America Slowly Burns While Rome Fiddles

Authored by Dennis W. Jansen and Andrew J. Rettenmaier via e21: Economic Policies for the 21st Century,

“…[avoid] likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts, which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden, which we ourselves ought to bear.”

George Washington, Farewell Address, September 17, 1796

In January 2017, the 115th Congress of the United States convened for its 2-year term as we inaugurated our 45th President. That same month, the Congressional Budget Office (CBO) released its analysis of the fiscal situation facing the United States over the coming ten years, “The Budget and Economic Outlook: 2017 to 2027.” The report describes the situation that Congress and the President inherited from their predecessors. This inheritance was a projected path of increasing deficits and growing government debt relative to national income as measured by Gross Domestic Product (GDP).

The deficits are fueled by a path of increases in government spending. Government spending in 2014 was 20.3 percent of GDP, equal to our 50-year average rate of spending. CBO projections indicate rising spending rates, from 20.5 percent of GDP in 2018 to 23.6 percent in 2027. In other words, no return to our long-run average. This same CBO report projected continued growth in GDP and low unemployment. In such a situation, George Washington advocated repaying debt and running government surpluses. Our political parties both advocate fiscal responsibility, and in 2016 this was most strongly stated in the Republican Platform.

Economists often counsel that we look at ‘revealed preferences,’ the idea that actions speak louder than words. What does this viewpoint tell us about our commitment to fiscal responsibility starting from last January?

On the tax side, Congress passed The Tax Cuts and Job Act of 2017, signed into law by the President on December 22. This Act lowered the corporate tax rate, widely viewed as a necessary feature to preserve U.S. competitiveness, and CBO forecasts after this date include a higher path of GDP. However, this Act was not revenue neutral and it lowered tax revenues relative to GDP, at least until the individual tax cuts expire.

Next, Congress passed The Bipartisan Budget Act of 2018, signed into law on February 9, and The Consolidated Appropriations Act of 2018, signed into law on March 23. Together, these bills raised previously set spending caps. They appear to have done nothing to alter the ever-increasing path of spending relative to income.

The CBO analyzed the impact of these tax and spending changes in a document published on April 9, 2018, “The Budget and Economic Outlook: 2018 to 2028.” Despite the growth-inducing effect of the tax cuts, the net result is forecast by CBO to be continuing growth in the rate of spending, reductions in tax revenue, increased deficits, and consequently a faster rise in the national debt. This latest CBO report, released 15 months into the term of the new Congress and the new President, suggests that the actions taken to date are not consistent with the advice of our first president.

We are living in a time of economic expansion, low unemployment rates and an economy operating at its potential. Good policy generally consists of smaller deficits or even surpluses in good times to balance the larger deficits that occur during recessions. We are not following this policy; times are good but our debt is increasing. In the last year, our Congress and our President have acted to further increase our deficit and our debt. At some future date the inevitable recession will occur, and deficits will increase over and above these CBO projections. Policymakers may find themselves forced to choose between unacceptable debt levels and unacceptable levels of unemployment.

The United States is on an unsustainable path for fiscal policy. Absent a change, we will eventually face a day of reckoning. Spendthrift nations who ignore budgetary realities eventually run into hard constraints. Will we default like Argentina? Will we seek bailouts like Greece? Will we turn to the monetary printing press like Venezuela? Or will we decide to stop fiddling and make the difficult choices needed to achieve fiscal responsibility?

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European Plastics Ban Takes Aim at Straw Man

Brussels has moved on straws. On Monday the European Commission—the bureaucratic and executive arm of the European Union—proposed banning single-use straws, plates, cutlery, and cotton swabs.

The new rules would also require new labels for sanitary wipes and balloons, explaining proper disposal techniques. Makers of plastic food containers and cups would have to pay impact fees to help clean up their products. So will the makers of fishing gear (which makes up 27 percent of Europe’s beach litter).

Everything not specifically banned—including bags, balloons, and cigarette filters—will be subjected to “awareness raising measures.”

