Obamacare and other types of government-controlled health care will never “work.”

Instead of ignoring the issue, trying to prop up Obamacare, or implementing a single-payer plan, Congress should restore individuals’ control over health care dollars by expanding health care tax deductions and credits, as well as Health Savings Accounts (HSAs). Expanded charitable deductions could help ensure those who need assistance can obtain privately-funded charitable care instead of relying on inefficient government programs. Before Medicaid and Medicare, doctors routinely provided charitable care, while churches and private charities ran hospitals that served the poor. Individuals are more than capable of meeting their health care needs, and providing for the needs of the less fortunate, if the government gets out of the way.

via ZeroHedge News http://bit.ly/2OZXqsO Tyler Durden

Consumer credit scores have been artificially inflated over the last decade ears and are covering up a very real danger lurking behind hundreds of billions of dollars in debt. And when Goldman Sachs is the one ringing the alarm bell, you know the issue may actually be serious.

Joined by Moody’s Analytics and supported by “research” from the Federal Reserve, the steady rise of credit scores during our last decade of “economic expansion” has led to a dangerous concept called “grade inflation”, according to Bloomberg. 

Grade inflation is the idea that debtors are actually riskier than their scores indicate, due to metrics not accounting for the “robust” economy, which may negatively affect the perception of borrowers’ ability to pay back bills on time. This means that when a recession finally happens, there could be a larger than expected fallout for both lenders and investors. 

There are around 15 million more consumers with credit scores above 740 today than there were in 2006, and about 15 million fewer consumers with scores below 660, according to Moody’s.

On the surface, this disappearance of subprime borrowers is good news. But is there more than meets the eye to the American consumer’s FICO score renaissance?

Cris deRitis, deputy chief economist at Moody’s Analytics said: “Borrowers with low credit scores in 2019 pose a much higher relative risk. Because loss rates today are low and competition for high-score borrowers is fierce, lenders may be tempted to lower their credit standards without appreciating that the 660 credit-score borrower today may be relatively worse than a 660-score borrower in 2009.”

The problem is most acute for smaller firms that tend to lend more to people with poor credit histories. Many of these firms rely on FICO scores and are unable to account for other metrics, like debt-to-income levels and macroeconomic data. Among the most exposed outstanding debts are car loans, consumer retail credit and personal loans that are doled out online. These types of debt total about $400 billion – and about $100 billion of that sum has been bundled into securities that have been sold to ravenous yield chasers “investors”. 

Meanwhile, cracks are already starting to show on the surface: there has been a rising number of missed payments by borrowers with the highest risk, despite the past decade of “growth”. And now that the economy is starting to show weakness, these delinquencies could accelerate and lead to larger than expected losses. 

Goldman Sachs analyst Marty Young said in an interview: “Every credit model that just relies on credit score now – and there’s a lot of them – is possibly understating the risk. There are a whole bunch of other variables, including the business cycle, that need to be taken into account.”

FICO credit scores are used by more than 90% of U.S. lenders to determine whether a borrower is an acceptable risk. Most scores range from 300 to 850, with a higher score purporting to show that someone is more likely to pay back their debts. Some big banks and lenders have recognized the problem and have included other factors in their underwriting decisions. 

“Borrowers’ scores may have migrated up, but inherently their individual risk, and their attitude towards credit and ability to pay their bills, has stayed the same. You might have thought 700 was a good score, but now it’s just average,” deRitis continued.

Ethan Dornhelm, vice president of scores and predictive analytics at FICO magically doesn’t seem to notice score inflation and blames the issue on underwriters: “The relationship between FICO score and delinquency levels can and does shift over time. We recognize there’s a lot more context you can obtain beyond a consumer’s credit file. We do not think that score inflation is the issue, but the risk layering on underwriting factors outside of credit scores, such as DTI, loan terms, and even trends in macroeconomic cycles, for example.”

Goldman’s Young attributes the rise in missed auto loan payments to the change in scores. The Federal Reserve Bank of New York said the number of auto loans at least 90 days late topped 7 million at the end of last year.

Michelle Russell-Dowe, who invests in consumer asset-backed securities at Schroder Investment Management, said: “Some deep-subprime auto lenders may be deeply reliant on credit scores, although there’s a pretty wide range within the auto industry of how lenders use scores and other metrics. For marketplace lending, regardless of the statistics you collect on borrowers, there is something adversely selective about somebody looking for loans online.”

Marketplace and peer to peer lending has also been showing signs of stress. Missed payments and writedowns increased last year, according to NY data and analytic firm PeerIQ. “We don’t see the purported improvement in underwriting just yet,” PeerIQ wrote in a recent report.

And the pressure isn’t just showing up in auto loans and marketplace lending. Private label credit cards, those issued by stores, instead of big banks, saw the highest number of missed payments in seven years last year. 

