Immigration has been a hot topic for both the Republican and Democratic candidates.  Donald Trump has brought much attention to the issue due to his belief that the Mexican government should pay for a wall on the United States-Mexican border.  I was reading an interesting USA Today article that said “more Mexican immigrants are returning to their home country than coming to the United States.”  The report was from the Pew Research Center and said that one of the primary reasons for the net loss was because of the economy.

As I have mentioned previously, real median income in the United States has declined since 2000, while the CPI has increased by over 30%.  This is anecdotal, it just seems that the opportunities in America are on the decline, and the opportunities are not what they once were.  I have currently been looking for a job and have been having a lot of difficulty.  I have worked for big companies like Visa and Verizon Wireless in the past.  I have applied for well over a 100 positions and have only received one job offer.   The only company that offered me a job was Macy’s working for $9.00 an hour.  I was qualified to work all of the positions as well.

The per capita income in Mexico is less than in the United States.   It seems as though this report may indicate that many Mexicans believe there is more economic opportunity in Mexico.   I was recently in Guadalajara, which is the second largest city in Mexico.  It was a great city to visit, and I highly recommend that people visit there if they get a chance.  Almost every day I ate really good street tacos which cost 30 pesos for 4 tacos.  You can barely purchase a dr pepper from a convenience store for that in the United States.  I stayed at a nice hotel and it cost me $45 dollars a night.  Los Angeles is the second largest city in the United States, good luck finding a nice hotel in Los Angeles for $45 dollars.  I have heard that you can rent a two bedroom home in Guadalajara for $250.

When I was down there I was thinking of ways to implement geo arbitrage, which is what I believe Tim Ferris calls it.  Find a way to run some kind of online business, or work from Skype somehow, while taking advantage of the low cost of living in Guadalajara.  Guadalajara is just an example, there are so many other places where geo arbitrage could be implemented.  Due to what I perceive as the declining economic opportunity in America, it is likely more Americans will try implementing the geo arbitrage strategy.

The Old Right

The Old Right was an informal group which consisted of men such as Senators Robert Taft and Kenneth Wherry, and congressman Howard Buffett.  The Old Right opposed Roosevelt’s New Deal and were advocates of a non interventionist or sometimes called isolationist foreign policy.  Howard Buffett would say “We cannot practice might and force abroad and retain freedom at home.”   They would oppose NATO and the Marshall Plan.  Robert Taft believed that the purpose of the foreign policy should be to protect the liberty of the citizens of the United States.   Taft would say, “Nor do I believe we can justify war by our natural desire to bring freedom to others throughout the world.”

When listening to Republican candidates such as Marco Rubio and Carly Fiorina it is apparent that they are essentially the antithesis of the Old Right.  The political right in this country will continue to lose elections in my opinion, if they ignore the foreign policy of the Old Right and continue one that is bellicose and interventionist.

Debt and Equity

Earlier this year on CNBC the Economist Stephen Roach said “We’ve been in a balance sheet recession, and we’re still in it.  That’s the bottom line.”  Household debt rose in the third quarter of this year to $12.07 trillion according to the New York Fed.

The United States government is the largest debtor in the history of the world and the balance sheets of the citizenry is unfortunately not in the best of positions.  The equity side of the balance sheet needs to be built back up.  Unfortunately though due to excess debt and falling real median household income over the years, this has bee difficult to do.

A good strategy for a politician to take which I have not heard we be a focus on building up the balance sheets of Americans.  I think it may be a good idea for Donald Trump to take this position.  If asked what he wants to do to improve the economy he should state, “I want to help Americans build their equity positions.”  Reducing taxation would probably be the quickest way to do this.  It may be a good strategy to justify the reduction of taxation as a strategy for building equity for the citizenry.

Seattle Times Gold Standard Article

“The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.” -Ludwig Von Mises

I reached out to John Talton of the Seattle Times and sent over my thoughts refuting his article on the gold standard that was mentioned in the previous post.  He emailed me back and said he found my arguments unconvincing.  He also said that he does not have time to debate readers.  I kind of wonder why he took the time to even respond to my email then. One would think that an economics columnist for a large newspaper would be able easily think of a few quick reasons why he does not agree,.  We will never know  why he found my arguments unconvincing.

Seattle Times Article on the Gold Standard

In a Seattle Times article the author John Talton advocates our purely fiat system and writes that he believes the gold standard should stay in history.  Below is my response to the Seattle Times.

Dear Seattle Times,

On November 11 John Talton wrote an article in the Seattle Times titled Ted Cruz’s 21st Century Idea:  The Gold Standard.  I believe there are some fallacies in this article, and I just wanted to share my thoughts on the article.

