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Last week, when looking at the divergence between Donald Trump’s proposed fiscal plan to “make America great again” on the back of an unprecedented fiscal stimulus boost which is expected to add $5.3 trillion to the debt over the next decade…

 

… and the deleveraging fiscal plan espoused by House Republicans…

… we pointed out something disturbing: the two plans were roughly $12 trillion apart over a cumulative ten year period, a difference equal to more than one-quarter of total federal outlays.

Then earlier today, none other than Fed vice chair Fischer issued a clear warning to the new administration:

• FISCHER: NOT A LOT OF ROOM TO INCREASE U.S. DEFICIT WITHOUT ADVERSE CONSEQUENCES DOWN THE ROAD

adding that there “enormous uncertainty around new US fiscal policies.”

Judging by the market’s reaction, there is little uncertainty, although that statement is certainly accurate for members of Congress who appear to have finally woken up to what Trump’s policies mean for the US.

The result is the first major problem to emerge for Donald Trump’s economic policies.

Perhaps the GOP read over the weekend what we reported, or maybe did the math on their own, but as The Hill writes this morning, Republican lawmakers warn that there could be a major obstacle to enacting President-elect Donald Trump’s agenda: the national debt.

The website once again lays out the generic framework of Trump’s plan: “Trump called during the campaign for a $1 trillion infrastructure package, $5 trillion in tax cuts, increases in military spending and the repeal ObamaCare, which could cost more than $350 billion over 10 years. At the same time, the president-elect has promised “not to touch” Social Security or make cuts to Medicare. The cost of Trump’s plans and the lack of concrete details on how to pay for them could become a problem for congressional Republicans next year, especially when they are faced with raising the nation’s $20 trillion borrowing limit sometime after March.”

“I was disappointed that it wasn’t brought up in the campaign — anybody’s campaign really — it really wasn’t mentioned,” Sen. Jeff Flake (R-Ariz.) said of deficits and debt.

“So I’m very concerned about it. It’s going to be tough to address if there’s no push from outside of the Congress,” he added. “I’m very concerned about it. It’s the biggest problem we face, by far.”

Conservative groups are worried as well. They say Republicans must not lose sight of fiscal restraint now that they are set to control the White House and Congress.

“We did not hear anything about entitlement reform from either of the candidates, and that’s a serious issue,” said Michael Sargent, a research associate at The Heritage Foundation. “You cannot address the growth in spending without addressing entitlement issues.” Well, perhaps if the campaign was engaged in non-stop daily midslinging between Trump and Clinton, someone would have “heard” about it. Alas, now it is a little too late.

Compounding the problem is the expected Federal rate hike to arrest rising inflation, which would increase the cost of the nation’s debt.  Flake noted on the Senate floor in September that for every quarter point that interest rates rise, the federal government would have to spend an additional $50 billion annually to service the debt.

Ultimately, the problem regarding the US debt is not so much Trump’s, as that of Republicans who would have to support it. Readers will recall that Congressional Republicans assailed President Obama early in his tenure over soaring federal deficits, which exceeded $1 trillion dollars during his first four years in office. As a result, debt reduction was the main focus of GOP leaders after they took back control of the House in 2010.

“It is a problem and going to be a problem. Don’t forget that Obama has doubled the debt and if interest rates were at their historic norms, the deficit would be $612 billion bigger,” said former Sen. Phil Gramm (R-Texas).

This is precisely the point made by Nassim Taleb yesterday in a series of tweet as noted here previously:

Obama:
Protected banksters (largest bonus pool in 2010)
“Helped” Libya
Served AlQaeda/SaudiBarbaria(Syria & Yemen) https://t.co/bcNMhDgmuo

— NassimNicholasTaleb (@nntaleb) November 19, 2016

2) (Cont) But in the end what Obama did that is unforgivable is increasing centralization in a complex system.

