On the media's push back against Trump

by

James E Staudt

copyright 2018, all rights reserved

Across the United States the media is pushing back against President Trump's attacks on them as being "Fake News" and "the enemy of the people".  There is always a grain of truth to any great lie.

A free and independent press is one of the critical pillars necessary for a democracy to survive.  In this respect, the president's attacks on the media are wrong.  While the media doesn't always get it right (more on this later) it is necessary to have a free press to preserve democracy and prevent a government from becoming a tyranny.  This is why freedom of speech and freedom of the press are preserved in the first amendment to the constitution.  The colonies wanted the ten amendments in the Bill of Rights to prevent the federal government that had been established in the constitution from turning into a tyranny.  That is why so many of these ten amendments relate to prohibition of certain practices that were used by the British during colonial rule - such as housing soldiers or preventing assemblies.  So, President Trump is clearly wrong in calling many of the press outlets "enemies of the people".  

On the other hand, a loss in confidence in the media as an independent and trusted source of information is well justified.  An important theme discussed in my book Grand Collusion is that the two political parties and the media have a vested interest in keeping Americans misinformed and fighting one another.  The media is the chief benefactor of political spending and the political parties are able to use controversy as a means to motivate political donations.  This symbiotic relationship has made the commercial media too close to the two major parties.  Over time, the for-profit media outlets have become more of a mouthpiece of the government, large corporations or other influential groups that provide "information" (or, propaganda) at no charge. With this model, the media outlets don't need the expense of investigative journalism to examine information and question it..  For example, the media acted as a mouthpiece for the Bush administration in promoting the Iraq War.  It did not critically evaluate the evidence presented by the George W. Bush Administration in its argument for invading Iraq, which led to destabilization of most of the Middle East.  In fact, Judith Miller (then at the New York Times and later Fox News) was criticized for her role at the New York Times in promoting the Bush administration's arguments for the war.  In effect, Ms. Miller and the New York Times acted as a political agent for the Bush administration.  Unfortunately, she was not alone.  Many news outlets, Fox News for example, are not truly independent and act almost as an agent of a political party.

The media must be free to critically examine the information from the government, regardless of who is president.  But, they should do so thoughtfully, thoroughly and without bias.  Unfortunately, in today's media, which focuses more on entertaining rather than informing and also has close ties to political parties, there is no room for a trusted reporter such as Walter Cronkite to calmly report the news of the day without drama or injection of bias. When issues are discussed on today's news stations, they are often sensationalized in a contentious battle between talking heads with a banner across the bottom saying "Such and Such Fiasco".  This may make for entertaining television, but it does not inform.  If we are to preserve the United States as a democratic republic, the media must step up to its responsibility of informing the citizenry rather than attempting to use every opportunity to create controversy.

Be Afraid.  Be Very Afraid

by James Staudt

copyright 2018, James E Staudt, all rights reserved

With John Bolton appointed to replace H. R. McMaster as National Security Advisor to President Trump, President Trump is replacing one of the few remaining "adults" in the Trump administration with one of the most dangerous people in Washington, D.C.  General McMaster had a distinguished military career and in his book Dereliction of Duty demonstrated that he understands how the US can be drawn into unnecessary wars and then have these wars mismanaged and bungled by politicians and policy advocates who do not truly respect the military.  It is a great book worth reading that demonstrated that Vietnam, Iraq, and Afghanistan had a great deal in common.  In contrast to General McMaster, Bolton is the consummate Washington advocate.  He has cycled in and out of positions with Republican administrations and the American Enterprise Institute (AEI) - the right-wing "think tank" that promoted the Iraq War on behalf of it's defense industry benefactors under the guise of the Project for a New American Century.  Unlike McMaster, Bolton has no professional military or intelligence background to qualify for the post that he will now hold.  He has long been a policy advocate and therefore has the same cognitive bias that blinded Paul Wolfowitz (another AEI alum who guided the US into the Iraq War) as described in my book Grand Collusion.  Bolton is a staunch believer in "regime change" not only in Iran and much of the Middle East (except of course Israel, where he is close with Benjamin Netenyahu) but in North Korea.  As such, there is no chance that Bolton will advise President Trump to avoid war with either Iran or North Korea.

