The Size of Government Question

How big should government be? That was the gist of the very first question at last night’s Democratic presidential debate. The question, posed to Bernie Sanders, noted that spending by the federal government is already equal to about 21 percent of the economy. How much bigger would it be in a Sanders administration?

Sanders, you may not be surprised to discover, did not directly answer the question. Instead, he simply insisted, as he has so many times before, that government has a responsibility to do much more than it is doing right now, on health care, education, infrastructure, jobs, and more. After a follow-up from the moderator, he briefly acknowledged that there should be some sort of limit on the size of government, but did not even attempt to suggest what that limit should be. Instead, he reiterated his belief that the government has a responsibility to do much more than it is doing now.

Sanders’ response was a dodge, and a telling one for a candidate whose plans for the federal government are so ambitious. But he was onto something anyway. Because the way he answered the question was essentially to reframe it, not as a question about the size of government, but about its role.

This is the hidden debate in American politics today, the big question that is rarely discussed directly but arguably lies at the foundation of nearly every major policy and political debate. What is the purpose of government? What is it essential nature and character, its mission statement? What are its essential duties and functions?

The question Sanders actually answered was not, “How big should the government be?” but “What should the government do?” This is a question worth dwelling on, and one for which neither party has a particularly good answer.  

For Sanders, the answer is just about everything, or pretty close. He acknowledges, when pushed, that government should have limits, but he cannot articulate where those limits might because he cannot really imagine any arena where government might not have some role. That’s not to say that Sanders, who has worried darkly about the threats posed by too many styles of deodorant and sneakers even as children starve, has a plan for government to everything right now, but it is difficult for him to imagine any area where government might not ever need to intervene at some point.

Later in the debate, when asked about what parts of government he might cut, he initially could not name anything except a vague reference to “waste.” In what department? In what program? Sanders didn’t say, and it didn’t appear to be a question he’d given much thought to over the year. A moment later, he interjected to say he favors unspecified cuts at the Department of Defense, where he is sure there is excess spending and duplicative effort of some kind, but even here he had nothing specific. His view of government’s role is both practically unbounded almost undefined: It’s job, potentially, is to do anything and everything he thinks should be done.

For Sanders’ opponent in the Democratic presidential race, Hillary Clinton, the answer is somewhat different. Her follow-up to Sanders on the size of government question was instructive: Sanders’ plans would grow the size of government by about 40 percent, she said, but the main problem with his plans is that they aren’t practical. “Every progressive economist who has analyzed [Sanders’ health care plan] says that the numbers don’t add up, and that’s a promise that cannot be kept,” she said. The problem with his plan, for her, isn’t that the government would be too big or doing too much or going beyond its mandate, but that it wouldn’t work.

Clinton’s view, in other words, is that the government should do everything it’s doing now, whatever that is, plus a little bit more. She seems to view herself as a caretaker and manager, nurturing government as it exists today, and growing it somewhat, here and there. Her response on the what would you cut question was that she’d streamline some training and education programs, and “take a hard look at every part of the federal government and really do the kind of analysis” needed to see what might not be necessary anymore, which is another way of saying she’d make no significant cuts. This is a view of government bounded only by practical and political considerations. There are things government cannot do, at least right now, but nothing, really, that it simply should not do. There’s no mission statement either, no real idea about government’s specific place and purpose—no sense of what exactly it is for.

This sort of fuzziness about government’s purpose is perhaps an occupational hazard for politicians of the left, where active government is a default assumption, but in different forms it is evident on the right as well. The Republican presidential field is united in the belief that taxes should be lower, but have far less to say about the sorts of program cuts and reforms that would be necessary to account for the reductions in tax revenues that would certainly result even under optimistic dynamic scoring scenarios. Similarly, too many GOP policy reforms are merely focused on making existing programs leaner or more efficient rather than on fitting them into a larger government schema. There is nothing wrong, of course, with saying that “government should take in less revenue and be more efficient,” but it is not a vision of what government should be, and most Republicans do not really seem to have one, or at least not one they can explain.

