Month: May 2019

Minnesota City Will Soak Taxpayers To Build a Water Park at the Mall of America

The Twin Cities have spent gobs of public money on new baseball, football, and soccer stadiums in recent years. Not to be outdone, a Minneapolis suburb is now planning to flush away $7.5 million designing what would be one of the country’s largest indoor water parks.

The city council of Bloomington, Minnesota, voted unanimously last month to team up with the privately owned Mall of America (located in Bloomington) on the water park project. That $7.5 million covers 75 percent of a development contract that will design the park; the Mall of America is paying for the other 25 percent. The mall plans to build the park on land currently occupied by a parking lot, the Minneapolis Star-Tribune reports.

The water park itself will be owned by a nonprofit that will lease the land from the corporation that owns the mall. If the water park failed to turn a profit, Bloomington would be allowed to impose a sales tax on the Mall of America to make up the difference—thanks to the state legislature, which passed a bill several years ago allowing the city to create a special sales tax zone specifically for the Mall of America.

“There really haven’t been any red lights that have popped up as this thing has been looked at and studied,” Mayor Gene Winstead tells the paper.

He must not be looking very hard. As the Star-Tribune previously reported, the Mall of America has sought for years to build a giant water park alongside the nation’s biggest shopping mall, but Mall executives don’t think the water park would generate enough revenue to be viable if it were privately funded.

That’s a pretty damn big red flag right there.

In the long run, taxpayers could be soaked for another $50 million to pay for a parking garage (or “parking ramp” in Minnesotan) and another $8 million in infrastructure upgrades to get the site ready.

The project doesn’t just look like a waste of Bloomington taxpayers’ money. It seems fundamentally unfair. There’s already a niche market for indoor water parks across the Upper Midwest, where they provide an easily accessible faux-tropical respite from the bitterly cold winters. If chains like Great Wolf Lodge—which owns an indoor water park literally right across the street from the Mall of America—and other privately owned  operations can survive without government handouts, there doesn’t seem to be a compelling reason for Bloomington to dive into that market.

“Cannibalizing existing business enterprises in order to add a new attraction for the Mall of America is bad strategy for long-term business development and tax stability,” Murray Hennessy, CEO of Great Wolf Resorts, wrote in a letter to the Bloomington City Council. “If the water park project does not perform as projected, to recoup losses, Bloomington would have to levy additional taxes on admissions, food/beverage, lodging and sales tax. The additional taxes would further hinder tourism, and burden residents who routinely visit the Mall of America with their families.”

After years of lobbying city officials and the state legislature, the mall seems to be closing in on getting the public funds it wants. Bloomington has approved what the Star-Tribune calls an “intricate plan” that “stretches the intended purpose of tax-exempt borrowing” to make all the numbers work.

“It appears like there is a desire by the [Mall of America] to have a water park attraction but not necessarily a tenant who wants to rent out the space and build it out to meet its needs,” says Kimberly Lowe, a Minnesota-based attorney who specializes in nonprofit law. She tells Reason that the city may be trying to help the mall because “traditional lenders” are now less willing to finance mall projects given the recent contraction in retail sales.

The logic, such that it is, seems much like the justification for spending public money on sports stadiums. Sure, those are privately owned facilities built for privately owned teams, but they sorta seem like public spaces, since they serve as a gathering point for so many people. But in the end they’re just cronyist giveaways to politically favored activities—a list that now apparently includes “watersliding.”

If the city cared to look for more red flags, it could cast its eyes south to Nashville, Tennessee, where city officials recently drained $14 million out of public accounts to help build a private water park at the Gaylord Opryland Resort, open exclusively to hotel guests. In a 2017 poll conducted by the Beacon Center of Tennessee, a pro-market think tank, voters named that water park project the second worst example of government waste in the state (trailing only a state-level economic development program that spent $67 milllion to create 55 jobs).

At least Bloomington’s taxpayer-funded water park won’t require a $250-per-night hotel stay for access, but that hardly justifies the project. If the Mall of America can’t make a splash without getting a handout, maybe it should stay out of the pool.

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Minnesota City Will Soak Taxpayers To Build a Water Park at the Mall of America

The Twin Cities have spent gobs of public money on new baseball, football, and soccer stadiums in recent years. Not to be outdone, a Minneapolis suburb is now planning to flush away $7.5 million designing what would be one of the country’s largest indoor water parks.

The city council of Bloomington, Minnesota, voted unanimously last month to team up with the privately owned Mall of America (located in Bloomington) on the water park project. That $7.5 million covers 75 percent of a development contract that will design the park; the Mall of America is paying for the other 25 percent. The mall plans to build the park on land currently occupied by a parking lot, the Minneapolis Star-Tribune reports.