“This Commission promised to be big on the big issues and leave the rest to Member States,” Frans Timmerman, the commission’s vice president for sustainable development, said in a press release. “Plastic waste is undeniably a big issue and Europeans need to act together to tackle this problem, because plastic waste ends up in our air, our soil, our oceans, and in our food.”

The straw ban will now be considered by the European Parliament and its Council of Ministers.

Most straw bans lean heavily on environmental justifications, and the E.U.’s is no exception, arguing that its new raft of anti-plastic measures will reduce marine litter to half of current levels while preventing 2.6 million tons of CO2 from being emitted by 2030.

The commission also claims that bans, restrictions, and taxes on certain plastic items will be great for the economy and for everyday consumers.

“Tackling marine litter creates economic opportunities,” a commission white paper confidently declares. Banning some plastic products, it argues, will require producers to make new, better products that will in turn “create jobs as well as strengthen technical and scientific skills and industry competitiveness.” Consumers will save €3.5 billion, claims the commission.

Needless to say, companies make and consumers use the existing crop of plastic products because they satisfy a need at the right price. Cheap and available plastic straws allow Europeans to drink beverages on the go, while plastic cotton swabs help them get gunk out of their ears in their free time. Neither benefit is life-changing, but they’re benefits nonetheless. If these items are banned, consumers will have to splurge on more expensive versions of the products or else go without them completely. That’s hardly a benefit for consumers.

The environmental benefits are questionable too. Plastic pollution is a global problem—and when you consider it on a global scale, the case for European restrictions becomes pretty thin.

A 2015 study on plastic marine waste found that most of it comes from populous coastal Asian countries such as China, Indonesia, and the Philippines, which have become rich enough to start consuming a lot of plastic but not rich enough give their waste collection systems the upgrade they need.

China alone accounts for 28 percent of annual marine plastic waste. Indonesia is another 10 percent.

Rich countries, despite being heavy plastic users, contribute relatively little plastic waste to our oceans mostly because we do a good job of disposing of the plastic that they do us. The U.S. and the coastal countries of the E.U. combined are responsible for less than 3 percent of all plastic waste.

Some experts on plastic pollution have thus acknowledged that bans on consumable plastics in rich countries won’t make much of a difference.

“Let’s say you recycle 100 percent in all of North America and Europe,” Ramani Narayan, a chemical engineer at Michigan State, tells National Geographic. “You still would not make a dent on the plastics released into the oceans.”

Such arguments have proven impotent in stopping the rapid spread of plastic straw bans. Just a year ago, only a few coastal California cities had either banned straws outright or restricted them with straw-on-request laws (which require the customer to ask for a straw before receiving one). Now, thanks in part to innumerable activist campaigns, some celebrity endorsements, and a viral video featuring a turtle, banning straws is a hip cause. Seattle implemented a straw ban in September 2017. Its northern neighbor Vancouver followed earlier this month. Both New York City and San Francisco are considering straw bans, as is the United Kingdom.

The U.K.’s environment minister, Michael Gove, even argued for Brexit on the grounds that a strengthened national government would be able to ban straws more quickly. Conversely, the E.U. is arguing that the plastic straw menace is the kind of problem that continent-wide government was built to handle.

“Given the propensity of litter to be carried by wind, currents and tide,” reads the E.U. Commission report, “the problem of plastic pollution and marine litter is transboundary in nature and therefore cannot be tackled in isolation by Member States.”

Whether the officials behind it are local, national, or supranational, a straw ban may soon be coming to a jurisdiction near you.

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Arizona’s #RedForEd Fiasco Was a Gift to School Choice Advocates: New at Reason

In Arizona, the #RedForEd teachers strike has drawn to a close along with the school year itself. Ultimately, public school teachers got their raises, politicians got to posture, and parents and students got a bitter taste of what it’s like to be held hostage in a battle between government employees and their paymasters. For Arizona residents, it should serve as an important lesson about the dangers of leaving themselves at the mercy of government institutions, argues J.D. Tuccille.

“Even before the walkouts…Arizona Gov. Doug Ducey (R) had pledged to give teachers a 20 percent raise by 2020,” The Washington Post noted as the strike began. And after a week without classes—during which parents scrambled for something to do with their kids while they were at work—that’s exactly what the state legislature approved and the governor signed: the proposal lawmakers had already been debating.