— NassimNicholasTaleb (@nntaleb) November 19, 2016

3) Don’t fughet Obama is leaving us a Ponzi scheme, added ~8 trillions in debt with rates at 0. If they rise, costs of deficit explode…

— NassimNicholasTaleb (@nntaleb) November 20, 2016

 

Fast forward to Trump’s campaign trail, where as the Hill adds, “deficits barely gained any notice on the campaign trail.”

Trump focused on immigration, trade and economic renewal while Hillary Clinton talked about infrastructure, immigration reform and campaign finance reform. The media largely focused on the personal attacks the candidates leveled against each other.

 

Trump advisers have suggested the new administration will be able to trigger massive private sector investments in infrastructure without a huge increase in spending. They say federal expenditures in the form of tax credits could be enough to get projects underway.

 

In the absence of a specific plan, what has garnered more attention is the overall number attached to his infrastructure plan: $1 trillion.

“In regard to infrastructure and the things that have been talked about, nobody really knows the details. As we talk about them, our conference will be very concerned about how they affect both the debt and the deficit,” said Sen. John Boozman (R-Ark.), a member of the Environment and Public Works Committee, which has jurisdiction over infrastructure.

Others are also realizing what the missing link is to “making America great again.” Sargent, of the Heritage Foundation, said he’s seen as many as four different iterations of Trump’s infrastructure plan, all of which he says would raise the deficit.

“I’ve seen everything ranging from direct stimulus to a $1 trillion in tax credits, both of which would obviously raise the deficit. The tax credits, he claims, would pay for themselves. I do not see that at all. The assumptions that are built into it I think are wildly optimistic,” he said.

Lawmakers spent months negotiating ways to pay for a six-year, $300 million highway bill that passed last year. It was the first multi-year highway bill to pass in years, and Senate Majority Leader Mitch McConnell (R-Ky.) lauded it as a major, hard-won accomplishment.

 

Conservatives, however, complained that many of the offsets used to pay for the highway bill were “gimmicks.”

 

Many Republicans in Washington are also skeptical that additional infrastructure spending will provide a boost to the economy. They would prefer to focus on tax reform that closes loopholes and lowers rates.

 

“I know of no case in the post-war era where infrastructure has proved to be an effective stimulus in any country in the world,” said Gramm, a former chairman of the Banking Committee and member of the Budget panel.

To be sure, Trump could alleviate some of the concerns brewing in the Republican conferences by pushing new proposals to curb spending.

Already he has modified his stance on Medicare, adopting language favored by Speaker Paul Ryan (R-Wis.) that Democrats are interpreting as a sign Trump will embrace Ryan’s vision for a dramatic overhaul of the entitlement program.  The transition website states the incoming administration will act to “modernize Medicare so that it will be ready for the challenges of the coming retirement of the Baby Boom generation — and beyond.”

In addition, many Republicans believe that repealing ObamaCare will have a positive fiscal impact beyond the 10-year window scored last year by the Congressional Budget Office. Several Republicans said Trump’s plan to replace ObamaCare with healthcare reforms could open the door to overhauling Medicaid, which was expanded in 31 states under the healthcare law.

“One of the things Donald Trump emphasized in his campaign was the risks of a $20 trillion debt and at the same time he put forth proposals that would increase the debt by another $5 trillion,” said Maya MacGuineas, president of Committee for a Responsible Federal Budget.

“Some changes are definitely going to have to be made. The good news is he’s shown a willingness to do that,” she added, noting that Trump downsized his tax proposal, which initially stood at $10 trillion. Boozman said he hopes Trump will seek to stimulate the economy through regulatory reform, which won’t add to the deficit.