The water park itself will be owned by a nonprofit that will lease the land from the corporation that owns the mall. If the water park failed to turn a profit, Bloomington would be allowed to impose a sales tax on the Mall of America to make up the difference—thanks to the state legislature, which passed a bill several years ago allowing the city to create a special sales tax zone specifically for the Mall of America.

“There really haven’t been any red lights that have popped up as this thing has been looked at and studied,” Mayor Gene Winstead tells the paper.

He must not be looking very hard. As the Star-Tribune previously reported, the Mall of America has sought for years to build a giant water park alongside the nation’s biggest shopping mall, but Mall executives don’t think the water park would generate enough revenue to be viable if it were privately funded.

That’s a pretty damn big red flag right there.

In the long run, taxpayers could be soaked for another $50 million to pay for a parking garage (or “parking ramp” in Minnesotan) and another $8 million in infrastructure upgrades to get the site ready.

The project doesn’t just look like a waste of Bloomington taxpayers’ money. It seems fundamentally unfair. There’s already a niche market for indoor water parks across the Upper Midwest, where they provide an easily accessible faux-tropical respite from the bitterly cold winters. If chains like Great Wolf Lodge—which owns an indoor water park literally right across the street from the Mall of America—and other privately owned  operations can survive without government handouts, there doesn’t seem to be a compelling reason for Bloomington to dive into that market.

“Cannibalizing existing business enterprises in order to add a new attraction for the Mall of America is bad strategy for long-term business development and tax stability,” Murray Hennessy, CEO of Great Wolf Resorts, wrote in a letter to the Bloomington City Council. “If the water park project does not perform as projected, to recoup losses, Bloomington would have to levy additional taxes on admissions, food/beverage, lodging and sales tax. The additional taxes would further hinder tourism, and burden residents who routinely visit the Mall of America with their families.”

After years of lobbying city officials and the state legislature, the mall seems to be closing in on getting the public funds it wants. Bloomington has approved what the Star-Tribune calls an “intricate plan” that “stretches the intended purpose of tax-exempt borrowing” to make all the numbers work.

“It appears like there is a desire by the [Mall of America] to have a water park attraction but not necessarily a tenant who wants to rent out the space and build it out to meet its needs,” says Kimberly Lowe, a Minnesota-based attorney who specializes in nonprofit law. She tells Reason that the city may be trying to help the mall because “traditional lenders” are now less willing to finance mall projects given the recent contraction in retail sales.

The logic, such that it is, seems much like the justification for spending public money on sports stadiums. Sure, those are privately owned facilities built for privately owned teams, but they sorta seem like public spaces, since they serve as a gathering point for so many people. But in the end they’re just cronyist giveaways to politically favored activities—a list that now apparently includes “watersliding.”

If the city cared to look for more red flags, it could cast its eyes south to Nashville, Tennessee, where city officials recently drained $14 million out of public accounts to help build a private water park at the Gaylord Opryland Resort, open exclusively to hotel guests. In a 2017 poll conducted by the Beacon Center of Tennessee, a pro-market think tank, voters named that water park project the second worst example of government waste in the state (trailing only a state-level economic development program that spent $67 milllion to create 55 jobs).

At least Bloomington’s taxpayer-funded water park won’t require a $250-per-night hotel stay for access, but that hardly justifies the project. If the Mall of America can’t make a splash without getting a handout, maybe it should stay out of the pool.

from Latest – Reason.com http://bit.ly/2VFhQNG
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Under The Veneer Of The “Unbreakable” US Consumer

Authored by Chris Woods via Grizzle.com,

Continuing last week’s subject of the momentum in the U.S. economy, the key issue remains consumption, which accounts for 68% of GDP.

The fundamental problem for the U.S. consumption dynamic remains the extreme unequal distribution of income in America which means, to a far greater extent than is the case in western Europe or indeed Japan, that America’s middle class has been hollowed out. U.S. real median household income in 2017, the latest data available, was still 0.1% below the previous high reached in 2007 and 1.0% below the all-time high reached in 1999 (see following chart).

As an example of rising stresses, it was interesting to read recently that the Federal Housing Administration (FHA) tightened in March, underwriting standards because of rising delinquencies. Thus the FHA, which insures mortgages for first-time home buyers, told lenders that it would begin flagging more loans as high risk. The FHA reportedly said that those mortgages, many of which are extended to borrowers with low credit scores and high debt payments relative to their income, will now go through a more rigorous manual underwriting process (see The Wall Street Journal article: “FHA clamps down on risky government-backed mortgages” [paywall], March 25, 2019).