Luckily, looking for alternatives to dysfunctional government schools isn’t an empty threat in Arizona, which has a healthy range of education options. Families can choose from charter schools, virtual schools, homeschooling, tax credits for donations to private school scholarship funds, and Empowerment Scholarship Accounts (vouchers) for private school tuition, notes Tuccille. Roughly 17 percent of the state’s public school students attend privately managed charters, which offer a range of education philosophies for different needs and tastes.

View this article.

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Hawaii Lava-Flows Accelerate, Over 80 Structures Destroyed, Tourist Bookings Tumble 50%

Officials in Hawaii County have been going door-to-door on several streets in the Leilani Estates subdivision on The Big Island, warning residents to flee as fast-moving lava from the Kilauea volcano coursed towards the area. Despite being under an evacuation order, several residents have been holding out and refusing to leave their homes.

Lava has destroyed at least 82 structures, including 37 homes – while just hours after authorities went door-to-door, an explosive eruption shot a plume of ash over 14,000 feet into the air according to the U.S. Geological Survey. 

The plume was “largely vertical with slight northwest drift,” the agency said on Twitter, and people in the area “may experience ash fall” as a result.

“Kind of disturbingly, some people just refused to leave,” said Civil Defense Administrator Talmadge Magno. “We had one gentleman that had to be kind of rescued. His only way out was through his back door and through the forest.”

Several fissures continue to spew hot, fast moving lava which has blocked roads. 

Meanwhile, a 4.5 magnitude earthquake hit the Hilina region of Kilauea volcano situated southwest of the Leilani Estates, according to the Pacific Tsunami Warning Center on Oahu. The earthquake was preceded by between 250 and 270 earthquakes at Kilauea’s summit over the weekend, with four explosions on Saturday sending ash to altitudes as high as 12,000-15,000 feet, said Stovall and National Weather Service meteorologist John Bravender.

 

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Of great concern has been the Puna Geothermal Venture (PGV) plant, where which molten lava has already reached, covering two wells. Authorities believe the lava has stopped, however, and that the power plant itself will be safe. 

“Lava flow from fissures 7 and 21 crossed into PGV property overnight and has now covered one well that was successfully plugged. That well, along with a second well 100 feet away, are stable and secured, and are being monitored. Also due to preventative measures, neither well is expected to release any hydrogen sulfide,” it said.

Tourism Affected

While residents flee the volcano, businesses which depend on its usually less-destructive splendor are suffering amid the closure of Hawai’i Volcanoes National Park- home to Kilauea. 

“There’s no way to tell how long the park will be closed,” said public affairs specialist Jessica Ferracane, “but we will remain closed until it’s safe to reopen.”

On Monday, the National Park Service reported that the closure of the park alone could cost the local economy $166 million. (The park contributed that amount to the local economy, according to a National Park System report measuring what park visitors typically spend in local areas near parks, including hotels, restaurants, grocery stores and rental cars, in 2017.)

A National Park System economist, Lynne Koontz, though, believes that the most precise way to measure the impact the park’s closure will have on the local economy is by breaking down the annual figure into a daily average — $455,000 per day — and  multiplying that by the number of days the park has been closed. After 17 days, that added up to $7.3 million. –NYT

At least three major cruise lines – Princess Cruises, Norwegian Cruise Line and Royal Caribbean, have canceled a stop at the Big Island, while several airlines have reported Hawaii-bound seat cancellations according to Hawaii Tourism Authority CEO George Szigeti. Both Hawaiian and Japan Airlines, however, said that all flights were operating as scheduled, though Hawaiian Airlines experienced a “moderate drop in bookings for close-in travel to the island of Hawaii,” according to the NYT. 

According to Ross Birch, executive director of the Island of Hawaii Visitors Bureau, lodging and tour bookings are down 50% for May to July. 