This might not be quite as alarming were President Trump more seasoned on foreign policy or more contemplative in nature, but he is neither.  It also might not be so alarming if congress had not surrendered its constitutional responsibility to authorize war with the horribly misguided Authorization of the Use of Military Force (AUMF), which effectively gave the president blanket authority to wage war against anyone and anywhere he chooses.  While intended in principle to be used against the perpetrators of the September 11 attacks, the AUMF has been used by presidents Bush, Obama, and now Trump to conduct military operations in the jungles of Niger, in Yemen, in Libya, and elsewhere against people who bore no responsibility for the September 11 attacks.  In effect, President Trump has already been granted the authority to go to war against Iran and North Korea should he choose to, and with John Bolton at his side, he will most certainly be advised to do so.  Congress cannot stop President Trump from going to war without repealing the AUMF, which will never occur with a Republican-controlled congress and would be very unlikely even if the Democrats controlled congress.  Moreover, it would require a veto-proof majority to repeal the AUMF because President Trump would no-doubt veto such a measure.

Bolton's appointment also demonstrates the hypocisy of President Trump.  As a candidate, then Mr. Trump repeatedly emphasized that he had been opposed to the Iraq War.  Why then would he turn around and appoint one of the architects of it to the critical role of National Security Advisor?  Candidate Trump was clearly telling us what we wanted to hear, not what he truly believed.

My fear is that President Trump will act as many embattled presidents do and go to war - hoping that the nation will rally around him as often happens to presidents when war occurs.  The Mueller investigation appears to be honing in on something that is creating more agitation for President Trump.  We don't know if Mr. Mueller will find actual collusion with Russia, but he could come across something else that is either embarrassing to President Trump or creates problems with people in his administration or members of his family.  For this reason, war with North Korea or Iran could start looking like a very attractive distraction from the investigation while also serving to rally the support of Americans.

So, be afraid.  Be very afraid.

On the DNC revelations

copyright, James Staudt, 2017, all rights reserved

The recent Donna Brazile revelations about the control that the Hillary Clinton campaign exerted over the DNC prior to even a single primary vote was cast may not seem surprising.  What it certainly proves is that neither of the two major party candidates - Trump or Clinton - was worthy to hold the office once held by Abraham Lincoln.

So, how did this happen?  The DNC under Debbie Wasserman Shultz, was financially in trouble.  In 2015 they made a deal with the Clinton campaign that the Clinton campaign would help with their debts and in return the DNC would turn over all decision-making, including staffing, to the Clinton campaign.  The Clinton campaign made numerous staff replacements, including according to Tulsi Gabbard (former vice chair of the DNC and a representative from Hawaii) replacing long-time DNC staff with Clinton-selected lobbyists.  In addition, state DNC party contributions would be funneled to the Clinton campaign through the DNC.  According to Representative Gabbard, 99% of such contributions were sent to the Clinton campaign.  So, contributors, thinking that they were helping local candidates, now realize that their contributions were being funneled to the Clinton campaign.

Supporters of Bernie Sanders, who suspected a rigged system, have been vindicated.  My democrat friends have had a very difficult time accepting the fact that the reason Donald Trump is president is not because of Russia as much as it is the fact that the democratic party offered a candidate that is at best extremely divisive or worse, untrustworthy.  This is not to excuse Donald Trump, who I have never considered an acceptable person to serve as president (and, I did not vote for Trump).  However, many of those who voted for Trump were people who knew that the Washington DC deep state is not working for them and were hoping for change from an outsider.  Most, I suspect, have been disappointed.  Nevertheless, this revelation about Clinton campaign control of the DNC will, hopefully, cause democrats to reflect on the party and demand reform.  However, I'm not going to hold my breath.