“As an investor it’s incumbent on you to do that deep credit work, which means you have to know as much as possible about how things should pay off or default. If you don’t think you’re being paid for the risk, you have no business investing in it,” Russell-Dowe concluded, stating what should be – but isn’t – the obvious. 

via ZeroHedge News http://bit.ly/2VzQC7S Tyler Durden

Submitted by Michael Every of RaboBank

Where to start? How about with US President Trump, as is often the case. He has not only nominated Stephen Moore, an opinionated Wall Street Journal opinion writer, and Herman Cain, a former pizza CEO, and both of whom have previously been in favour of restoring the gold standard, to join the FOMC and set rates; he has also echoed Moore in talking about the Fed needing to cut rates immediately and reverse Quantitative Tightening (QT) in favour of QE4 (ever?). Specifically, Trump said “I personally think the Fed should drop rates. I think they really slowed us down. There’s no inflation. I would say in terms of QT it really should be QE.” So where does this end? Obviously the polite delusion that central banks are independent. Yet it was always a delusion: read up on how past presidents treated past Fed Chairs. And not coincidentally this is happening just as the equal delusions that central banks aren’t political is also ending, as is that they at least know how to get us out of what looks like another looming downturn or a further deflationary episode. We have warned about all of the above risks for some time: a downturn, lower inflation, and politicised central banks.

But does this mean that Trump will control the Fed ahead? No! But given the market actually agrees with what he is saying in pricing for a rate cut in 2019, Trump is taking out a political call option. If the economy powers through, everyone will soon forget what he said. If the economy tanks, then guess who can say “I told you so” and have someone to blame (and THEN have more influence over the Fed)? Consider that as hedge-fund manager Ray Dalio comes out to say that US capitalism is structurally broken and income inequality is a “national emergency” –a thesis we’ve been exploring for years with our “Lower for longer” US rates view and “Asset-rich, income-poor” calls– and argues that part of the response should be a joining of fiscal and monetary policy to address it (which again regular readers will know we are no strangers to here.) That prospect is likely to keep US bond yields low/lower and, conversely, the USD strong despite periods of volatility: let’s repeat that if the US is in this kind of mess, where does everyone else sit? Somewhere worse is the answer.

Let’s stick with Trump re: trade, which is the other big issue ostensibly on the market’s mind. Besides threatening to close the Mexican border, or impose 25% tariffs if drugs don’t stop flowing over the border, last week also saw the prospect of a US-China trade deal kicked further down the road. If you read enough stories on what is going on, all the hard parts have yet to be signed off on, apparently, and where there is agreement is merely that a deal needs to be made. The latest suggestion is that there might be a 2025 or 2029 target date for China to adopt some of the reforms being pushed by the US. Seize on that date with a wry smile: do you really think any US president, and especially this one, is going to give Beijing until after his term in office is finished (presuming a win in 2020) to deliver on the goods? Exactly. Focus more on the Chinese promise to buy lots of US gas/food/agri commodities in 2020 pre-election, and you have a better handle on what is really going on – or so it would appear. As many observers note, the US view on China has changed, and it isn’t changing back anytime soon; and even the EU may be finally getting tough(er), given suggestions it is reportedly ready to refuse signing a joint statement with China at a bilateral summit tomorrow, as Europeans request stronger commitments on the economy, trade and human rights. I wonder how China will take that snub? With its usual grace? That prospect is also likely to keep bond yields low/lower and, conversely, the USD strong despite periods of volatility.

But talking of the EU being tough, let’s move to Brexit, where this week is going to prove truly pivotal. Where to start? Last week some saw PM May finally reaching out across the aisle to try to build a consensus with the opposition Labour party re: the form a Brexit deal could take given her withdrawal agreement (WA) has been rejected heavily three times now. As May might have chuckled to herself Bugs Bunny style, “He don’t know me very well, do he?” Because those discussions have of course come to nothing with Labour stating it has yet to learn even the basics of what concessions May is prepared to make: in short, it was a trap to try to share Brexit blame on Jeremy Corbyn and scare Tory hardliners into backing her hated WA. May is trying to do the same thing in a new video that says that Brexit itself is at risk if her deal isn’t backed, and that it’s WA or No Brexit. This deliberately, and delusionally(?), overlooks the fact that unless May revokes Article 50, it’s actually still the WA, which is dead, or Hard Brexit this Friday – unless the EU grants a new delay.

Even on that front May has shot herself in the foot with both barrels. Everyone recognises the UK needs a long extension to try to work out where to go next. And yet May deliberately asked until 30 June to ensure the EU is made to look the bogeyman for UK voters. One has to wonder how much EU patience there is for such obvious self-serving incompetence; doubly so when Brexiteer Reese-Mogg openly states that if the UK is forced to stay in the EU for the parliamentary elections it should use the opportunity to sabotage everything it can from the inside; triply so when the rumours are of Boris Johnson as the next PM, whom the EU trusts less than May, and whom is on the front page of the Telegraph raging against May talking to Labour.

In practical terms that leaves May with today to come up with a new plan that Labour can agree to; and which won’t split her party, where the knives are not just out but are being licked on tongues; and which won’t split the Labour party, where the knives are also out over insisting on a second referendum and yet more allegations of institutional antisemitism. By tomorrow, when the sherpas arrive for the EU summit, the UK position is going to have to be better than “We just need more time.” Where does this end? Let’s just say that the market continues to price for a happy ending and I don’t know why, because the odds are not clearly in that direction.

Oh, and let me just throw this into the mix. Hansard has released a survey today which states that public attitudes are emerging that “challenge core tenets of our democracy”. Public faith in the political system has reached a new low, and almost three-quarters of those asked said the system of governance needed significant improvement; when people were asked whether “Britain needs a strong ruler willing to break the rules”, 54% agreed and only 23% said no. Together with institutional antisemitism, and Big Men getting the trains running on time while building concentration camps, how 1930s (or The Age of Rage) does that all sound? And tell me again, oh Mr Market, where this ends?

via ZeroHedge News http://bit.ly/2Ik1h2J Tyler Durden