Proctectonism will weaken the economy

American President-elect Donald Trump’s arguably worst quality is his protectionist trade policy. He has promised to “bring jobs back to America” by slapping punitive tariffs on imports, or at least imports from China and Mexico.

Recently, a few manufacturing companies like Carrier, Ford and Fiat Chrysler, have announced that they would refrain from investments in Mexico or even make new investments in the United States. Trump and his supporters have used this as anecdotal evidence that the trade policies he has pledged to implement works are successful.

Wrong. Such policies will probably reduce the trade deficit, though not by much as Trump supporters think, as the dollar will rise in value. Furthermore, a lower trade deficit means a lower inflow of capital (a rule of national accounting any serious economist is aware of), raising the cost of capital, something which in turn will lower investments in domestic industries.

So while there will be some workers who will benefit from such policies, the nation as a whole won’t benefit. Quite to the contrary, by not benefiting from the benefits of the comparative advantage effect that trade brings, the economy will be weaker.

No, Building homes for Jews not what’s stopping peace

In defending the outgoing Obama administration’s decision to allow a UN Security Council resolution condemning the construction of homes for Jews in Judea and Samaria (aka “the West Bank), State Secretary John Kerry claimed that “settlements” are what’s preventing peace between the “Palestinians” and Israel.

No it’s not. Even setting aside the immorality and hypocricy of specifically preventing Jews, but not Arabs, from building homes, that story is obviously false.

In 1949-1967, Gaza, Judea and Samaria and the Golan Heights were all judenrein , not a single Jew (“settler”) were there. Yet that was when the “Palestinian movement”, the PLO, was created. And the Arab states still decided to attack Israel.

In 2005, then Israeli PM Ariel Sharon conducted an experiement on the “settlements are what’s preventing peace” theory by giving in to the foreign demands to ethnically cleanse Gaza and make it judenrein. Well, guess what, it didn’t result in peace in Gaza.

The problem is that the Arabs don’t just oppose Jewish homes in the “West Bank” and Gaza. They oppose any Jewish presence in all of Israel.

Trump Making US Dollar More Expensive

One of the most interesting, from an economic point of view, of Trump’s victory is how it has made the US dollar a lot more stronger/expensive. A euro now only cost $1.04, the lowest in a long time, and the exchange rate against most currencies have moved in a similiar, or even more dramatic, way.

There are three reasons for that:

-Trump promises lower taxes (with one exception that will be discussed below) AND higher spending. That is what is called “fiscal stimulus”, which will increase consumer price inflation, and thus induce the Fed to hike interest rates.

-What’s also inducing the Fed to hike interest rates was that before the election they wanted to help Hillary by not raising rates, but now they feel free to do so.

-The third reason is that the taxes on imports (tariffs as they’re often called) that Trump has pledged to impose on at least Mexico and China will reduce American demand on foreign imports, and so also the demand on foreign currencies, raising the price on the American currency.

A Few Things To Note About The Election

I had no clear preference in the election. I didn’t like either major party candidate. And the Libertarian Party chose the worst possible candidates. The presidential candidate, apart from not knowing what Aleppo is, failed to endorse the freedom of association principle by arguing that bakers should be forced to bake gay wedding cakes. And his vice presidential candidate couldn’t give a straight answer as to whether you should vote for his ticket or Hillary Clinton’s. I have voted in all Swedish elections since I became 18 but I’m not sure I would have voted if I had been an American citizen.

What Trump’s win will mean remains to be seen. His trade policy is really horrible, but much of his other  proposed policies are good, including his foreign policy, income- and corporate tax cuts, opposition to many destructive regulations and his pledge to appoint Supreme Court judges that won’t try to legislate from the bench.

Anyway, Here you can find the full results of the election. Some noteable things:

-Despite having worst ticket ever, the Libertarian Party candidates Gary Johnson & Bill Weld got the strongest result ever, 3.2% of the vote.They weren’t on the ballot in some states, but got 6.3% in North Dakota and 5.9% in Alaska.

-Washington DC  had the by far biggest Hillary majority 93-4. Other strongholds include Hawaii, Vermont, California and New York (which BTW is the home state of both Hillary and Trump) .

-The biggest Trump majority was in Wyoming, where he won by 70-22.5.He also won landslide victories in a few other states like West Virginia, Oklahoma and North Dakota.West Virginia is the most remarkable because Hillary Clinton’s husband won it back in the 1990’s. Yet now, she just got 26.5% compared to 68.7% for Trump.

-Trump actually did better among blacks and hispanics than Romney 2012 according to exit polls.

