Abolish the Dept. of Homeland Security? Yes, Please.

Abolish the Dept. of Homeland Security? Yes, Please.

07/12/2019Ryan McMaken

Alexandria Ocasio-Cortez has suggested eliminating the Department of Homeland Security.

Her motivation seems to be reducing federal immigration enforcement powers, although it doesn't necessarily follow that abolishing the DHS would actually accomplish this.

Nevertheless, the DHS is just yet an other cabinet level agency pushed to facilitate even more government spending, and has never been necessary. Its abolition would be a step in the right direction.

The thing about raising government agencies to cabinet-level status is that the move makes it easier for the bureaucrats in charge of the agencies to politically agitate for more government spending in their favor, and to push bigger government in general. It's no coincidence that as the US government has grown ever larger and more intrusive, so has the number of cabinet-level agencies. So now, we have the EPA, the SBA, and the departments of HUD, Energy, and Education all provided with more direct access to the president and the media. Everything they do is deemed "essential." Everything they do, we're told, is a matter of national importance.

DHS is no different. When the 9/11 attacks occurred, they exposed the sheer incompetence, laziness, and inefficiency of government security and defense organizations. Year after year, hundreds of billions of dollars were poured into these organizations — in addition to the countless billions spent on the Pentagon.  But when they were shown to be asleep at the switch, what happened? Rather than have their budgets cut, and senior officials fired in droves — as should have happened — George W. Bush and his cronies decided that what the federal government really needed was a new department into which billions more in taxpayer money could be poured.

The was politically important in the sense that making DHS a department made it easier to call for every more funding for its constituent agencies. But much of what the department does was already done before 9/11 — including immigration regulation.

What was new was the federalization of airport security, and new slush funds for domestic police departments.

In a 2017 article titled "Four Agencies to Abolish along with the Dept. of Education," I put DHS first on the list (followed by the EPA, Interior, and Agriculture):

One: The Department of Homeland Security, $51 Billion

Somehow, the United States managed to get along for more than 225 years before this Department was created by Congress and the Bush Administration in 2002.

The Department quickly became a way for the federal government to spread federal taxpayer dollars to state and local law enforcement agencies , thus gaining greater control at the local level. The DHS administers a number of grant programs that have helped to purchase a variety of new toys for law enforcement groups including new weapons, and new technologies. Also included in this is the infamous military surplus program which is supplies tanks and other military equipment to police forces everywhere from big cities to small rural towns. The crime-free town of Keene, New Hampshire made sure its police received a tank through this program as have many larger cities.

When the Orlando gunman opened fire in the Pulse nightclub in 2016, the police eventually rolled up in a tank — which did nothing to stem the bloodshed inside the club.

Police claim they need these half-million-dollar vehicles from the DHS to deal with civil unrest. Never mind, of course, that every state already has a National Guard force specifically for that purpose.

While the Department was created in response to the 9/11 attacks, the Department does nothing to address anything like a 9/11-style attack, and all the agencies that were supposed to provide intelligence on such attacks — the FBI for instance — already exist in other departments and continue to enjoy huge budgets.

DHS also includes agencies that already existed in other departments before, such as the Federal Emergency Management Agency, and the agencies that handle immigration and customs. Those agencies should either be returned to the departments they came from or be abolished.

And, few would miss the Transportation Security Administration — an agency that has never caught a single terrorist, but has smuggled at least $100 million worth of cocaine.

Alexandria Ocasio-Cortez is usually wrong about pretty much everything. But on this she's accidentally correct: abolishing the DHS would be a net good for America. It was never necessary, and is mostly a channel for violating the rights of Americans through a de facto standing army of federal agencies and local cops pumped up on federal dollars and military equipment. Politicians in Washington DC would hate to see it go. But the taxpayers would likely benefit were it to disappear forever.

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How Entrepreneurs Can Survive the Next Recession

09/20/2019Per Bylund

There has been increasing talk of a burgeoning recession, whether because of a historically rare decade-long economic expansion or recent reports of an inverted yield curve, which is traditionally an indication of a downturn. Any recession is hard on all Americans, but it can be particularly devastating for entrepreneurs, who often have more to lose. Not only does an economic ebb add to the uncertainty of owning and running a business, but it also means opportunities become scarcer, with fewer potential partners willing to invest, consume and otherwise enter into deals.

Recessions, of course, are famously hard to predict, but even when there's mounting evidence of a looming crisis, it can be hard to anticipate timing and how it will affect your industry. Simply closing shop is no solution. It might not even be an option. A better strategy is to prepare for the worst and make your business downturn-proof. But how does one do that? Here are four things to think about that can help make your business recession-ready ... just in case.

Full article at Entrepreneur

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The Conscientious Objector

“Because liberty is so fragile, its true defender recognizes that war is its greatest enemy, and therefore the true patriot is often the courageous individual who opposes a particular war because he recognizes that it is unjust — that it would be fought for the wrong purposes or that the risk for the loss of liberty is greater than any benefit to be gained by the war.” - John V Denson

If we have freedom: are we not responsible for what we do and what we fail to do? History is littered with stories about valor and bravery on the battlefield. Men who went off to war, who fought, and died. But what about the men who refused to fight?