U.S. REAL MEDIAN HOUSEHOLD INCOME

Note: Adjusted the levels prior to 2013 based on the 2013 gap between the old data and the new data based on the redesign income questions. Source: U.S. Census Bureau

Similarly, there are growing stresses on auto loan repayments. Thus, the flow into serious delinquency (the share of auto loan balances that newly became 90+ day delinquent) rose to 2.4% in 4Q18, up from a recent low of 1.5% in 4Q12, according to the latest New York Fed’s household debt survey. More interestingly, auto loan borrowers with credit scores less than 620 saw their transitions into serious delinquency rise from 5.5% in 4Q12 to 8.2% in 4Q18 (see following chart).

TRANSITION OF AUTO LOANS INTO SERIOUS DELINQUENCY (90+ DAYS) BY ORIGINATION CREDIT SCORE

Source: Federal Reserve Bank of New York

Meanwhile, the trend in retail sales and U.S. consumer spending on services remains relatively lacklustre. U.S. retail sales rose by 3.6% YoY in nominal terms in March, down from 6.6% YoY in July 2018 (see following chart). While real household consumption expenditure for services rose by 2.4% YoY in 1Q19, down from 4.1% YoY in 2Q15 (see following chart).

As for consumer loan demand, the Fed’s latest quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices shows a net 17.4% and 18.2% of banks reporting weaker demands for credit card loans and auto loans, respectively, in January, up from 4.3% and 1.8% in October (see following chart).

U.S. NOMINAL RETAIL SALES GROWTH

Source: U.S. Census Bureau

U.S. REAL HOUSEHOLD CONSUMPTION EXPENDITURE FOR SERVICES

Fed senior loan officer survey – Net Pct of domestic banks reporting stronger demand for consumer loans

FED SENIOR LOAN OFFICER SURVEY: NET % OF DOMESTIC BANKS REPORTING STRONGER DEMAND FOR CONSUMER LOANS

Source: Federal Reserve – Senior Loan Officer Opinion Survey on Bank Lending Practices

True, the bull story on the American consumer story, which has been acknowledged here previously, is that millennials are now a bigger cohort of the U.S. population than the baby boomers and they have much less debt. “Millennials”, defined as people aged between 19 and 37 (or born from 1982 to 2000), now total 85 million, compared with 74 million baby boomers, defined as those born between 1946 and 1964, according to the Census Bureau’s population estimates (see following chart).

While this is broadly true, save perhaps for student debt, which now totals an enormous US$1.5 trillion, the problem is that the boomers are entering “retirement” with a much greater debt burden than previous generations.

U.S. POPULATION BY AGE AND GENERATION

Source: U.S. Census Bureau

THE BURDEN OF DEBT FOR AGING AMERICANS

Americans who are 60 or older owed about US$615 billion in credit cards, auto loans, personal loans and student debt as of 2017, up 84% since 2010, the biggest increase of any age group, according to the TransUnion data compiled for The Wall Street Journal (see The Wall Street Journal article: “Over 60, and crushed by student loan debt” [paywall], Feb. 2, 2019).

Student loan borrowers in their 60s, for example, owed an average US$33,800 in 2017, up 44% from 2010. So, student debt is spread across age groups. Thus, the New York Fed data shows that 6.5% of the student loans were owed by Americans aged 60 or above at the end of 2018, up from 1.8% in 2004 (see following chart). Indeed such data is why many baby boomers cannot afford to retire, assuming they want to.

SHARE OF STUDENT LOANS BY AGE GROUP

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

CAN STRONG WAGE GROWTH BALANCE OUT DEBT?

The conclusion from all of the above is that the resilience of U.S. consumption should not be taken for granted despite the seeming improving trend in wage growth. U.S. average hourly earnings growth for private employees rose from 2.3%YoY in October 2017 to 3.4%YoY in February 2019 and was 3.2%YoY in March (see following chart).

Meanwhile, the capex trend remains far from robust while share buybacks have continued to surge. Indeed surging share buybacks have been the chief beneficiary of Donald Trump’s tax reform. In terms of capital spending, real non-residential private fixed investment, excluding mining investment, rose by 4.6%YoY in 1Q19, down from 6.6%YoY in 4Q18 (see following chart).

S&P500 share buybacks rose by 63% YoY to US$223 billion in 4Q18, the fourth consecutive record high. For the whole year, S&P500 share buybacks increased by 55% to a record US$806 billion in 2018, 37% above the previous record of US$589 billion reached in 2007 (see following chart).

U.S. AVERAGE HOURLY EARNINGS GROWTH FOR PRIVATE EMPLOYEES

Source: US Bureau of Labour Statistics

U.S. REAL PRIVATE NON-RESIDENTIAL FIXED INVESTMENT EXCLUDING MINING INVESTMENT

Source: CLSA, Bureau of Economic Analysis

S&P500 SHARE BUYBACKS

Source: S&P Dow Jones Indices

CONTINUING DECLINE IN SMALL BUSINESS OPTIMISM

The other point to be aware of is the renewed decline in America’s NFIB Small Business Optimism Index after the spike to an all-time high which occurred last year followed Trump’s tax reform, higher than under Ronald Reagan in 1980s.