Hotels and authorities are desperately trying to reassure guests the Big Island is safe. They point out that the island is as big as Delaware and Rhode Island combined, and the lava flows are more than 30 miles away from most tourist areas. –USA Today

 

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Professor Says NFL’s Kneeling-Rule Is Example Of “Trump’s Authoritarianism”

Authored by Peyton Dillberg via Campus Reform,

A University of Kansas professor called the NFL’s new policy against protesting the national anthem an example of the “alarming trend of authoritarianism” under President Trump.

“There’s nothing sacred about the national anthem because the Constitution has a wall between the sacred and secular work of the state,” Professor Randal Maurice Jelks declared in a statement posted to KU’s News website.

“The pressure that NFL owners have received from the POTUS is bothersome to them, I am sure, but the action they’ve taken to economically penalize players for taking a knee is an alarming trend of authoritarianism,” Jelks added.

“This does not seem in keeping with the Bill of Rights or dissent.”

The NFL’s new policy will allow the league to fine players who do not show respect for the flag and the anthem, but does allow players to remain in the locker room during the national anthem, if they so choose. 

Jelks notes that this may “open another can of worms” by preventing players from kneeling for the anthem.

“Imagine if players decide as a team to not come out for the national anthem. Or if one-third of the team decides not to come out,” he observes. “The owners have forgotten that the U.S. Constitution protects the right to protest, even the flag itself.”

“What the NFL owners should be most worried about is not player protest,” he concludes, “but the concussions that players get playing the sport that jeopardizes it more than Colin Kaepernick’s taking a knee on the sideline during the playing of the national anthem.”

Jelks told Campus Reform that the authoritarianism in the Trump administration is reflective in the attitudes surrounding the “sacralization” of the national anthem and the flag. 

He also condemned what he described as attempts by league owners to make the flag a “religious item,” noting that “many…are the same age as Mister Trump.”

Dr. Jelks is a professor of American and African American studies, and an expert on African American social movements who has authored two books. He has also been a critic of Trump on Twitter, and has claimed that Marxist ideology was correct. 

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Italy Headed For July Elections After “Mr Scissors” Fails To Form Government

While it is nothing but a waste of time, today Italy’s premier-designate, Carlo Cottarelli, a former IMF official also known as “Mr. Scissors” for his drastic public debt cutting, was supposed to present the country’s scandalous president, Sergio Mattarella with a list of people who make up his technocratic government; instead he left the meeting with the president without an agreement on a cabinet team and Italy staring new elections in just two months.

Italian President Sergio Mattarella

While it is unclear what led to the failure by Cottarelli, who will again meet Mattarella on Wednesday, the inability to lay out his government would force the president to dissolve parliament, leading to elections within 60 to 70 days. He may have little choice: as Bloomberg notes, pressure among barious Italian lawmakers mounted on Tuesday to hold elections as soon as possible, with Ansa reporting that Cottarelli’s efforts were stalled by the parties demanding a vote on July 29, or a week later, on August 5.

Carlo Cottarelli

In retrospect, that would be the best, and cheapest, outcome: after all, it has been clear since the weekend that he would not win a confidence vote in Parliament, where the anti-establishment the Five Star Movement, the anti-immigrant League, and ex-premier Silvio Berlusconi’s Forza Italia party all announced their opposition.

Even the prospect of a new caretaker government leading Italy into fresh elections in the fall grew dimmer on Tuesday as the Democratic Party of outgoing premier Paolo Gentiloni signaled its readiness for a vote as early as possible.

Meanwhile, in the growing confusion over what comes next, and just how hardline the populist government’s anti-EU platform will be, Italian bonds suffered their worst day since the 2011 sovereign debt crisis. And since there is little hope of clarity emerging before the actual election, it will be a long two months, while the most likely vote outcome – an avalanche victory by the 5-Star and the League – would mean that summer vacation in Europe, and on Wall Street, will be canceled this year.

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WTI Crude Futures Tumble, Test Critical Support

WTI Crude futures are down almost 10% from their highs last week (near $73), testing back to a $65 handle, breaking below critical support levels and testing the major uptrendline…

As Saudi Arabia and Russia signal they will restore some of the production they’ve curbed to drain a global glut, Bloomberg notes that the market awaits a meeting of OPEC and its partners in Vienna late June as extreme positioning starts to get unwound…

“Clearly, the commentary from Russia and Saudi Arabia popped the bubble,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund.