* * *

But what may be the biggest wildcard, is what Trump advisor Steve Bannon said in his interview with the Hollywood reporter last week:

“I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

The problem is that bond traders are fully aware of this and as they discount the coming deluge in debt – in a time of rising rates – making negative interest rates rapidly a thing of the past. And as a result of the record and continuing surge in global yields over the past two weeks, the bond market may just price out the very reason that sent yield soaring, making much of the proposed deficit expansion impossible. Unless, of course, Trump quickly makes up with Yellen, pushing for a dovish Fed, one that would proceed to monetize much if not all of the billions in coming deficits.

via http://ift.tt/2gCIEdY Tyler Durden

Submitted by Patrick Buchanan via Buchanan.org,

Speaking in Greece on his valedictory trip to Europe as president, Barack Obama struck a familiar theme:

“(W)e are going to have to guard against a rise in a crude form of nationalism, or ethnic identity, or tribalism that is built around an ‘us’ and a ‘them’ …

 

“(T)he future of humanity and the future of the world is going to be defined by what we have in common, as opposed to those things that separate us and ultimately lead us into conflict.”

That the world’s great celebrant of “diversity” envisions an even more multicultural, multiethnic, multiracial America and Europe is not news. This dream has animated his presidency.

But in this day of Brexit and president-elect Donald Trump new questions arise. Is Obama’s vision a utopian myth? Have leaders like him and Angela Merkel lost touch with reality? Are not they the ones who belong to yesterday, not tomorrow?

“Crude nationalism,” as Obama said, did mark that “bloodiest” of centuries, the 20th. But nationalism has also proven to be among mankind’s most powerful, beneficial and enduring forces.

You cannot wish it away. To do that is to deny history, human nature and the transparent evidence of one’s own eyes.

A sense of nationhood — “I am not a Virginian, but an American,” said Patrick Henry — ignited our revolution.

Nationalism tore apart the “evil empire” of Ronald Reagan’s depiction, liberating Poles, Czechs, Slovaks, Hungarians, Romanians and Bulgarians, and breaking apart the Soviet Union into 15 nations.

Was that so terrible for mankind?

Nationalism brought down the Berlin Wall and led to reunification of the German people after 45 years of separation and Cold War.

President George H.W. Bush may have railed against “suicidal nationalism” in Kiev in 1991. But Ukrainians ignored him and voted to secede. Now the Russified minorities of the southeast and the Crimea wish to secede from Ukraine and rejoin the Mother Country.

This is the way of the world.

Out of the carcass of Yugoslavia came Slovenia, Croatia, Bosnia, Macedonia, Montenegro, Serbia, Kosovo. As nationalism called into existence Moldova, Georgia, Azerbaijan and Armenia, it impelled South Ossetians and Abkhazians to secede from Georgia.

Was it not a sense of peoplehood, of nationhood, that drove the Jews to create Israel in 1948, which today insists that it be recognized as “a Jewish State”?

All over the world, regimes are marshaling the mighty force of ethnonationalism to strengthen and sustain themselves.

With economic troubles looming, Xi Jinping is stirring up Chinese nationalism by territorial disputes with neighbors — to hold together a people who have ceased to believe in the secularist faith of Marxism-Leninism.

With Communism dead, Vladimir Putin invokes the greatness and glory of the Russian past and seeks to revive the Orthodox faith.

President Recep Tayyip Erdogan invokes nationalism, Attaturk, the Ottoman Empire, and the Islamic faith of his people, against the Kurds, who dream of a new nation carved out of Turkey, Syria, Iraq and Iran.

“So my vision … may not always win the day in the short run,” Obama said in Greece, “but I am confident it will win the day in the long run. Because societies which are able to unify ourselves around values and ideals and character and how we treat each other, and cooperation and innovation, ultimately are going to be more successful than societies that don’t.”

What is wrong with this statement?

It is a utilitarian argument that does not touch the heart. It sounds like a commune, a cooperative, a corporation, as much as it does a country. Moreover, not only most of the world, but even the American people seem to be moving the other way.

Indeed, what values and ideals do we Americans hold in common when Obama spoke in Germany of “darker forces” opposing his trade policies, and Hillary Clinton calls Trump supporters “racist, sexist, xenophobic, homophobic, Islamophobic … bigots.”

Did not the Democrats just run “an us and a them” campaign?

Less and less do we Americans seem to be one country and one people. More and more do we seem to be separating along religious, racial, cultural, political, ideological, social and economic lines.