The index peaked at 108.8 in August 2018 and has since declined to a two-year low of 101.2 in January and was 101.8 in March. It is interesting to note that within the aggregate index, the components measuring capital spending plans and hiring plans are trending down again. Thus, the capex plans and hiring plans components declined from 33% and 26% in August 2018 to 27% and 18% in March. This needs to be watched closely in coming months.

U.S. NFIB SMALL BUSINESS OPTIMISM INDEX

Source: CEIC Data, National Federation of Independent Business (NFIB)

All of the above suggests there is a lot of potential for U.S. data to weaken in the coming quarters regardless of what happens on the U.S.-China trade dispute. If this is yet another reason for the Donald not only to agree to a deal, but also to drop the existing tariffs, it is also the case that the American president will be quick to blame the Fed if the U.S. data does indeed start to disappoint. That will, in turn, create political pressure on the Powell Fed to do what it is going to do anyway sooner or later, which is to cut interest rates.

What about the risk that the Donald’s continuing pressure on the Fed, with his comments in early April that the Fed should “drop rates”, will stop Powell from acting for fear that he no longer looks “independent”? I would not be concerned. The Fed has never in reality been “independent” of the executive, even allowing for the vaunted separation of powers under the American constitution. The reality is that G7 central banks are no more “independent” than central banks in the emerging world but their policies are a lot less orthodox than their emerging market counterparts!

via ZeroHedge News http://bit.ly/2Y28gln Tyler Durden

Democrats Rage At Empty Chair As Barr Misses Mueller Hearing

Refusing to allow the fact that AG Barr chose not to attend today’s Mueller Report hearing, angry Democrats took full advantage of the photo-op to conjure images of a terrified attorney general cowering from the truth and protecting a clearly guilty-of-something president.

Despite Barr’s decision last night not to attend, because he objected to Democratic demands that their staff counsel be able to question him, Democrats went forward with the theater of the hearing anyway, setting up an empty chair for the absent attorney general.

As The Hill reports, Rep. Steve Cohen (D-Tenn.) brought a bucket of Kentucky Fried Chicken to the morning event, and accused Barr of being a coward after it ended.

House Judiciary Chairman Jerrold Nadler (D-N.Y.) tore into Barr, accusing him of failing to check President Trump’s “worst instincts” and misrepresenting Mueller’s findings.

“He has failed the men and women of the Department by placing the needs of the President over the fair administration of justice,” Nadler said. “He has even failed to show up today.”

Republicans did not take it lying down with Rep. Matt Gaetz (R-Fla.) noted vociferously that “Judiciary Democrats say AG Barr is “terrified.” Yesterday he testified for over five hours in an open hearing. Today, they cut off my microphone.”

And, Rep. Doug Collins (R-Ga.) accused Nadler of staging a “circus political stunt” and said the Democratic chairman wanted the hearing to look like an impeachment hearing.

“That is the reason. The reason Bill Barr is not here today is because the Democrats decided they didn’t want him here today. That’s the reason he’s not here,” Collins said. “Not hearing from him is a travesty to this committee today.”

Nadler concluded the hearing after a half an hour by demanding the Justice Department provide the committee access to Mueller’s unredacted report and underlying evidence. Nadler has threatened a contempt citation against Barr if he doesn’t meet Democrats’ demands.

“We need the information without delay,” Nadler said in closing. “The hearing is adjourned.”

Or what?

via ZeroHedge News http://bit.ly/2GXBg88 Tyler Durden

One Bank Asks “Is The Fed Losing Control Of The Interest Rate System”

Last Wednesday, before the Fed “unexpectedly” cut its IOER rate by 5bps o 2.35%, we warned that the “Fed Loses Control Of Rates” when pointing out the ongoing divergence of the effective fed funds rate from the Overnight Repo – IOER rate corridor.

Now, one week later and following the Fed’s admission that even it was surprised by how quickly the overnight funding market plumbing had gotten clogged up, others are starting to ask the very question we posed a week ago.

In a note published overnight by Rabobank’s Phillip Marey, the US strategist – just like us – asks “Is the Fed losing control of the policy rate system?” Needless to say, the answer could have profound implications not only for the future of US monetary policy, but whether or not the dollar can remain as the world’s reserve currency in a world in which the US central bank loses the ability to set the price of money.