Are We Going to War?

by James Staudt

copyright 2017, all rights reserved

I hope not.  But, I fear that President Trump's speech at the UN brought back memories of the George W. Bush administration - especially the "Axis of Evil" speech where he told the world that "you are either with us or you are against us".  The stark "us versus them", "good versus evil" tone of the Trump speech is reminiscent of Bush and Cheney at their worst.  Also, President Trump is leading an administration that can't seem to get anything done domestically and is seeing key people from his presidential campaign, such as Paul Manafort, indicted.  A war tends to get the country to rally around a President, no matter how beleaguered he might otherwise be.  So, there are political reasons why President Trump, like President Bush before him, might be inclined to go to war.

Unfortunately, we cannot rely on Congress to prevent the war.  Although our Constitution (Article I, Section 8, Clause 11) gives Congress the sole authority to declare war and the President, as Commander-In-Chief, the power to conduct the war, since World War II Congress has consistently voted to grant the authority to commit troops to military action overseas ("war" by any other name) to the President, rather than make the affirmative choice themselves as was intended by the writers of our Constitution.  This works out well for both Congress and the President.  When things go wrong the President gets to do what he wants and can share the blame with Congress who allowed him to do what he wants.  Congress gets to put the blame on the President by saying that they didn't actually vote for the war but voted to give the President the choice to go to war and the choice was his.  Essentially, each gets to pass the buck to the other.  How convenient.

Make no mistake, there is no happy ending with a war against North Korea or Iran.  Iran is three times the size of Iraq in terms of land and population, and we know how well the Iraq War has gone.  A war with North Korea, while not much of a threat to US citizens at home, puts millions of our friends (and US citizens) in South Korea and Japan at risk and also risks a war with China.  China has made it clear that they will not accept US troops in North Korea, and we saw how well crossing the 38th parallel went about 70 years ago when China entered the Korean War.  President Truman deeply regretted taking General MacArthur's advice on that matter.

Even targeted strikes against North Korea would be a mistake. Kim Jong Un would hardly stand by, or he would risk losing power.  North Korea can easily bombard Seoul with its artillery and would likely do so in retaliation for a strike.  The population of the Seoul metro area is over 25 million.  My son is currently in Seoul on a semester abroad, and I am understandably worried about this.  Even if he weren't in Seoul, I would be opposed to an attack on North Korea.

The only world leader that applauded President Trump's speech was Prime Minister Benjamin Netanyahu.  Netanyahu encouraged the United States to invade Iraq.  He has encouraged a very militant posture with Iran, opposing the nuclear agreement.  In a war with Iran, Mr. Netanyahu's Likud government would be the main beneficiary.  As the United States and Europe have become more preoccupied with turmoil in the Middle East and elsewhere, there is less pressure on Israel to negotiate with the Palestinians.

I fear that we are getting ever closer to a serious war, perhaps even the use of nuclear weapons.

Trump and Dodd-Frank - No Surprise Here

by James Staudt, PhD, CFA

copyright 2017, all rights reserved

President Trump may be changing aspects of the regulations issued in response to the Dodd-Frank law.  How is that even possible?  As described in more detail in Grand Collusion, despite the 2000+ pages of Dodd-Frank, the law did not set any statutory requirements on the banks.  Much was to be determined in future executive branch rulemakings.  Therefore, it is pretty easy for President Trump, or any other president for that matter, to dismantle much of what few actual requirements were imposed on the banks.  This is not to say that there are no procedures that must be followed and that litigation might slow things down; however, because Dodd-Frank set very few statutory requirements and left so much to future executive branch rulemakings, Democrats cannot even filibuster to prevent fairly substantial changes.