In the article Mr. Talon mentions that tying the value of the dollar to gold proved disastrous because the Federal Reserve needs the flexibility to expand the monetary base to fulfill its essential duty of lender of last resort.  In a research paper published by the Federal Reserve Bank of St Louis Review by Donald C. Wheelock titled Lessons Learned?  Comparing the Federal Reserve’s Responses to the Crisis of 1929-1933 and 2007-2009 Wheelock writes, “The Federal Reserve Bank of New York reacted swiftly to the October of 1929 stock market crash by lowering the discount rate and lending heavily to banks.”  I am not sure what Mr. Talon is referring to because access to the discount window was available?

With regard to the expansion of the monetary base, the United States went off the gold standard in 1933, yet when we look at M2 between 1936-1937 it actually declined.  Also during the 1920’s the United States experienced an excessive credit expansion boom, mortgage debt outstanding for example more than tripled between 1919 and 1929.  The unviable economic activity caused by the boom needed to liquidate and contract.  In the book the Economics of the Gold Standard, the author Mark Skousen points out that the United States gold stock actually rose during 1930-1931.

Mr. Talon goes on to say how in 1971 we went off Bretton Woods and we are now on a fiat currency that is the bane of gold bugs.  One reason why a fiat currency is the bane of gold bugs is because there is no limit with regard to how much currency can be created.  On a pure 100% gold reserve standard the currency would essentially be a warehouse receipt.  The world supply of gold typically rises between 1.5 and 3 percent annually.  The chance that the currency would be debased to the extent it has been today is essentially non existent under a gold standard.  Yes, there have been situations like the gold rush in California and large findings in Australia.  Over time though under a currency linked to gold purchasing power is very stable.  In a book by Roy Jastram titled the Golden Constant, the purchasing power of gold over time was analyzed.  The analysis of gold determined, “its purchasing power in middle of the 20th century was nearly the same as in the midst of the 17th century.”

When we look at M2 it has gone up significantly in recent times.  I looked at the CPI since the year 2000, and between 2000 and 2014 the CPI has gone up by 32.2% according to my calculations.  So since 2000 if you had money sitting in the bank its purchasing power would have been depleted by almost a third.  Inflation is especially detrimental to the poor.  The poor generally allocate more of their income to things like food, housing and transportation.  When the prices of these goods and services rise it depletes their budget more.

Mr Talon also says that gold(assuming is referring to the gold standard) widened inequality(assuming is referring to income or wealth inequality).  I have not researched income or wealth inequality under the gold standard.  Currently though under our purely fiat system which Mr Talon seems to advocate it is fairly apparent that income and wealth inequality is pervasive.  It is not uncommon to hear this problem mentioned by politicians.  In an article by Christopher Ingraham in the Washington Post he writes, “the wealthiest 10 percent of households have captured a whopping 76 percent of all wealth in America.”  Real median household income has actually declined since 2000, while in the last 35 years incomes have risen for the top 1 percent.

The Federal Reserve under the purely fiat system has implemented monetary policy that aims to deplete the purchasing power of the dollar by two percent annually.  It implements policies like ZIRP and QE.  The FOMC are more like central planners in current times, which seems to be the antithesis of what Carter Glass intended.  The Federal Reserve and monetary policy was in my view originally intended to operate along the lines of what Paul M. Warburg envisioned.  Warburg was a member of the Federal Reserve Board from 1914-1918.  In 1930 he wrote, “the reserve system will be less subject to the charges of carrying on arbitrary policies and less exposed to the demands and schemes of dreamers, theorists, and demagogues when once more it is clearly recognized all over the world that the first duty of a central bank is to preserve a country’s gold standard.”

Political Speak

It is imperative to remember in the debates that the actions of the politicians should be focused on, not their words.  For the politicians who have served in congress their voting records should be analyzed prior to a vote being cast for them, the video above affirms why.

Republican Foreign Policy

In a famous speech by former President John Quincy Adams in 1821, he said about America, “she goes not abroad in search of monsters to destroy.”  I am not a Republican strategist that gets paid six figures, but my recommendation to whoever the Republicans run as President is that they should align their foreign policy position with the view of Adams.

There is a strong possibility that Hillary Clinton will be the Democratic Party nominee.  Clinton voted for the use of military force in Iraq and has taken an interventionist position in Libya and Syria.  To possibly take votes from Clinton the Republican candidate should take a non interventionist foreign policy.  It is possible that a voter with an aversion to an interventionist foreign policy may go to the Green Party candidate who is likely to take this position.  However, due to the Green Party candidate having no chance of winning, the typical Democrat voter with a strong aversion to an interventionist foreign policy may choose to vote for the Republican candidate if their views on foreign policy coincide.