Here’s Marey’s full note:

The pause continues

The FOMC statement noted that economic activity rose at a solid rate, but repeated that household spending and business fixed investment slowed in the first quarter. The Fed repeated that job gains have been solid, on average, in recent months, and dropped the reference to the weak February nonfarm payroll figure. The Fed also noted that core inflation has declined and is running below 2%. At the press conference, Powell said that the data are not pushing the FOMC in either direction. The Committee does not see a strong case for a rate move either way.

Therefore, the FOMC kept the target range for the federal funds rate at 2.25-2.50%.

Is the Fed losing control of the policy rate system?

However, the Fed’s Board of Governors cut the IOER rate to 2.35% from 2.40%. While speculation of another tweak to the IOER rate has been around for some time, the consensus expectation was that the Fed still had time to give a formal warning. After all, the previous two tweaks of the IOER rate, in June and December 2018, were signalled in the minutes of the preceding FOMC meeting.

In the minutes of the May meeting it was mentioned that ‘Many participants judged that it would be useful to make such a technical adjustment sooner rather than later.’ In the November minutes the Chairman noted that ‘it might be appropriate to implement another technical adjustment in the IOER rate relative to the top of the target range for the federal funds rate fairly soon.’ So the expectation was that the Fed could use the minutes of today’s meeting, to be released on May 22, to signal a change to the IOER rate in June.

The reason for the recent market rumors of another tweak was the effective federal funds rate rising above the IOER rate. While this is what the federal funds rate was supposed to do in the first place – if the IOER rate had not been a leaky floor–, in the Fed’s current monetary policy framework it means that the federal funds rate is moving away from the midpoint of the target range again. In order to push the federal funds rate back to the midpoint, the Fed decided today to cut the IOER rate by 5 bps. While we have seen two tweaks to the IOER rate before, they took place at the same time as a hike in the target range for the federal funds rate.

In June and December 2018, a 25 bps federal funds rate hike was accompanied by a 20 bps hike in the IOER rate. Today’s tweak to the IOER rate will be implemented in isolation. This means that we should not interpret this rate cut as a change in the Fed’s monetary policy stance, but rather a technical adjustment to get the federal funds rate closer to its intended level, the midpoint. Powell and the Fed’s implementation note said that this is a technical adjustment to keep the federal funds rate in the target range.

What to make of the lack of a formal warning? In the first place, it means that the recent rise in the federal funds rate took the Fed by surprise. In the second place, it means the Fed thought it could not afford to wait for another six weeks. This shows that the Fed’s current framework for monetary policy implementation is not working. It has difficulty keeping the effective federal funds rate close to the midpoint of the target range announced by the FOMC. Moreover, the changes in the IOER rate present a challenge to the Fed’s communication to the public: the central bank is tweaking one of its policy rates now and then, but this supposedly has nothing to do with its monetary policy stance? What’s more, this time the Fed could not even afford to  give a formal warning to the markets. Today’s decision proves the failure of the current policy rate system.

Therefore, the Fed’s debate about effective monetary policy implementation is likely to continue. While the current system has two floors, the interest on excess reserves (IOER) and the overnight reverse repurchase agreement (ON RRP) as we discussed back in 2015, it is lacking a ceiling. At the press conference, Powell said that the FOMC will be looking at a repo facility as a possible tool in an upcoming meeting, think about it for a while, and then make a decision.

Meanwhile, the yield curve remains partially inverted. As we have stressed before, it is important to distinguish between coincident, lagging and leading indicators. The fact that the economy may be currently growing at a rate of 3.2% does not tell us anything about growth in the future. Neither do large econometric models that always show that the economy will get back to trend growth. These models are not very helpful in spotting turning points in the economy. In contrast, inversions of the yield curve do have a strong forecasting record when it comes to recessions 12-18 months in the future.

The explanation for the current yield curve inversion at the short end is that investors expect short-term rates to fall in 2020. Under normal circumstances, the yield curve is upward-sloping as it was at the start of 2017 and 2018. The shape of the yield curve is the combined result of the expected path of short-term rates and the term premium. The latter is assumed to be upward-sloping as holding longer-terms bonds requires a risk premium. However, if this pattern is outweighed by expectations of falling short-term rates the yield curve inverts. A decline in shortterm rates is likely to occur if the Fed starts cutting its policy rate. In practice this only occurs if the Fed thinks that a severe slowdown or recession is around the corner. This is the most straightforward explanation of the explanatory power of the yield curve.

However, most FOMC participants do not seem very concerned about the current inversion of the yield curve. They think that this time is different because quantitative easing is suppressing longer-term rates and therefore artificially flattening the curve. In fact, former Fed Chairman Bernanke used the same argument in 2006. At the time the global savings glut was the reason that we were supposed to ignore the yield curve inversion. What followed was the Great Recession.