This inability to clearly articulate a rationale for government’s existence, to explain what sort of business it is in, is responsible for much of the confusion and frustration on both the left and right, and for much of the sprawl, complexity, and inefficiency in government today. We have Republicans whose idea of government is lower taxes and better management, and Democrats whose idea of government is higher taxes and more programs—perhaps a few more, perhaps a lot more—and maybe better management too. And this is why it is so hard for both sides to answer questions about the proper size of government: Neither side really has a clear sense of what it should do and what it should be.

There’s a lesson here for reformers of all stripes, but especially for those who, like me, would prefer to see a smaller, more restrained government: It’s not enough to talk about what to cut and what to shrink; it’s important to talk about what government should be doing, and how to ensure that it does it well. Give government a purpose and a mission—a clear, positive, and limited mission—and get enough people on board, and the size will right itself.

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‘Three Parent’ Babies Are Certainly Ethical: New at Reason

3parentbabiesSeeking to cure prospective babies of terrible diseases is clearly ethical, right? Sadly, not everyone seems to agree. Old-fashioned doctor-knows-best paternalism has all too often been replaced by bioethicist-knows-best paternalism—or worse yet, by panel-of-bioethicists-knows-best paternalism. Or at least that’s the case with setting some restrictions a promising new set of treatments called mitochondria replacement therapy (MRT). In addition, the folks on Capitol Hill have also forbidden the FDA to spend any funds on evaluating these new treatments. Banning treatments that would give parents the chance to have healthy children is highly somehow considered ethical.

View this article.

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Zero Tolerance: 2 Teens Face Expulsion, Jail for Fishing Knives, Advil in Their Cars

SerratoTwo Escondido, California, high school students—ages 16 and 18—could see their whole lives derailed because they committed the crime of keeping fishing supplies in cars they parked on school property.

The elder teen, Brandon Cappelletti, had three knives in his car: the remnants of a family fishing trip. The knives were used to cut lines and filet fish. The younger teen, Sam Serrato, had a pocketknife in his glove compartment. His father had left it there.

Both teens are facing expulsion. Cappelletti, a legal adult, could serve jail time if convicted of weapons charges, according to The San Diego Union-Tribune.

You might be wondering how administrators at San Pasqual High School even found out about the innocuous items. You might be wondering why the Escondido police became involved. You might also be wondering if the world has gone mad. I have answers to these questions, but you won’t like them.

The high school pays a company to search its campus for contraband using drug-sniffing dogs. On January 27, the dogs indicated Cappelletti’s vehicle—not because of the knives, but because he kept Advil in the car. It’s not clear how Serrato was caught (one news story claims he also had Advil, but his father disputed this). But the knives were discovered, the police were called, and both boys are in big trouble. According to the police report:

At the conclusion of the investigation, the [school resource officer] determined that both students were in violation of a misdemeanor crime by bringing the knives on school property.  The juvenile student’s case has been recommended for the Juvenile Diversion program.  The Juvenile Diversion program involves a collaborative effort to address various juvenile crimes without the case being heard through the formal juvenile court process.  The second student, Brandon Cappelletti is an adult and not eligible for the diversion program. Cappelletti was issued a misdemeanor citation and released at the school to his mother.

At this point, the criminal matter and school matter are two different things. The school district is deciding at a hearing today whether to increase their punishments from suspension—they have already been out of school for weeks—to expulsion. Such a harsh punishment would jeopardize Serrato’s future: he’s relying on athletic scholarships to attend college.

“If I end up getting expelled, I’d have to go to a community college,” he told The Union-Tribune. “It’s not what I really want to do. My whole life would change.”

Cappelletti has enlisted in the Marine Corp, so he’s more worried about the criminal charges, which could completely derail those plans. He did not immediately respond to a request for comment.