In the Republican debates last night on Fox Business News a couple of the candidates did say encouraging things when it comes to advocating a non interventionist foreign policy.  Donald Trump said that we cannot continue to be policeman of the world, and Rand Paul said that you can be strong without being involved with every civil war.  Ron Paul often mentioned that George Bush campaigned on this kind of a non interventionist foreign policy, in 2000 Bush campaigned on not being the worlds policeman, and no nation building.   The bellicose foreign policy positions of Romney and Mccain have not brought victory for the Republican party, and in my view they need a different strategy and outlook to win the Presidency.

John Kasich Political Hack

The more I listen to John Kasich the more bewildered I am with regard to why any Republicans support him.  Maria Bartiromo asked Kasich what specific steps he would take to balance the budget.  In his response he said “Yes, lower taxes, lower spending” and then directed people to his website to see how he would balance the budget.  In the response he mentioned nothing about what spending he would cut, he just said he would move the Medicare system down from 7 to five percent growth.  He mentioned freezing non-defense discretionary, assuming he means spending, and then subsequently talks about increasing defense spending.

It seems kind of logical for a Republican candidate to elaborate on how they would lower spending.  I remember Ron Paul saying in the Presidential debates that he would cut spending buy a trillion dollars.  Kasich on the other hand, doesn’t even mention what he would cut, or how much.  Who knows, maybe he is trying to increase his AdSense revenue, I don’t know.

I went to his website and was unable to locate where his specific plan is to balance the budget.  Unless I am missing something I do not even see a plan to balance the budget on his website, this is the page for fiscal policy and balancing budgets.  It talks a lot about what he did as the Governor of Ohio, I don’t see any specific plan on how he will balance the budget.  Maybe he is just trying to generate AdSense revenue.

ZIRP and Share Buybacks

CNBC reported today, “of the $2.2 trillion S&P firms are expected to spend next year, more than $1 trillion will go to buybacks and dividends alone, Goldman chief equity strategist David Kostin said in a report to clients.”  The Federal Reserve’s policy of ZIRP has enabled firms to borrow at an extremely low rate, and use the cheap money to buyback shares with.  CNBC wrote further in the article, “Companies have preferred using cheap money courtesy of the Federal Reserve to reduce share counts and send money back to investors.”

Once metric that is commonly tied into CEO pay is earnings per share.  When utilizing share buybacks a stocks price can be lifted without growing revenue.  Bloomberg reported in July of this year that, “in 12 straight quarters of year-over-year declines in sales, IBM boosted operating EPS in nine quarters, with the help of buybacks.”

Share buybacks may be good in the short term for CEO pay and the shareholders, long term though they may be detrimental to firms.  The capital allocated to boost share price could possibly be more effective if it was invested in employee training or R&D.  The billionaire hedge fund manager Tyler Druckenmiller told Bloomberg about share buybacks, “I think its nuts.  If you’re running a business for the long term, the last thing you should be doing is borrowing money to buy back stock.”

The Federal Reserve policy of ZIRP, has essentially provided a subsidy for CEO pay at many firms, in addition to a subsidy for shareholders.  ZIRP has crushed the small saver, and benefited many CEOs and large shareholders.  It is also likely contributing to the altering of business strategy at many firms towards short term executive and shareholder benefits.  ZIRP is an emergency short term measure used by central banks, it has been implemented by the Federal Reserve since 2008 and it needs to end.

Export-Import Bank Renewal

This week the House voted to renew the Export-Import Bank.  The Export-Import Bank helps secure financing for overseas sales, and protect against nonpayment for foreign buyers.  The bank guarantees loans(with the full faith and credit of the United States) taken out by foreign companies to purchase exports.  It is a New Deal program from the 1930s.

What is interesting though is that two of the largest beneficiaries from the existence of the Export-Import Bank are Boeing and GE.  According to Fortune, “In 2014, 14% of Boeings total orders were to customers backstopped by Ex-Im guarantees, totaling billions of dollars in business.”

To me the Export-Import Bank is just another example of crony capitalism in Washington D.C.   In 2014 the bank financed $27.5 billion in exports.  In that same year bank spent $114.9 million just in administrative expenses.  Why should we basically be subsidizing huge corporations like Boeing and GE?  In a time when many Americans are struggling to find work, or working multiple jobs just to get by, why should these large corporations be receiving what is essentially corporate welfare?

They argue that the bank “creates jobs” but like all government programs the question needs to be asked, what would this money be spent on otherwise?  The Seattle Times reported that in 2014 the CEO of Boeing Jim Mcnerney, had a total compensation of nearly $29 million dollars.  Obviously Boeing is a large corporation and it makes sense that the CEO would be making millions of dollars. The problem I have is why should the United States government be basically providing subsidies to a company where the CEO makes nearly 29 million dollars.  I do not believe the Federal Government should provide corporate welfare or loan guarantees ever, but in a situation where it is going to company where the CEO makes 29 million dollars in a year, I find this especially absurd.