This exposes what, in my view, was the fatal flaw of Dodd-Frank - it did not establish much in terms of statutory requirements.  By contrast, the Banking Act of 1933 that was under 60 pages long and gave us over 50 years of banking stability, had very clear statutory requirements - separating investment banking from commercial banking along with other requirements.  The argument that is always made is that there are too many details to be included in the 2000+ page law.  The reality is that today the laws that congress passes are mostly written by lobbyists because lawmakers and their staffs are far too busy raising money to devote much time to writing laws.  So, it was no surprise that Dodd-Frank - despite its length - set very few real requirements on the banks.  Agencies therefore set rules intended to achieve the goals set forth in the law, rules that must go through a proposal and public hearing process, rules that later get litigated, and therefore take a long time to enact and can get further watered down.

So, there is no surprise here.  The only surprise might be that candidate Trump, who railed against Wall Street, now perhaps wants to relax the rules.  However, if you've read Grand Collusion, this should be no surprise.  Wall Street owns both major political parties.  In fact, there is no reason to believe that Hillary Clinton wouldn't have taken steps to change the rules issued in response to Dodd-Frank.

This is not to say that the rules put in place after Dodd-Frank was passed cannot be improved upon in some ways.  They probably can.  However, with Goldman-Sachs executives advising President Trump, it seems likely that changes will be made that favor the banks even if they raise the risk to the taxpayer.

A complaint of the banks is that some institutions find the requirements costly and burdensome. If the current requirements are replaced with simpler capital buffer requirements that are more straightforward to follow but establish a solid bulwark against future failures, that could be an improvement.  Prior to banking deregulation, capital buffer requirements were very straightforward, making "stress testing" unnecessary.  On the other hand, if rules to prevent excessive risk taking through proprietary trading by depository institutions are relaxed (the so-called "Volker Rule"), that could pose a problem regardless of whether or not capital buffers are improved.

The truth is that right now we don't know for sure what President Trump has in mind.  So, we can only speculate at this point.  But, given the influence of Wall Street on every President for the past few decades, we should not be surprised if the already weak requirements of the rules established in response to Dodd-Frank get even weaker.

Flipping Washington The Bird

by Jim Staudt, PhD, CFA

Copyright, 2016

Donald Trump’s victory was unexpected. Some of my Democrat friends (who are in a state of shock) claim that this is a case of racism or White Nationalism. This is a mistake on their part. While I'm sure that there were some racists among the 59+ million people who voted for Mr. Trump, there were simply too many Americans who voted for Mr. Trump to blame it entirely on racism or White Nationalism.  Some polls show that college educated women, a group that Mr. Trump was expected to do poorly with, voted for Mr. Trump at a rate of 45%.  That is much higher than I expected given that his opponent was an extremely smart and accomplished woman.

My opinion is that the Democrats ignored the fact that a lot of Americans have suffered from economic policies put in place by both major parties over the past several decades that enriches Wall Street and big business at the expense of Main Street. These policies have hollowed out the American middle class and left us with wealth disparity that exceeds that of any country one might want to live in.  Hillary Clinton is viewed – rightly or wrongly (rightly, in my opinion) – as part of the political system that created those policies. Many Americans are weary of Washington and feel powerless against the forces that have controlled the two major political parties for several decades. Our government has grown increasingly detached from the people it governs, creating what many would consider a ruling elite.

Bernie Sanders would likely have defeated Mr. Trump. But, Senator Sanders, if elected president, would have upset the economic order that funds both political parties, which is why the DNC worked against him and for Hillary Clinton. After Bernie Sanders lost the Democratic nomination, voting for Donald Trump became the only viable option people had to give the middle finger to the political status quo.

The Democrats need to do a great deal of self-reflection.  They were once the party of the working class.  While the GOP has long been the party of big business, since the 1980s the Democrats have also become the party of big business.  As manufacturing jobs went overseas and private sector labor unions grew weak, the Democrats sidled up to Wall Street and big business to remain competitive. The result is that neither party represents Main Street any more, which is why there was a populist revolt in both parties.  In this case the GOP picked the populist candidate while the Democratic Party held on to the status quo, and the populist candidate won.  This is how Donald Trump made it to the White House.