Cappelletti and Serrato are not the first boys to run afoul of completely ridiculous school zero tolerance policies, which punish students for making innocent mistakes that harmed no one. Nor will they be the last—because the rules governing school safety protocols are insane and utterly disconnected from any real concerns about violence. Students who leave sharp objects in their car are not menaces to society, and irrational fear of knives—which have practical, non-lethal uses (i.e., fishing)—does no one any good.

Knives left in cars are not weapons. Advil is not an illicit substance. Cappelletti and Serrato are not criminals. They shouldn’t be expelled. They shouldn’t even be in trouble, period.

When it comes to safety, the American public school system—enabled by overzealous law enforcement and clueless state legislators—has completely lost its mind. I hope common sense prevails in this case. Quite often, it does not.

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Clinton vs. Sanders over Obama’s Performance Is All About the Democratic Party’s Future

Clinton also subtextually showed her support for keeping a personality-driven party by dressing up like a cult leader.Toward the end of last night’s Democratic debate we saw a lengthy back and forth as Hillary Clinton attacked Bernie Sanders for the crime of speaking ill of President Barack Obama. Part of it was strategic, obviously. Clinton has deliberately positioned herself as Obama’s third term from the start of her “formal” campaign launch rally. Her message to Democratic voters has been, “If you like what Obama has done, you can expect the same from me.” And as the primaries head toward South Carolina, she obviously has her eyes on where the minority vote may be going.

Here’s a highlight of how harshly Clinton presents the idea that Sanders was expected to support the home team (despite, you know, Sanders serving the Senate as an independent, not a Democrat):

[T]oday Senator Sanders said that President Obama failed the presidential leadership test. And this is not the first time that he has criticized President Obama. In the past he has called him weak. He has called him a disappointment. …

And later:

And it is a — the kind of criticism that we’ve heard from Senator Sanders about our president I expect from Republicans. I do not expect from someone running for the Democratic nomination to succeed President Obama.

Sanders responded by calling the line of attack a “low blow” and said that he had the “right to disagree with the president, including a president who has done such an extraordinary job.”

We will likely see more of this line of attack along with the critique that Sanders likely cannot put into place his radical economic and healthcare plans.

More fundamentally, this approach from Clinton is a reflection of how the Democratic Party is now struggling with an identity as Obama’s presidency comes to an end. In a way, Obama truly has been the Democratic Party’s Ronald Reagan. I don’t mean the two men had a lot in common or that they were equally good (or bad) presidents.

Rather, the identity of the political parties revolved so heavily around the personalities and goals of their elected leader that it’s no longer clear what the party actually is otherwise, beyond just a vague embrace of basic conservative or liberal politics, depending on which faction we’re talking about. To criticize Obama is to criticize the Democratic Party and therefore Democratic voters. That was the not-subtle-at-all subtext of Clinton’s attack.

The politically savvy Clinton is well aware she’s stepping into a vacuum and her strategy is to ease nervous Democrats that everything will continue on as planned. But this growing Tea Party-ish (in style, definitely not in substance) fracture from the left was visible on the horizon from the 2012 midterms. While everybody had already taken note of the rise of Sen. Elizabeth Warren in Massachusetts, there were other “warning” signs that the Democratic Party was going to be struggling with its agenda post-Obama. I took note of this in a preview of the 2014 midterms:

Rifts have appeared on the Democratic side as well: progressives vs. centrists, anti-imperialists vs. interventionists, Sen. Elizabeth Warren (D-Mass.) vs. Hillary Clinton.

It’s still too soon to know whether Warren will give Clinton a challenge from her left in 2016, though the Massachusetts senator is on the record saying she does not want to run. But there was a preview of what such a fight might look like in September, when New York Gov. Andrew Cuomo fended off a spirited campaign from the progressive academic Zephyr Teachout. Cuomo represented the centrist, pro-business Democrats (complete with accusations of corruption), while Teachout wanted to ban fracking, raise the minimum wage, and roll back business-friendly tax cuts. Cuomo won, but Teachout managed to grab 34 percent of the vote despite being vastly outspent and never having previously run for office.