The World War II draft operated between 1940 - 1946, and inducted some 10 million men into forced military service. Of those 10 million men, approximately 72,000 were conscientious objectors, of which 25,000 entered the military in noncombatant roles, another 12,000 went to civilian work camps, and as Robert Higgs points out in the book, The Cost of War :

The government also imprisoned nearly 6,000 conscientious objectors- three-fourths of them Jehovah’s Witnesses- who would not comply with the service requirements of the draft laws.

One of those American conscientious objectors was Desmond Doss. During World War II he refused to carry a weapon and kill the enemy. Despite this, he is credited with saving 75 of his fellow soldiers during the Battle of Okinawa. To this day he is the only conscientious objector to receive the Medal of Honor for his actions on the battlefield.

Franz Jägerstätter was not as lucky as Desmond Doss. He was an Austrian conscientious objector during World War II who refused to fight for Nazi Germany. On February 23, 1943, he was drafted to serve and on March 1, 1943, upon entering into the Wehrmacht garrison, he declared his Conscientious Objector status and offered to serve as a paramedic instead. His offer to serve as a paramedic was ignored and he was arrested and later killed for refusing to fight for Hilter. He left behind a wife and three children.

These were men who dared to say no to war and murder and these are just two examples out of 1,000’s of men during that war. Why did these men oppose war? People may profit from studying their examples. For, As Lew Rockwell once pointed out :

“We don’t oppose the state’s wars because they’ll be counterproductive or overextend the state’s forces. We oppose them because mass murder based on lies can never be morally acceptable. So we don’t beg for scraps from the imperial table, and we don’t seek a seat at that table. We want to knock the table over.”

Conscientious Objectors refused to be pawns and knew that war was morally unacceptable, with some paying the ultimate price. Sadly, in a sense, there is a case to be made that these Conscientious Objectors were the only ones who truly did their job and upheld their oath.1 For all members of the military are instructed: they have a duty to obey all lawful orders, and conversely, they also have a duty to disobey unlawful orders. This principle is embedded in the precedent of the Nuremberg Trials whereby Nazi war criminals invoked the “just following superior orders defense” and were nevertheless found guilty as the orders were found to be illegal. It is worth noting at this point, that illegal orders can happen at any time, wartime or peacetime, civilian or military.

Does ‘Conscientious Objection’ relate only to war and military personal? Or, are there other circumstances to which this term may be applied? I contend that conscientious objection can and should apply to a variety of circumstances other than war, for example whenever morality and ethics are at play. Objections based on one’s conscience may arise in numerous and more mundane circumstances. The world would be a much better place if the principles of conscientious objections were more universally applied, and daily.

Consider this, the category of human action can refer to either an action, or an inaction. Both actions and inactions potentially have value, as Ludwig von Mises noted:

“For to do nothing and to be idle are also action, they too determine the course of events.”2

Let’s ask ourselves: Is Patriotism defined as blind obedience to governmental authority? Can saying ‘no’ be more heroic than saying ‘yes’, when your conscience tells you its wrong that the Government requires innocent blood on your hands? As the Afghanistan war enters its 18th year, it’s long past time we reconsider the examples set by those who conscientiously objected to war. In the words of the late Justin Raimondo,

“We have to show the American People that war is not patriotic.”

  • 1. Murray Rothbard noted that “ There have been only two just wars in American history that were, in my view, assuredly and unquestionably proper and just.”
    https://mises.org/library/just-war
  • 2. Murray Rothbard also stated in Man, Economy, and State that “Action does not necessarily mean that the individual is ‘active’ as opposed to ‘Passive,’ in the colloquial sense.”; See also Carl Menger’s discussion of useful inactions in Chapter 1, Principles of Economics.
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Let Alaskans Decide The Fate of Alaska's Forests

09/19/2019Ryan McMaken

Mother Jones today reports on how the Trump administration is loosening some restrictions on logging in some public-lands areas of Alaska.

In response, a group of indigenous women traveled to Washington to oppose the plan.

Most of the article goes into how the forests — left untouched — are good for local residents, and how the forests are allegedly a defense against global warming.

But it was a phrase in the headline that struck me most: "These Native Women Traveled 3,000 Miles to Stop It."

That is, a group of people from the Alaska panhandle, in order to talk policy about a forest right next door, had to fly thousands of miles to do so.

That strikes me as a bit odd.

I was reminded of the outcry from non-Alaskans when the Feds proposed renaming the state's highest mountain, now called Denali. Back in 2015, I wrote:

Here's the basic story: About 100 years ago, some people started calling Denali mountain in Alaska "Mount McKinley." Eventually they managed to convince the federal government to make "McKinley" the official name. In 1975, however, the government of Alaska petitioned the federal government to change the name back to "Denali." To this day, Alaskans routinely refer to the mountain as "Denali" in spite of the fact that the Federal government, seated 4,000 miles away in Washington, DC, had not respected their request. Then, during a recent trip to Alaska, Barack Obama decided that the federal bureaucracy is going to start using the name "Denali" for the mountain.