“There’s some legitimate skepticism about whether or not they will follow through. There is going to be nervousness right up until next month’s meeting.”

WTI broke below its 50DMA, is testing its 100DMA and is right at its 12-month up-trend-line…

Talk of rising output from the world’s top two oil exporters wiped out this month’s rally, which Bloomberg noted had been fueled by concerns that supplies from Iran and Venezuela will shrink.

“There’s some discord among the Gulf countries as to whether or not they should increase now or not,” Kilduff said. “There’s some cats to herd.”

Notably, WTI’s weakness is underperforming Brent which remains dominated by geopolitical risk – driving the WTI-Brent spread to over $9…

Its widest since March 2015.

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The most interesting way to buy gold today

[Editor’s note: In today’s Notes from the Field, I want to share an excerpt from our premium intelligence – Sovereign Man: Confidential. We recently spoke with one of the world’s top gold experts. And he shared a specific gold investment that’s trading near historical lows and is one of the best ways to buy gold today, in my mind. I doubt you’ll hear about this anywhere else. Read on for the details…]

The beauty, value and heft of a gold coin in your hand is a real pleasure, and it holds real value. I’ve got a fair number of them in my home safe. They’re immediately accessible, valuable and liquid. If I have to, I can quickly turn them into cash.

There are two general types of gold coins – bullion and numismatics.

Bullion coins are the most well-known in the market– US Eagles, Canadian Maple Leafs, etc. These coins are valued almost exclusively on their gold content. For example, a one-troy-ounce Canadian Maple Leaf gold coin typically sells for very close to the spot price of gold… you pay a little more for the workmanship that went into creating the coin and a small premium to the dealer for his services. (A troy ounce, which likely derives its name from the Troyes market in France, is equal to 31.103 4768 grams, or about 1.0971 regular ounces.)

Bullion coins are usually manufactured annually by the government’s mint. So they’re not considered rare. But they’re the cheapest and most-liquid way to invest in physical gold.

Then you have numismatic coins — also known as rare or collectible coins. Examples include:

• Pre-1933 $20 or $10 Eagle/Liberty coins
• Peace Silver Dollars
• British Sovereigns

Like bullion, numismatics also have value because of their metal content. But the biggest determining factor in their price is their rarity. Unlike with bullion coins, government mints aren’t churning out any more 1933 Indian Head Buffalo (Bison) “Hobo” nickels.

In addition to rarity, collectible coins are also valued based on their condition, and whether or not they were circulated. Some of the most sought after coins sell for millions of dollars apiece.

The ultimate authority on numismatics is my friend, renowned coin expert Van Simmons of David Hall Rare Coins. He literally helped create the standard for grading and pricing collectible coins. In 1985, Van co-founded a company called Professional Coin Grading Service (PCGS) to standardize coin grading based on factors such as luster, color and preservation.

And PCGS has evaluated nearly 40 million coins – and continues to grade more and more each and every day. So, trust me when I say Van knows a thing or two about collectibles. (And if you have coins that you want evaluated, do not clean them first. Graders like to see coins in their natural state.)

Now, you might not have $20,000, $45,000 or $65,000 to drop on more premium collectible coins. But that’s OK because there are lots of deals in the lower-end of the market today.

Right now, due to the fact that the gold price has been fairly stagnant for the last several years, certain collectibles are selling for incredibly cheap premiums, as low as $50 over spot price of gold.

This is a big deal: You’re essentially paying bullion prices for a collectible.

Think about that: you can buy a rare coin which has TRUE scarcity for nearly the same price as brand-new coins that are churned out year after year. And you’ve essentially got a free call option on the market realizing its rarity value…

Van says MS 64 $20 St. Gaudens gold pieces are one of the best deals on the market today, selling at historically low premiums over spot. (The sculptor, Augustus Saint-Gaudens, died before the coin was ever struck, which adds to the mystique.) The MS in the description means “Mint State,” and corresponds to the numerical grades MS60 through MS-70. These are the highest-quality numismatics, ones that have never been in circulation. A Mint State coin can range from one that is covered with marks (MS-60) to a flawless example (MS-70).