Obviously we know now that Warren won’t be challenging Clinton. But she also hasn’t endorsed Clinton, either, and it’s obvious Sanders is the proxy candidate for Democratic voters who have the same lefter-than-the-establishment views. Teachout, meanwhile, wrote a piece for The Huffington Post heaping praise on Sanders.

That fight at the end of the debate is a distillation of this Democratic Party identity crisis. Clinton’s performance is an embrace of the personality-driven core of the party. Sanders’ performance and calls for “revolution” are an open and obvious call for a shift to a party driven by an operational ideology, not a person.

When Sanders won the popular vote in New Hampshire’s primary, he mentioned in his victory speech the canard that Democrats win when voter turnout is high and lose when voter turnout is low. The stated reason he brought this up was to discuss the size of the turnout for the primary. Republicans had their highest turnout ever for a primary; Democrats had their second-highest (2008 had the highest).

But consider the invocation of turnout a warning to the Democratic establishment—ignore the positions Sanders is taking at their peril. If Clinton gets the nomination and she can’t get Sanders’ supporters to the polls for her, she could lose by virtue of voter disenfranchisement and apathy. Republicans are facing the same issue, worrying what Donald Trump’s voters might do if he’s not nominated (although, in an interesting reversal, Trump represents the same personality-driven presidency Clinton is trying to capitalize on, while the other candidates are campaigning on an ideological view of what the Republican Party should stand for).

Ultimately, while that fight appeared rather petty and not terribly useful (especially to non-Democrats), it represents what is likely to be a big fracture in the Democratic Party’s identity moving forward, especially if they lose the presidency in 2016 and we get a complete GOP takeover of the executive and legislative branches, a complete reversal of what happened in 2008. Look what happened to the Republican Party after that.

All of this should matter to independents because that puts the identity of the Democratic Party up for grabs. Libertarian and independent attitudes made inroads within the Republican Party as it struggled under Obama to recover a place in political power. The same push could be useful on the left.

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Bernie Sanders Says He Understands There are Unintended Consequences in Foreign Policy. Does He?

Bernie Sanders finally found his spine on foreign policy, engaging Hillary Clinton on her consistent support for regime change and her embrace of war criminals of the American foreign policy establishment like Henry Kissinger, former secretary of state under Richard Nixon and Gerald Ford.

The foreign policy portion of last night’s debateh started the way such portions of the debate usually do on both sides—by pointing out how much worse the other side is. That strategy works to limit introspection on U.S. foreign policy and to take attention away from the flaws and vagueness of the candidates’ own foreign policy platforms.

After providing the boilerplate answer about ISIS (the U.S. should lead a coalition against it, recruit fighters on the ground, and also use the terrorist group as a pretext for increasing controls on the Internet), Hillary Clinton pivoted to the post-9/11 “do something, say something” campaign in New York City, claiming the use of civilians as part time human intelligence in the homeland was an important counter-terrorism strategy, and that information from Muslims, in particular, was useful. That was the opening to turn the conversation to Donald Trump, who she claimed “insults” their religion.

Sanders didn’t follow up on the Trump bash, instead turning the debate toward judgement. “What a president of the United States has got to do, Sanders began, “is to, A, make certain that we keep our people safe.”

This, of course, is the ill-informed conceit out of which many of the worst policies in the war on terror come from. Mass surveillance, infiltration of American Muslim communities, extrajudicial killings, unauthorized wars, and indefinite detentions all flow out of the idea that the president’s first job is to keep people safe. The policies would be untenable if the president’s job was rightly understood as keeping Americans free.

Nevertheless, Sanders was able to maintain a relatively substantive critique of Clinton’s foreign policy. He pointed out that Clinton’s actions as secretary of state in supporting the U.S. intervention in Libya led to the power vacuum in which ISIS and other terrorist groups now operate, promising that if he were president he would “look very carefully about unintended consequences.” (Clinton pointed out that Sanders, too, had been a supporter of regime change before—referring to a yes vote on the Iraq Liberation Act of 1998).