If a more multicultural, multiethnic America produces greater unity and comity, why have American politics become so poisonous?

Trump’s victory is due in part to his stand for securing the U.S. border against foreigners walking in. Merkel is in trouble in Germany because she brought in almost a million Muslim refugees from Syria.

The nationalist parties that have arisen across Europe are propelled by hostility to more immigration from the Third World.

Outside the cosmopolitan elites of Europe and North America, where in the West is the enthusiasm Obama detects for a greater diversity of races, tribes, religions, cultures and beliefs?

“Who owns the future?” is ever the question.

In 2008, Obama talked of Middle Pennsylvanians as poor losers clinging to their bibles, bigotries and guns as they passed from the scene.

Yet, now, it’s looking like it may be Obama’s world headed for the proverbial ash heap of history.

via http://ift.tt/2eZe6C1 Tyler Durden

There was never a reason for these bastards to run higher in the first place, given that there are hordes of zombie dry bulkers littering the seas keeping day rates at artificially depressed levels. The only way this issue gets corrected, frankly, is for excess supply to be scrapped. Until then, enjoy your depressed day rates and floating bankruptcy vessels.

The sector looked good in the pre-market, but have since given it all up and more.

Day rates for capesizes are at a fraction of what they were back in 2007 and half of what they were in 2014.

At the forefront of this fuckery is DRYS, a company that saw its stock rise this morning after news that it agreed to terms with one of its lenders.

Like I said, clownery.

Content originally published at iBankCoin

via http://ift.tt/2fV5PMj The_Real_Fly

Over the past year, Bank of America’s chief investment strategist Michael Hartnett has often repeated that when looking at the “transforming word”, one core theme that emerges is the rotation away from monetary to fiscal policy, and from “Wall Street”-focused strategies to “Main Street.” Now, under the Trump presidency, his vision may be validated. On a report “peak returns, big rotations” he shares BofA’s asset allocation under the new regime for 2017 as follows: long stocks (except in North America where he is bearish), real
estate, commodities, and the U.S. dollar, while shorting bonds.

Among his suggested trades are long inflation, short deflation; long Main St., short Wall St.; long fiscal winners, short “ZIRP” winners; long real assets, short financial assets. Hartnett also lays out the expected returns these various trades: low/negative for bonds, with single-digits for U.S. stocks, commodities, U.S. dollar, EM; sees double- digits for Japan, Europe, U.K. stocks, oil.

Hartnett says. “we believe that for first time since 2006, there will be no big easing of monetary policy in the G7, and that interest rates & inflation will surprise to the upside.”

A summary of the bank’s 7 key themes and trade is shown in the table below:

When looking at 2017, Hartnett says that he expects a year of “peak returns and big rotations” and break out the divergence from 2016 as follows:

In 2016

• Global interest rates fell to 5,000-year lows; central bank purchases of financial assets topped $25tn (i.e. >GDP of US & Japan); the stock of negatively-yielding global bonds surged to $13.3tn.
• Quantitative Failure, BREXIT, US election caused policy leadership flip from monetary to fiscal stimulus.
• A flash EPS recession in H1 was followed by acceleration in wage inflation in H2 (to 7-year highs in US).
• The greatest bull market in bonds ever likely ended on July 11, 2016 with a 30-year Treasury yield of 2.088%.

In 2017

• We believe that for first time since 2006, there will be no big easing of monetary policy in the G7, and that interest rates & inflation will surprise to the upside.
• We forecast acceleration in nominal global growth: BofAML Economics forecast US nominal GDP up from 3% to 4%, non-US up from 6% to 7%.
• We believe fiscal stimulus accelerates, trade and immigration policies tighten, and wage growth picks up, boosting domestic demand across the G7, and hardening our “buy Main Street, sell Wall Street” theme.
• Bond losses likely will constrain gains in commodity and stock markets unless Japan, Europe, China GDP/EPS surprises meaningfully to the upside or US productivity surges.
• We nonetheless expect strong returns from assets tied to inflation, Main Street, fiscal and real assets, despite losses from assets tied to deflation, Wall Street, “ZIRP” winners, financial assets (Table 4).
• Finally, disruptive technology and aging demographics remain powerful secular forces; they won’t likely prevent a cyclical pick-up in inflation; but they are likely to constrain the magnitude of the rise in rates and inflation.