We take the inversion of the yield curve more seriously and we continue to expect the economy to fall into recession in 2020H2. Consequently, we think that the Fed will be forced to start cutting rates in 2020.

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

US Factory Orders Rebound In March – Hover Near Weakest Growth Since Trump Election

After February’s surprising slowdown, US factory orders were expected to rebound in March and rebound they did.

US factory orders had fallen for 4 of the last 5 months ahead of today’s March data but against expectations of a 1.6% rise, order spiked 1.9% MoM – the most since Aug 2018…

 

On a year-over-year basis, US Factory Orders hovered at 2.0% YoY – near the weakest since Nov 2016

Core factory orders also rose in March (up 0.8% MoM) – the best since April 2018 – as non-defense capital goods shot up 6.5% MoM with Transportanation durable goods orders up 7.0% MoM.

Is this the inventory build that spiked Q1 GDP? And, as Jay Powell might ask “is is transitory?”

via ZeroHedge News http://bit.ly/2Ja6QBl Ty

Here Are 3 Bad Reasons We’re Still in Afghanistan

“[Y]ou can’t meet a general anywhere in the Pentagon who believes there is a military solution to the Afghan war,” Sen. Rand Paul (R–Ky.) mused in a recent radio interview. “That’s the main question I harangue them with when they come up to Capitol Hill to testify before our committees: I say, ‘Is there a military solution?’ And they all admit there is none. There’s been mission creep that’s now nation building, but they all admit no military solution.”

So why are we still fighting America’s longest war? Why continue our military intervention in Afghanistan after nearly two decades, when there is no prospect of anything resembling success?

The question becomes all the more pressing given that key players in the Trump administration appear to agree with the Pentagon consensus Paul describes. President Donald Trump himself has repeatedly expressed a desire to end the war, and he ordered a partial reduction in the U.S. troop presence in Afghanistan in December. His current secretary of state, Mike Pompeo, has acknowledged that peace in Afghanistan will have to be achieved via Afghan-led negotiations, not U.S. military action. Former Defense Secretary James Mattis said the same, arguing last year there is no “military victory” available to the United States. Rather, he said, “the victory will be a political reconciliation.”

Paul proposed three explanations for this gap between word and deed. The first is a personnel matter: “The problem is that several of [Trump’s] advisers that he has appointed don’t necessarily agree with him” about getting out of Afghanistan, Paul said. “So they either countermand his sentiments or talk him into delaying actually ending the war.”

Trump’s national security advisers have been particularly pernicious in this regard. First the office was occupied by H.R. McMaster, who endorsed “state-building in places like Afghanistan and Iraq,” and consistently seemed to steer Trump toward unjustifiably aggressive foreign policies. The seat is now filled by John Bolton, whose complete and reckless hawkishness is detailed anew in a lengthy New Yorker profile this week. “Bolton is a hawk,” Trump reportedly said of his adviser shortly before hiring him. “He’s going to get us into a war.” At the very least he’s managed to keep us in half a dozen, and it is unlikely Trump will be able to deliver on his more sensible foreign policy impulses so long as voices like these have his ear.

The second problem Paul identified is that “there are still a number of people [in Washington] who are of what I call the Vietnam village strategy—take one more village and we’ll get a better negotiated settlement.” Pompeo certainly seems to be of this ilk, describing the U.S. position in the Afghan peace talks as one of ensuring the Taliban realizes “they can’t win on the ground militarily.”

While it is true the U.S. military can skirmish with the Taliban forever, this is no argument for prolonging the war. Pompeo is no doubt right that Taliban leadership understands it cannot trounce the most powerful military on the planet, but that hardly means continued U.S. intervention has the Taliban cornered. On the contrary, the group has been resurgent in recent years, gaining control over larger portions of the country even after massive and costly U.S. military efforts. And if that’s the case, as Paul said, “I don’t want to send my kid, your kid, or my nephew to Afghanistan—because if there is no military solution, what is one more death going to do over there?”

It is utterly indefensible to spill more blood and treasure to, at best, maintain a stalemate. Negotiations, already underway, will proceed with or without U.S. boots on the ground. If anything, American military exit might imbue the talks with a fresh sense of urgency, prompting necessary compromises neither side is presently willing to make.

The third delaying factor is how the mission has morphed. “[W]e just need to acknowledge that our original mission was to go after those who plotted or attacked us on 9/11,” Paul said, “and there’s frankly none of them left….We’re [now fighting] forces that are associated with forces that are associated with forces that are associated with somebody else. It’s so tangential to have any link to 9/11 that it really doesn’t exist.”