But it’s not just Sanders’ inability to consider the unintended consequences of his economic policies that ought to draw skepticism to that promise. Later on in his answer, Sanders adopted the same blind spots on unintended consequences as the rest of the American foreign policy establishment, endorsing an increase of troop levels in NATO countries adjacent to the Russian borderlands in response to Russia’s aggressive actions in “Crimea and in Ukraine.” Here a reflection on unintended consequences on how U.S.-Russia relations arrived at where they are was absent.

It got worse when Sanders, a supporter of the nuclear deal with Iran, turned his attention to that country. While he mentioned the 1953 overthrow of Iranian prime minister Mohammed Mossadegh as one of the main factors contributing to the 1979 Islamic revolution, there was no reflection on how U.S. policy toward Iran today might also benefit hardliners the most.

Sanders expressed his wish that one day the U.S. and Iran could normalize relations, and that being “aggressive” about Iran’s role in supporting “international terrorism” was critical to that. The channeling of Ron Paul (who mentioned Mossadegh a number of times in the 2008 and 2012 Republican primary debates), then, was momentary. Major unintended consequences result from the U.S. trying to act like the policeman of the world. That’s what unilaterally taking on the responsibility of deciding what is international terrorism and what the response should be effectively is. Understanding that unintended consequences are real is important, but not sufficient in limiting those consequences. Many Democrats have been sold on the idea that Republican foreign policy is “blood thirsty.” Rhetoric about making sand glow doesn’t help. But underneath that surface, the key foreign policy principles on both sides are the same, and involve keeping the U.S. at a default interventionist setting for all the world’s problems.

Unsurprisingly, Sanders also missed the role of free trade in improving situations in foreign countries, thus creating the space for improving relations. While he rightly attacked Henry Kissinger for his role in the Vietnam conflict, including its expansion into Cambodia, he also criticized Kissinger for beginning the process of normalizing relations with China, “the terrible, authoritarian, Communist dictatorship [Kissinger] warned us about” during the Vietnam war.

Yet Richard Nixon’s trip to China was instrumental in encouraging the country to “join the international community.” Nixon met with Mao Tse Dong, the Chinese dictator responsible for millions of deaths. The path over the next forty years was not straight, but the opportunity for more trade with the rest of the world did open China up, lifting millions of people out of poverty and helping to create a real middle class in China, one whose rise has driven a lot of the global economy this century. For Sanders, (like for Donald Trump) trade is a zero sum game. China wins, the U.S. loses. But what happened to China since Nixon’s trip and, for that matter, what happened in Vietnam after the U.S. ended the war and eventually moved toward normalizing relations illustrates the power of trade to benefit all. Americans are better off than they were in the 1970s, and so are people in China and Vietnam. Friendly trade was a far more effective liberator than wars could be.

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German Nanny State Wants to Shut Down Food Donation Service

Foodsharing, a German volunteer service thatFoodsharing in Germany enables people to donate leftover food for the hungry, could be facing its doom if a Berlin regulatory agency implements its proposed enhanced hygiene guidelines. 

Deutsche Welle reports that foodsharing fridges have been successful in places like the US and UK, but authorities in Berlin classify the fridges as “food establishments” because they are in public and therefore must comport with European Union regulations. It’s literally a case of one bureaucracy after another thwarting innovation, charity and volunteerism in the name of protecting the public. 

The BBC notes some of the reported violations for “unhygienic conditions” included “non-packaged bread and torn packaging.” Much like former New York City Mayor Mike Bloomberg’s ban on food donations to the homeless because “the city can’t assess their salt, fat and fiber content,” this is a case of the perfect being the enemy of the good, with the government essentially saying it’s better to allow the needy to pick through garbage cans than for private citizens to take the creative initiative to help one another.