Which brings us to the seven top investment themes of 2017 according to BofA,virtually all of which seem to have a “Peak” preface – perhaps we have finally reached “Peak” peak.

1. Peak Liquidity…era of excess liquidity is over
2. Peak Inequality…more global fiscal stimulus to address inequality
3. Peak Globalization…free movement of trade, labor, capital ending; FX wars starting
4. Peak Deflation…secular low point in bond yields now behind us
5. Trough Volatility…era of “flash volatility” and “pain trades” continues
6. Peak Passive…active investors to outperform passive investors
7. Transforming World…CRISPR, robotics, eCommerce constrain inflation upside

And the details:

* * *

Peak Liquidity:

– Long banks (GBKX), short bonds (W0G1)

We believe the era of excess central bank liquidity is ending (Chart 1): Fed will hike, BoJ/ECB “walking back” negative rate policies, central banks feeling political backlash for fueling inequality. In 2017 markets likely will not benefit from a big monetary easing for the first time since 2006. Assets that “lost” under the QE/ZIRP/NIRP regime, e.g. bank stocks, should benefit as central banks retreat and rates rise. Global banks trade on 1X book value versus 4X book for a “bond proxy” sector such as consumer staples.

* * *

Peak Inequality:  

– Long Main St e.g. US homebuilders (S5HOME), short Wall St e.g. REITs (BBREIT);
– Long small cap value (RUJ), short small cap growth (RUO)

Electorates are demanding a new “War on Inequality” by policy makers, which means less taxpayer money being spent on bonds and more money on people via fiscal spending or tax cuts to boost wage growth. We estimate that fiscal easing in Japan, Canada, Korea, Europe, and the US could total more than $1tn of stimulus in 2016/17. And note G6 public investment as a share of GDP is currently at its lowest level since 1948 (Chart 2). As fiscal stimulus accelerates, trade and immigration policies tighten, and wage growth picks up, domestic demand is likely to surprise on the upside. This supports our “buy Main Street, sell Wall Street” theme. A broader recovery in global residential real estate would allow a “good” rise in rates to occur and cause a big rotation to homebuilders from REITs, a huge beneficiary under the QE regime. “Secular stagnation” was similarly highly beneficial for “growth” stocks versus “value” stocks: small cap growth has massively outperformed small cap value since 2006; we expect reversion in 2017.

* * *

Peak Globalization

– Long global small cap (MXWOSC), short US tech (IXK)
– Buy 1-year USDCNH vol
– Long basket of UK, Japan, China, Mexico exporters, short US multinationals

The 1981-2015 era of free trade, capital & labor mobility appears to be coming to an end. Electorates are shifting in an anti-immigration direction. Anti-trade populism is on the rise (a recent poll showed 65% of Americans say trade policies have led to a loss of U.S. jobs, versus 13% who believe trade policies created jobs). BREXIT and the US election represent populist repudiations of the globalist status quo.  Anti-globalization means less deflation, a big positive for global small cap stocks versus the “architects of deflation”, US tech. The rise of populism means trade and FX wars are more likely. To hedge against an escalation of trade tension between China and the US own 1-year offshore Chinese renminbi volatility. And own exporters that will or are likely to benefit from currency devaluations (UK, Japan, China, Mexico) versus US multinationals, which are likely to be pressured by dollar appreciation in 2017

* * *

Peak Deflation

– Long real assets, short financial assets
– Long TIPS (G0QI) vs Investment Grade bonds (C0A0)
– Long Japanese banks (TPNBNK) FX-hedged