You can get these coins for about $1,450 today.

But consider this… When gold was $275 an ounce in the late 80’s, these coins sold for $2,000 apiece.

In 2011, when the price of gold was around $1800, these coins were selling for about $2,460.

So the premium was as high as $1,700 per coin (not including broker fees). Today, that premium is around $100 a coin.

If gold price heat up again and demand increases, the premium for this coin could easily increase back to $300 to $500 above spot. In other words, you’d make money TWO ways – due to the increase in gold prices and due to the increase in premium.

Source

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California Lawmakers Look to Stop Cities from Billing Citizens Thousands for Their Own Prosecutions

MoneyA bill passed by the California Assembly would put an end to a practice in which several cities have been contracting with private prosecutors to handle nuisance abatement cases, then billing the impacted citizens thousands of dollars in lawyers’ fees.

A $5,600 prosecution fee for keeping chickens illegally on a property and a $31,000 prosecution fee for home improvements built without a permit are just two examples of the eye-popping enforcement techniques that have been happening in California desert cities like Indio and Coachella.

Here’s how it worked: The cities set up code enforcement and nuisance abatement laws that called for criminal prosecutions, then contracted out those prosecutions to a law firm named Silver & Wright (this firm actually developed the original concept and pitched it to the cities). The law firm then prosecuted the cases and got defendants to plead guilty, pay a small fine, and agree to fix the problem. A few months later, Silver & Wright billed them for their own prosecutions. The firm’s demands for money included threats of liens on their properties if they did not pay. If they attempted to appeal, they were billed even more to cover the firm’s costs of fighting the appeal.

These money-mongering tactics were investigated and exposed by journalists at the Desert Sun and subsequently prompted a class action lawsuit filed by the lawyers at the Institute for Justice, a public-interest law firm. Those lawyers hope to stop this practice and get the money returned to the property owners.

It looks like the days are numbered for this tactic. A bipartisan duo of lawmakers introduced the bill to formally forbid California cities and counties from engaging in this practice. The remarkably short AB2495 adds a single sentence to the state’s code that reads, “A city, county, or city and county, including an attorney acting on behalf of a city, county, or city and county, shall not charge a defendant for the costs of investigation, prosecution, or appeal in a criminal case, including, but not limited to, a criminal violation of a local ordinance.”

One of the Assembly members sponsoring the law, Republican Chad Mayes of Yucca Valley, said he had been hearing complaints but credited the Desert Sun‘s reporting for pushing him to introduce the legislation.

The bill unanimously passed the state Assembly and now heads to the Senate. According to a report by the Assembly Committee on Public Safety, the bill has no registered opposition.

The cities involved initially defended the practice. But last week, the city manager of Indio reversed position and told the Desert Sun he supported the reform bill.

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Italian Equity, Credit Protection Costs Explode, Sovereign Risk At 5Y Highs

While prices for Italian bonds and stocks have already plummeted, investors are anything but convinced the bottom is in as the costs for protecting against downside risk has exploded to multi-year highs for stocks and bonds…

Italy’s FTSE MIB stock market benchmark had fallen almost 14% in the last three weeks…

And despite the modest bounce off today’s lows – as every European politician attempts to calm any anxiety – investors continue to pay up massively to protect their stock and bond investments.

Note that the chart above shows the “false alarms” that equity markets had before they were stomped on by The ECB. This time, the credit market crash is confirming the equity market.

More specifically for stocks, the cost of bearish options on the FTSE MIB Index has jumped to a two-year high relative to bullish contracts as the country plunged into political turmoil… and is nearing its steepest since 2011’s EU crisis peak…

 

At the same time the sovereign credit risk of Italy has exploded higher after years of repression…

 

Minsky would be proud!

Meanwhile, the mid-session dip-buyer evaporated amid comments from Juncker et al…

Leaving 2Y Italian bond yields are their widest to German bond yields since the peak of the EU crisis…

“Get back to work, Mr.Draghi”

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