Foodsharing enthusiasts have launched a petition, and some of the more than 16,000 signatories have taken to the group’s Facebook page to mock this instance of “typical German regulation mania.” The BBC excerpted some of the more choice comments:

“God, if only the authorities knew how the fridge in our flatshare looks!” another writes, prompting another to reply: “Shhh. Keep quiet – you’ll give them ideas and they start inspecting it.”

Follow the links for more Reason coverage on Food Freedom and Food Policy.

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Reason Weekly Contest: Name a Libertarian Microbrewery

BeerWelcome back to the Reason Weekly Contest! This week’s question is:

The number of commercial breweries in America has just surpassed the previous record 4,131, set in 1873. With all those suds sloshing around, come up with the name of the first proudly Libertarian microbrew.

How to enter: Submissions should be e-mailed to contest@reason.com. Please include your name, city, and state. This week, kindly type “BEER” in the subject line. Entries are due by 11 p.m. Eastern Time, Monday, Feb. 15. Winners will appear on Feb. 19. In the case of identical or similar entries, the first one received gets credit. First prize is a one-year digital subscription to Reason magazine, plus bragging rights. While we appreciate kibbitzing in the comments below, you must email your answer to enter the contest. Feel free to enter more than once, and good luck!

And now for the results of last week’s contest: Admittedly, this was a lame one. After a company called Petronics introduced “Mousr,” the first “artificially intelligent cat toy,” we asked for the name of the next high-tech toy for a pet. Some of you sent in plain-old ridiculous pet toys, which we threw into the mix.

THE WINNER:

Congri: Let your pet kick around Congri, the first artificially-intelligent member of Congress. Heck, it’s the first member of Congress with *any* intelligence. — MS

SECOND PLACE:

“Shu” — It’s just a shoe, but for every one you buy, the makers will donate another shoe to a dog or cat in an underprivileged country. Dan Gray, Chicago, IL

THIRD PLACE:

Statist Plaything™ — Nothing in the box because, surprise! You’re the toy! — Colin Blake, Boston, MA

AND FROM THE COMMENTS:

Infantr, for the pet boa constrictor whose owners don’t have children’s cribs for it to find its way into.

Toddlerr, similar to the Infantr, but for pitbulls.

Shitr, for when your dog isn’t an outside dog but wants to roll in shit anyway.

Llama-tron — Just a dumb ass, smelly, shit machine for rural hipsters. But its eyes glow.

PrivlgChkr — Subjects your pet to the random dangers of a homeless street cat.

Gey — A collaboration between Über and Google, this miraculous product allows your cat or dog to drive your car for you.

New and improved cardboard box!

Laundry basket o’ fun!

Shred-proof ball of paper!

Click “AGREE” to use/fetch iStick.

And:

Unless it comes with a timer, I suspect Mousr will do for cats what the Red Shoes did for ballet.

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Here’s What Julian Assange Thinks About Voting For Hillary Clinton

Submitted by Clarice Palmer via TheAntiMedia.org,

Julian Assange is one of the most wanted men in the world. After a recent tweet, however, he might also be at the top target of Hillary Clinton’s alleged “hit list.”

On Wednesday, the WikiLeaks founder took to Twitter to urge Americans not to waste their vote on President Barack Obama’s former Secretary of State — unless they want the country to be involved in yet another ongoing military entanglement.

In a post shared by the WIkiLeaks account, Assange began with the statement:

“A vote today for Hillary Clinton is a vote for endless, stupid war.”

He went on to claim Clinton bears responsibility for the Iraq War, but for other failed military campaigns undertaken by the United States.

“Hillary didn’t just vote for Iraq,” he said. “She made her own Iraq. Libya is Hillary’s Iraq and if she becomes president she will make more.”

During his many years of experience scrutinizing official U.S. communications, Assange has had access to “thousands” of her cables. To the Australian truth-seeker, “Hillary lacks judgement and will push the United States into endless wars which spread terrorism.” Despite her current popularity among some of the most established figures of the Democratic party, Assange argues that her “personality combined with her poor policy decisions have directly contributed to the rise of ISIS.”