The trade of the past 35 years has been lower inflation and interest rates (Chart 3). We believe the greatest bull market in bonds ever ended on July 11, 2016 with a 30-year Treasury yield of 2.088% and “peak” expectations of deflation. In 2017 investors likely will experience a backdrop where inflation surprises to the upside leading to further rotation from entrenched long positions in “deflation assets” to assets that benefit from higher rates and inflation. Real assets should outperform financial assets (the price relative of real estate, commodities, collectibles to stocks and bonds is currently at its lowest level since 1926). Investment grade bonds have been big deflation winners and are currently trading close to 2 standard deviations expensive relative to both Treasuries and TIPS. We expect this excess valuation to unwind. Japanese banks (trading at 0.7X book), the world’s deflationary poster child, have the most to gain from “peak deflation.”

* * *

Trough Volatility

– Buy bond volatility via 2yr Treasury Note 1yr straddles
– Long British pound (GBP), short Brazilian real (BRL)

Price action at secular inflection points tends to be big and violent. Between July 1980 and October 1981 US bond yields surged from 10% to 16%. By October 1982 they were back at 10%. The lowest interest rates in 5,000 years in 2016 represented an “undershoot” that can be quickly unwound. Bond volatility is very likely to rise in 2017 (note Treasury market volatility surged from 5% to 31% in 1980).

Volatility means the era of “flash volatility” and “pain trades” continues. 2017 is likely to be another year where being contrarian works at moments of extreme price action and positioning. Heading into 2017, the most contrarian global “long” is the UK equity market and sterling. In contrast, EM debt and EM FX, most particularly the Brazilian real, benefitted greatly in 2016 from lower-than-expected growth and yields in developed markets. Buy GBPBRL. Our EM strategists are cautious EM near-term on higher rates volatility and low liquidity, but expect buying opportunities to emerge as 2017 progresses as EM fundamentals assert themselves and US real rates stabilize

* * *

Peak Passive

– Long dispersion via short SPX vol & long equity sector vol

Based on projection of trailing five-year growth rates, passively managed equity assets could exceed actively managed equity assets by 2023 (Chart 4). The 2017 “inflection point” backdrop of higher rates & EPS is positive for stock pickers and macro managers, while peak returns mean less upside for passive investors and closet indexers. We expect active investors to outperform passive investors. A play on this theme is to own dispersion (the range of expected returns) via buying volatility at the sector level while selling volatility at the index level.

* * *

Transforming World

– Long Robots (ROBO), long Biotech (NBI)

Finally, disruptive technology and aging demographics remain powerful secular forces; they won’t prevent a cyclical pick-up in inflation; but they are likely to constrain the magnitude of the rise in rates & inflation.

The rise of robots will continue. The global robot population is expected to rise from 1 million in 2010 to 2.5 million in 2018…you can’t build a wall to keep robots out (Chart 5). Meanwhile, CRISPR is making enormous leaps in genomic editing and genetic engineering, and has the potential to repair genetic mutations that cause hereditary disease, cure disease, and extend life expectancy. Our analysts are bullish on biotech given reduced regulatory risk post-election and cheaper valuations after the 40% selloff 2015-16. A breakout in NBI index above 3200 would signal the end of the biotech
bear market.

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Submitted by Mike Shedlock via MishTalk.com,

Paul Krugman, a die-hard Keynesian who recently proposed faking an invasion of space aliens to stimulate the economy, is now all of a sudden concerned about the quality of economic spending.

The Long Haul

On November 11, Paul Krugman, suddenly started worrying about the The Long Haul of deficit spending.

“It’s at least possible that bigger budget deficits will, if anything, strengthen the economy briefly. America has a vast stock of reputational capital, built up over generations; even Trump will take some time to squander it,” said Krugman.

Never!

Backing up to his previous post, What Happened on Election Day, Krugman offers this wealth of information on the stock market:

It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?

 

Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.

 

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

Futures Faster Than Krugman’s Brain

Krugman took that back right away, but obviously not before posting the above article.

The futures reversed faster than his brain.