That calls into question the legality of this evolving intervention, since the original Authorization for Use of Military Force specifically cited the 9/11 attacks. It also raises serious practical and strategic concerns. It serves the interests of neither the U.S. nor local populations for Washington to perpetually police the world, moving endlessly from one parochial fight to another, offering military solutions to problems that need political and diplomatic resolutions orchestrated by the people whose lives they’ll affect.

Each of these obstacles—bad advice in Washington, a needless maintenance of stalemate, and strategically reckless mission creep—can and must be overcome if Trump really intends to make good on his promise of a new direction for American foreign policy. There is no military solution to be had here; it is time to simply come home.

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Here Are 3 Bad Reasons We’re Still in Afghanistan

“[Y]ou can’t meet a general anywhere in the Pentagon who believes there is a military solution to the Afghan war,” Sen. Rand Paul (R–Ky.) mused in a recent radio interview. “That’s the main question I harangue them with when they come up to Capitol Hill to testify before our committees: I say, ‘Is there a military solution?’ And they all admit there is none. There’s been mission creep that’s now nation building, but they all admit no military solution.”

So why are we still fighting America’s longest war? Why continue our military intervention in Afghanistan after nearly two decades, when there is no prospect of anything resembling success?

The question becomes all the more pressing given that key players in the Trump administration appear to agree with the Pentagon consensus Paul describes. President Donald Trump himself has repeatedly expressed a desire to end the war, and he ordered a partial reduction in the U.S. troop presence in Afghanistan in December. His current secretary of state, Mike Pompeo, has acknowledged that peace in Afghanistan will have to be achieved via Afghan-led negotiations, not U.S. military action. Former Defense Secretary James Mattis said the same, arguing last year there is no “military victory” available to the United States. Rather, he said, “the victory will be a political reconciliation.”

Paul proposed three explanations for this gap between word and deed. The first is a personnel matter: “The problem is that several of [Trump’s] advisers that he has appointed don’t necessarily agree with him” about getting out of Afghanistan, Paul said. “So they either countermand his sentiments or talk him into delaying actually ending the war.”

Trump’s national security advisers have been particularly pernicious in this regard. First the office was occupied by H.R. McMaster, who endorsed “state-building in places like Afghanistan and Iraq,” and consistently seemed to steer Trump toward unjustifiably aggressive foreign policies. The seat is now filled by John Bolton, whose complete and reckless hawkishness is detailed anew in a lengthy New Yorker profile this week. “Bolton is a hawk,” Trump reportedly said of his adviser shortly before hiring him. “He’s going to get us into a war.” At the very least he’s managed to keep us in half a dozen, and it is unlikely Trump will be able to deliver on his more sensible foreign policy impulses so long as voices like these have his ear.

The second problem Paul identified is that “there are still a number of people [in Washington] who are of what I call the Vietnam village strategy—take one more village and we’ll get a better negotiated settlement.” Pompeo certainly seems to be of this ilk, describing the U.S. position in the Afghan peace talks as one of ensuring the Taliban realizes “they can’t win on the ground militarily.”

While it is true the U.S. military can skirmish with the Taliban forever, this is no argument for prolonging the war. Pompeo is no doubt right that Taliban leadership understands it cannot trounce the most powerful military on the planet, but that hardly means continued U.S. intervention has the Taliban cornered. On the contrary, the group has been resurgent in recent years, gaining control over larger portions of the country even after massive and costly U.S. military efforts. And if that’s the case, as Paul said, “I don’t want to send my kid, your kid, or my nephew to Afghanistan—because if there is no military solution, what is one more death going to do over there?”

It is utterly indefensible to spill more blood and treasure to, at best, maintain a stalemate. Negotiations, already underway, will proceed with or without U.S. boots on the ground. If anything, American military exit might imbue the talks with a fresh sense of urgency, prompting necessary compromises neither side is presently willing to make.

The third delaying factor is how the mission has morphed. “[W]e just need to acknowledge that our original mission was to go after those who plotted or attacked us on 9/11,” Paul said, “and there’s frankly none of them left….We’re [now fighting] forces that are associated with forces that are associated with forces that are associated with somebody else. It’s so tangential to have any link to 9/11 that it really doesn’t exist.”

That calls into question the legality of this evolving intervention, since the original Authorization for Use of Military Force specifically cited the 9/11 attacks. It also raises serious practical and strategic concerns. It serves the interests of neither the U.S. nor local populations for Washington to perpetually police the world, moving endlessly from one parochial fight to another, offering military solutions to problems that need political and diplomatic resolutions orchestrated by the people whose lives they’ll affect.