Clinton has long-reviled WikiLeaks, and last year, her email records revealed that while she served as Secretary of State, her aides coordinated with CBS’s 60 Minutes to craft a narrative against Assange while he was interviewed on the show. Assange had previously leaked cables about her State Department.

Regardless of their direct hostility towards each other, Assange is not the only one who has accused Clinton of playing a major part in the rise of the Islamic State.

During a campaign stop in Biloxi, Mississippi, Republican front-runner and business mogul Donald Trump claimed Clinton helped President Barack Obama to create ISIS.

I’m pretty good at signals, and I see a lot of things happening,” he told the audience. “They’ve created ISIS. Hillary Clinton created ISIS with Obama—created with Obama,” he repeated.

When questioned about the deadly attack against the U.S. diplomatic mission in Benghazi, Libya by Senator Rand Paul (R-KY), the then-Secretary of State failed to answer whether the United States was using the Benghazi embassy to smuggle guns to Syrian rebels. While many dismissed Paul’s theory as a “conspiracy theory,” the senator was vindicated when Judicial Watch obtained documents that confirmed U.S. agencies were aware of the gun smuggling operation.

Pentagon generals objected to destroying the Libyan state,” explained Assange in his long-form tweet.. “They felt Hillary did not have a safe post-war plan.

But despite the generals’ warnings, “Hillary Clinton went over their heads.”

To Assange, Clinton’s decisions helped create a safe haven for the Islamic State. With the looting of the Libyan national armory and the transference of weapons to jihadists in Syria, Assange argues that “Hillary’s war has increased terrorism, killed tens of thousands of innocent civilians and has set back women’s rights in the Middle East by hundreds of years.”

Assange closes his pledge by saying Clinton shouldn’t even “be let near a gun shop, let alone an army. And she certainly should not become president of the United States.”


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637 Rate Cuts And $12.3 Trillion In Global QE Later, World Shocked To Find “Quantitative Failure”

2016 is shaping up to be the year that everyone finally comes to terms with the fact that the monetary emperors truly have no clothes.

To be sure, it’s been a long time coming. For nearly 8 years, market participants and economists convinced themselves that the answer was always “more Keynes.” Global trade still stagnant? Cut rates. Economic growth still stuck in neutral? Buy more assets.

It was almost as if everyone lost sight of the fact that if printing fiat scrip and tinkering with the cost of money were the answers, there would never be any problems. That is, policy makers can always hit ctrl+P and/or move rates around. But in order to resuscitate anemic aggregate demand and revive inflation, you need to tackle the core problems facing the global economy – not paper over them (and we mean “paper over them” in the most literal sense of the term).

Well late last month, central banks officially lost control of the narrative. Kuroda’s move into negative territory reeked of desperation and given the surging JPY and tumbling Japanese stocks, it’s pretty clear that the half-life on central bank easing has fallen dramatically.

And so, as the market wakes up from the punchbowl party with a massive hangover, everyone is suddenly left to contemplate “quantitative failure.” Below, courtesy of BofA’s Michael Hartnett is a bullet point summary of 8 years spent chasing the dragon… and a list of the disappointing results.

*  *  * 

From BofA

Whether the recent tipping point was the Fed hike, negative rates in Europe & Japan, or simply the growing market dislocations and macro misallocation of resources and wealth, the deflationary theme of “Quantitative Failure” is stalking the financial markets. A multi-year period of major policy intervention & “financial repression” is ending with weak economic growth & investors rebelling against QE.