More Worries About the Long Haul

On November 14, in Trump Slump Coming? Krugman was again worried about the long haul.

It’s natural and, one must admit, tempting to predict a quick comeuppance — and I myself gave in to that temptation, briefly, on that horrible election night, suggesting that a global recession was imminent. But I quickly retracted that call. Trumpism will have dire effects, but they will take time to become manifest.

 

In fact, don’t be surprised if economic growth actually accelerates for a couple of years.

 

There is always a disconnect between what is good for society, or even the economy, in the long run, and what is good for economic performance over the next few quarters.

Folly of Prudence

On August 23, 2016, Paul Krugman was worried about The Folly of Prudence.

“The IMF, in the name of prudence, is still — still! — pushing for fiscal austerity. We’ve been living with low-rate, depression economics for 8 years now — and key players are still acting as if they’ve learned nothing,” says Krugman.

Space Aliens to the Rescue

In a 2011 CNN interview video Paul Krugman proposed Space Aliens as the solution.

Please play that in entirety to catch the spirit of it all. Here are key excerpts:

Krugman: “It’s very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. If we discovered that space aliens were planning to attack, and we needed a massive buildup to counter the space alien threat, and inflation and budget consideration took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops we made a mistake … There was a Twilight Zone episode like this in which scientists faked an alien threat in order to produce world peace. This time we need to ignore it to get some fiscal stimulus.”

Apparently, if we fake a space alien threat, we can revive the economy. Damn the consequences of wasting money in the short haul.

Abenomics and the Single Arrow

On August 15, 2016, in Abenomics and the Single Arrow, Paul Krugman was whining for more fiscal stimulus in Japan.

Paul Krugman Should Go Back to Fifth Grade

On August 16, 2016, I wrote a rebuttal to his Abenomics theory in Krugman’s Arrow Theory Misses Target by Light Years.

Economist Paul Krugman is whining for more fiscal stimulus, his favorite pastime by far. Krugman’s target this time is Japan.

Bubble Blowing Beluga Whales

Never Enough

 

With full employment, roads paved and repaved to nowhere, and bubble blowing beluga whales, just what the hell is Japan supposed to waste money on?

 

Curiously, Krugman says it doesn’t matter. He once proposed a fake aliens from outer space scare as the solution to stimulate the economy.

 

But roads and bridges and bubble blowing blowing beluga whales are surely better than fabricating space aliens or paying people to dig ditches and others to fill them up again.

 

The problem is, it’s hard arguing with economic illiterates like Krugman. He can (and will) say “spending wasn’t enough”.

 

One can never prove him wrong. The implosion of Japan would not do it. His built-in excuse would be Japan did too little, too late.

 

Economists in Need of Remedial Education

 

Just once I would like Krugman to address in his model what happens when the stimulus stops. He cannot and he won’t because he has no answer.

 

The average 5th grader understands it’s absurd to pay money for something guaranteed to be useless, but the average Keynesian economist doesn’t.

 

Krugman would do himself a favor if he threw away what he thinks he knows about economics and went back for a nice 5th grade education.

Mental Progress!

I am pleased to report we have progress. Krugman’s mind has advanced to the level of a 5th grader. He is now worried about getting something, rather than nothing, for tax dollars.

Unfortunately, this improvement is temporary. It will only last as long as he is whining about spending by Trump. Had Hillary won, he would have seen the long term merits of fighting imaginary space aliens.

Wasteful Spending

I do not favor wasting money on space aliens, wars, or unneeded infrastructure projects. It now takes more than a dollar of spending to get a dollar of GDP.

Interest on the debt for past wasted useless spending is one reason GDP cannot gain traction. Fed inflationary policies (liked by Krugman), is another.

Wasteful spending is wasteful spending. Period. I did not favor it under Bush or Obama, and I do not favor it now.

Meanwhile…

Krugman is so engulfed in contorted economic positions, there is nothing he can say about fiscal stimulus that isn't blatantly hypocritical.

— Mike Mish Shedlock (@MishGEA) November 19, 2016

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