Let's hope that Mr. Trump is up to the job.

Jim Staudt

On the IMF Warning

by James Staudt, PhD, CFA

Copyright 2016, all rights reserved

As noted on today’s front page article in the Financial Times, the International Money Fund has issued a warning that global debt, at a record of $152 trillion, or 225% of global GDP, poses a threat to the global economy.  Most of that debt – about two thirds of it – is private sector debt.   The IMF acknowledges the role of central banks by stating that debt has grown very rapidly since the financial crisis as central banks have been promoting debt expansion in an effort to promote economic growth. 

This is the challenge that we are faced with today after decades of debt fueled stimulus.  Economists have, for decades, ignored the risks of ever increasing debt levels because of their faith in their economic models that conveniently also ignore the risks of increasing debt levels.  This is also why their models are unable to anticipate financial crises.  It is like a weather forecasting model that ignores the role that ocean temperatures have on creating hurricanes.  This has allowed economists, including those in the academic community, to promote policies that are in the interests of their clients (such as investment banks, like Goldman Sachs) while conveniently ignoring the risks of these policies to the rest of us.

Our central bank, as well as other central banks, has been a major culprit in creating this situation.  As Mohammed El-Erian notes in his book The Only Game In Town, central banks felt that unconventional (and untested) means of stimulus were necessary to initially address the banking crisis and then to promote growth.  The use of these methods for such a prolonged period after the financial crisis created risks as well as an apparent windfall for the financial classes while not providing the kind of durable economic growth Main Street had hoped for.  Increased debt, whether public or private debt, poses risks, but the ease at which central banks can create money has created an illusion that debt is risk free and does not impose a cost.

The dilemma with debt is the fundamental problem that you are spending today what would be available for you in the future.  If your spending is on productive assets, like infrastructure or factory machinery, etc., this might provide more for you in the future.  But, if the debt is used to spend today simply for the sake of consumption or it is spent on productive assets that don’t provide an adequate future return, you dig yourself a hole.  Central banks can implement policies that promote or discourage use of debt, but they can’t tell people how to use that debt (nor should they).  The answer to this problem for the central banks has been to simply create more money, but this has a punishing effect on some while creating a windfall for others, without doing anything to promote investment in productive assets.

But, this gets to a very fundamental question.  Imagine a place where a group of unelected officials, not accountable to anyone, make key decisions about who are economic winners and losers.  You might think that this sounds like the old Soviet Union.  But, it is right here in the United States as well as other countries.  Our central bank has effectively been stealing from savers planning for future obligations (individual savers, pension funds, insurance companies) and giving it to those who are deeply in debt (investment banks, private equity funds, individuals who are over-extended on debt, and, of course, our federal government).  These policies have also promoted increased use of debt for no or low return investment, exacerbating the long term debt problem further.  It also raises the question of whether or not the central bank should really have such an outsized role in our economy without any oversight.  I will explore this in an upcoming blogpost.

Getting back to stimulus through debt, normally, such policies would punish a nation’s currency with high inflation.  But, with virtually every nation on earth pursuing these policies, it has become a race to the bottom.  Because global economic growth is so slow, nations are trying to grow by "stealing" growth from other nations though weak currency policies.  Are there periods in the past that we can look to for guidance?  I'm afraid so, but they are not a source of optimism. The period after World War I was the last time that most of the developed world was pursuing such policies.  The German Weimar Republic was printing money in an effort to promote the domestic economy while it was suffering under highly punitive war reparations to France.  France was deeply in debt to England, and England to the United States.  These nations, having abandoned monetary standards were printing money and experiencing high inflation.  Global trade also dropped as nations adopted "beggar thy neighbor" policies.  The United States for its part was on a debt binge that fueled a real estate and stock market bubble.  Inflation on consumer goods wasn’t a problem in the United States due to a gold standard and because, on balance, we were the largest creditor country.  However, we know how badly things ended that time. 

Let’s pray for a happier ending this time around.