In short, monetary policies of…

  • 637 rate cuts since Bear Stearns
  • $12.3tn of asset purchases by global central banks in the past 8 years
  • $8.3tn of global government debt currently yielding 0% or less
  • 489 million people currently living in countries with official negative rates policies (i.e. Japan, Eurozone, Switzerland, Sweden, Denmark)
  • -0.92%, the most negative yield in the world (2-year Swiss government bond)

…have in 2016 led to a macro environment symbolized by…

  • BofAMLs Chief US Economist Ethan Harris cutting potential trend real GDP growth in the US to 1.75%
  • inflation expectations in both the US & Europe dropping below 2008 levels & a global profits recession
  • one of the most deflationary recoveries of all-time: in the past 26 quarters the nominal GDP of advanced economies has grown 11%

and a significant impact on Wall Street…

  • a bear market in equities (median stock in ACWI is down 28% from its highs; 45% of global stocks (1123) are down >30% from highs)
  • bear market in commodities (10-year rolling return from commodities is currently -5.1%, the worst since 1938) & credit markets
  • $686bn of market cap loss for global banks since Dec 15th the day before the Fed hiked – and worsening global liquidity conditions, which in-turn will likely cause bank lending standards to tighten further

  • and, most conspicuously, falling bank stocks and falling bond yields suggesting that 6 years of QE has failed to arrest deflation.

*  *  *

What comes next is anyone’s guess but with China’s credit bubble about to burst in spectacular fashion, we wonder how central banks plan to combat the ensuing hit to the global economy. After all, their counter-cyclical policy room is not only exhausted, they’ve now taken the easing bias so far into the monetary twilight zone that in Japan’s case, things are starting to backfire and are becoming self referential (see the recently canceled JGB auction). 

Throw in the fact that $12.3 trillion in asset purchases has impaired liquidity across markets and you have the conditions for what could turn into a truly harrowing year not only for Wall Street, but for Main Street as well. The same Main Street that was allegedly saved by a “courageous” Ben Bernanke who started us all down this road 8 long years ago.


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The Best And Worst Performing Hedge Funds Of 2016 (And Those Inbetween)

With the S&P down just about 10% YTD, hedge funds especially of the levered-beta variety have not had a good year; that said, it would be fair to say that many have not had a terrible year either. In fact, as the following table of hedge fund performance by some of the most marquee names shows, while there are certain outliers in the YTD column some 6 weeks into 2016, most of the hedge funds have actually done that, and while most are around the flatline, there are some notable outliers, perhaps most notably Boaz Weinstein Saba which late last year many had left for dead.

First, here are the top 20 best and worst hedge funds of 2016 as of February 12 according to HSBC.

 

Next, below is a summary of the performance by some of the marquee hedge fund names for which we have data:

 

Finally, the reason we have bolded the performance of Blackrock’s Obsidian fund, the asset manager’s global credit hedge fund, is because as Bloomberg reports it is off to its worst start in its 19-year history. The Obsidian fund sits within the $4.6 trillion money manager’s $32 billion hedge fund unit, which runs about 30 strategies. The fund started trading in July 1996, making it the unit’s oldest strategy.

More details from Bloomberg:

The flagship $1.9 billion Obsidian fund fell 4 percent in January after failing to anticipate “the extent to which markets would trade in lockstep with commodities,” according to an investor update, a copy of which was obtained by Bloomberg. The fund lost money from corporate credit and global-rate strategies.

 

Obsidian, led by Stuart Spodek, entered this year betting that investment-grade company debt would benefit from growth in the U.S., a “shallow trajectory for Fed hikes” as well as the European Central Bank’s monetary policy. Instead, fears of a global recession and a further decline in oil prices weighed on markets. A Standard & Poor’s report last month showed the outlook for corporate borrowers globally was the worst since the financial crisis.

 

“While we believe these recessionary fears are inconsistent with current fundamentals and our expectations for forward fundamentals, we underestimated the sharp and broad risk aversion in response to declining oil and weakening data,” the firm told clients.

 

The fund made some money from bets against higher-quality energy issuers and regional banks with significant exposure to energy, according to the update.

We expect many other funds, credit or otherwise, to blame underperformance on recessionary fears despite “declining oil and weakening data”, until either they are shut down, or the snapback in cognitive dissonance is aided and abetted by the NBER which eventually admits that the recession arrived some time ago.


via Zero Hedge http://ift.tt/1O6Mtfg Tyler Durden