 

The Chewbacca Defense Election

The current american presidential election is really a disgrace. It seems to have come down to whether Bill Clinton or Donald Trump is the greatest sexist.

The sexual comments and even alleged behavior of Donald Trump, or for that matter Bill Clinton, are really irrelevant for this election, just as their preferences when it comes to movies or favorite colors are.

What is relevant is what their policies are. I don’t give a rat’s ass about their private lives as that doesn’t affect us. So I really think the race should return to discussing the issues. Unfortunately though, the media establishment seems determined to distract us from that.

So this seems to be a “Chewbacca defense election”. For those who don’t know, “Chewbacca defense” is when you bring up irrelevant issues to distract from the relevant ones in winning a contest. In its original form, in “South Park”, “Jonnie Chochran” brought up the issue why Chewbacca, an 8 foot tall wookie from Kashyyk would want to live on Endor with a bunch of 2 foot tall Ewoks, in a trial regarding the intellectual property rights of a musical composite.

 

Remembering 9/11

One of the days in my life that I remember the clearest was September 11, 2001. It happened 15 years ago, but I can remember it(or at least the parts that followed after the terror attacks) as clearly as if it happened yesterday.

I was about to go to the bus station and take the bus to my hometown to attend my paternal grandmother’s funeral in the following day. I checked the Internet to see if there was anything new and I saw that a plane had crashed into one of the twin towers of the World Trade Center. An accident it was said, and that’s what I thought too and looked at the time and realized I had to go immediately. But when I came to the bus, the bus driver had turned on the radio so loud so all passengers could hear. I then found out that the second tower had also been hit, as well as the Pentagon. Then it was obvious that it wasn’t an accident, it was a terrorist attack. Through the entire 1½ to 2 hour bus trip I listened to the horrifying radio reporting. It left me horrified, depressed and angry that such evil people could exist.

The fact that I have actually been on the top of one of those towers also made it creepy.

I was somewhat comforted later however by the forceful comments by President Bush wowing to destroy those who were behind the attacks, and when he visited the WTC sites, he said to the people there “I can hear you, and the people who knocked these buildings down will hear all of us soon”.

Unfortunately Bush completely messed up the response. He should have devoted more military resources to Afghanistan, including not only more air strikes, but also more ground troops to defeat the Taliban and al-Qaeda in Afghanistan (and the lawless taliban regions of Pakistan that borders to Afghanistan). Instead he focused all his attention on Iraq, whose dictator Saddam Hussein certainly was vile, but posed no threat to us and had nothing to do with the 9/11 attacks.

Instead he helped establish al-Qaeda in Iraq, though the so-called “surge” helped significantly weaken it, almost destroying it,but only almost. And because of Obama’s premature departure and the so-called “Arab spring” that most Western pundits celebrated, the remnants of al-Qaeda in Iraq grew strong again and became “the Islamic State” (or ISIS, ISIL or Daesh) and also took over parts of Syria.

I’m not sure how this mess is to be cleaned up. Except that we should focus on jihadists to a greater extent than before, instead of secular Arab dictators.

 

 

 

 

 

 

 

 

 

 

 

What’s Behind Record Low Bond Yields?

Currently, yields on government bonds are at record low levels.It is telling that the current U.S. 10-year yield of about 1.5% is acually considered high.

In some countries, like Japan, Switzerland and Germany, the 10-year yield is actually negative even in nominal terms. And despite having higher inflation than these countries, Sweden’s 10-year yield is currently only a few basis points from zero in nominal terms. Inflation protected bonds are at about -1.5%. And if you look at government securities of shorter maturities yields are even lower. So what’s going on here?

Well, there are three possible explanations:
1) A “glut of savings”
2) Monetary expansion
3) Excess risk aversion from investors

Most likely, all three of these factors play a role. China, and other East Asian nations, have a large surplus of savings that they “export”. And as the European debt crisis have made countries tighten their belts and borrow less, creating a surplus of savings.

Meanwhile, as the drop in the prices of oil and other commodities have pushed down consumer price inflation, central banks, doubling down on their inflation-target ideology have pursued increasingly inflationary policies. The problem is that these policies have had much greater effect on the prices of assets. like bonds, than on consumer prices.

Still, it appears that these factors can’t alone explain the drop in bond yields. If they did, then stock prices would have been a lot higher than now. Valuations are above the historical average, but the implicit yield (the reversed p/e ratio), as well as the dividend yield, is relative to bond yields far higher than ever before, implying risk aversion from investors.