Each of these obstacles—bad advice in Washington, a needless maintenance of stalemate, and strategically reckless mission creep—can and must be overcome if Trump really intends to make good on his promise of a new direction for American foreign policy. There is no military solution to be had here; it is time to simply come home.

from Latest – Reason.com http://bit.ly/2GXHZPG
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Dalio: “Like It Or Not” Central Banking Is On Its Way Out; MMT Will “Inevitably” Replace It

Following the publication of his ‘capitalist manifesto’ where he called for drastic reforms of the American capitalist system to redistribute wealth and resources more equitably – something he followed up with an unprecedented $100 million donation to the public schools in his home state of Connecticut, putting his money where his mouth is, so to speak – Ray Dalio’s self-published LinkedIn essays have been garnering a lot more attention. It probably didn’t hurt that Dalio’s essay appeared to set off a wave of wealthy capitalists talking about how “capitalism is broken”, placing him at the forefront of a trend that could have profound implications for American politics as Wall Street struggles to confront the rise of populism on the right and the left.

Dalio

And so it is that late on Wednesday, Dalio published a follow-up where he expanded on a proposal that, as we noted at the time, sounded suspiciously similar to Modern Monetary Theory.

This time around, Dalio argued that, whether we like it or not, the US will eventually be forced to embrace MMT, this has become “inevitable,” he said. Central banking as we know it (which, thanks to rampant money printing in the post-crisis paradigm, has already moved closer to the MMTers ideal) is doomed to eventually collapse under its own weight and unpopularity. In other words, sooner or later, the people will demand MMT, once inequality gets bad enough. 

Once the public has accepted that money printing and interest-rate cuts aren’t doing enough to distribute wealth more equally (as we’ve pointed out many times, the Fed’s unprecedented post-crisis easing has been the primary driver in the expansion of economic inequality that Dalio finds so troubling), policy makers will be forced to accept “monetary policy 3” – or MMT.

To me the most important engineering puzzle policy makers around the world have to solve for the years ahead is how to get the economic machine to produce economic well-being for most people when monetary policy does not work. I don’t mean that monetary policy won’t work at all; I mean that it won’t work hardly at all in stimulating economic prosperity in the ways that we are used to having it stimulate economic activity, which are through interest rate cuts (what I call Monetary Policy 1) and through quantitative easing (what I call Monetary Policy 2). That is because it won’t be effective in producing money and credit growth (i.e., spending power) and it won’t be effective in getting it in the hands of most people to increase their productivity and prosperity. Hence I believe we will have to go to Monetary Policy 3, which is fiscal and monetary policy coordination that is of a form that we haven’t seen before in our lifetimes but has existed in various forms in others’ lifetimes or faraway places. It is inevitable that this shift will happen because it is inevitable that central bankers will want to ease when interest rates are pinned at 0% and when quantitative easing will be ineffective in achieving the goal. I recently refreshed my prior exploration of past cases and future possibilities of such coordination, which I will share below.

In the policy prescriptions he introduced during his previous essays, Dalio recommended a closer collaboration between fiscal policy and monetary policy. Now, he’s taken that a step further and advocated placing the monetary policy reins into the hands of elected officials (one of the key tenents of MMT).

For what it’s worth, Dalio acknowledges that this could present a conflict, and that if we embrace MMT, it will need to be done in a way that limits the control of politicians to enact self-serving policies (something that, as far as  we can tell, would be extremely difficult)

The big risk of this approach arises from the risks of putting the power to create and allocate money, credit, and spending in the hands of politically elected policy makers. In my opinion, for these MP3 policies to work well, the system would have to be engineered in a way that decision making would be in the hands of wise, not politically motivated, and highly skilled people. It’s difficult to imagine how the system will be built to achieve that. At the same time it is inevitable that we are headed in this direction. 

Ultimately, Dalio would favor a version of MMT with automated policy prescriptions to control taxes and stimulus depending on what’s happening with the business cycle, to limit the influence of politics (effectively marrying MMT with a kind  of hybrid Taylor Rule).

For anyone who is unfamiliar with MMT, Dalio created this handy chart to explain the different ‘flavors’ of the policy.

Dalio

Of course, Dalio isn’t the only Wall Street luminary to come out in favor of MMT. But will he stick to his guns after the inevitable backlash? Or will he eventually change his mind like Carl Icahn? 

via ZeroHedge News http://bit.ly/2Vaai6i Tyler Durden

Gold Tumbles To Critical Technical Support As Market ‘Tightens’ Fed Expectations

A “transitorily” hawkish Fed, which saw the market’s Fed rate change expectations tighten by 13bps, has prompted dollar gains and sparked selling in the precious metals.

And as the dollar rallied, gold sank…

 

Holding (for the second time in just over a week) at its 200DMA…

At the same time, Silver has dropped to its lowest since 12/3/18…

 

via ZeroHedge News http://bit.ly/2PIMHn8 Tyler Durden