Reading this, the whole thing should strike any sane person as immediately absurd. Why do people in Alaska have to ask a bunch of non-Alaskans thousands of miles away to call their name by the locally preferred name? If the Alaskan government, not to mention most of the locals, call a mountain "Denali," then the mountain is obviously named "Denali."

But that's not how it works in the land of the free. Here in America, apparently, people from Ohio (McKinley's home state), 3,000 miles from the mountain in question, get to veto Alaskan petitions. In this article in the Washington Post, a writer from Ohio makes the case (with a straight face, no less) that it's mean and nasty of the federal government to defer to the Alaskans about the names of Alaskan mountains. For the Ohioans, it seems, it is of monumental importance that the United States Congress, composed of 533 non-Alaskans, and three actual Alaskans, decide what that mountain should be called.

This latest controversy over an Alaskan forest just highlights the absurdity of federal control of federal lands yet again. But while Mother Jones highlights the fact Alakans had to travel across a continent to address issues going on 50 miles away, the publication nonetheless considers this to be perfectly right and normal.

This, of course, is to be expected from those with a progressive mindset. For them, policy should be decided by "experts" perhaps 3,000 miles away who ought to control every aspect of life for people who have far less power and far less ability to affect policy than the experts in the metropolitan centers of power.

If this group of Alaskans fails to win the day, then that's just a sign that maybe some California billionaires should get involved bossing Alaskans around from a different ideological perspective.

The idea that It's the same attitude, of course, that we encountered in response to the Brazilian forest fires in recent months. Wealthy, powerful first-world politicians united to boss around impoverished Brazilians and tell them how to run their country. After all, we were told the Brazilian forests aren't really Brazilian anyway. They belong to everyone else because they are "the lungs of the world." Therefore, in their minds, the Frenchman Emmanuel Macron ought to be dictating to the Brazilians on the matter.

The same thinking rules the day in Washington, DC, including among Republicans who have no intent of relinquishing control over federal lands they now enjoy. For instance, when questioned about his willingness to decentralize control of federal lands to the states, Trump appointee Perry Pendley of the Bureau of Land Management called the idea "silly" and "illogical" even though he has admitted that the authors of the US constitution never envisioned the sort of vast federal land holdings that are now common in the US.

If there's anything DC politicians can agree on, it's that Washington, DC should have the final say over everything everywhere. This, of course, even extends to foreign countries.

For them, the idea of leaving Alaska to the Alaskans remains simply a bridge too far.

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3 Charts Showing Just How Boxed-in the Fed Is

The Fed met market expectations by cutting its target for the fed funds rate by 25 basis points, down to the range of 1.75 - 2.00 percent. In this post I want to demonstrate just how boxed in the Fed has now become, with the help of 3 charts.

First, let's review just how low interest rates have been (and still are), in a long-term historical context:

fed funds.png

As the chart shows, the (effective) fed funds rate was in this range back during the early 2000s, which helped spawn the housing bubble and bust (as I predicted in this Mises.org article which ran 11 months before the financial crisis). Before then, we have to go all the way back to the early 1960s to see rates this low. And furthermore, to the extent that Mises was right, and artificially low interest rates lead to an unsustainble boom, then the seven years of virtually zero percent interest rates (from December 2008 - December 2015) have fostered a plethora of malinvestments.

Now here's the irony: In the midst of the Fed cutting rates, and injecting $75 billion in repo operations on Tuesday to push down a spike in short-term rates, at least on paper we see that everything seems to be fine. Specifically, consumer price inflation is a bit lower than the Fed's desired level but is still at a "healthy" 1.8% (year over year, as of August), while the official unemployment rate is still at a 50-year low:

unemployment.png

Finally, despite the apparently healthy economy (vis-a-vis the Fed's "dual mandate"), there is still an extraordinary stockpile of excess reserves in the banking system, relative to the pre-crisis era:

excess reserves.png

Medical metaphors for economics are never perfect, but we can certainly say this: Far from being in the midst of a robust "recovery," the patient--i.e. the US economy--is still incredibly weak, needing constant infusions of medicine to stave off a crisis in its circulation.

On the one hand, it's refreshing that Fed officials don't think the economy can be summed up in two numbers, namely the official unemployment and consumer price inflation rates. But on the other hand, the fact that the Fed is cutting rates now, in spite of the "healthy numbers," is an ominous indication of just how deep the rot goes in the economy's capital structure.

Unfortunately, the world may soon see exactly why 7 years of unprecedently loose monetary policy was a very foolish idea.

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Joey Rothbard

09/17/2019David Gordon

Today would have been Joey Rothbard's 91st birthday. She was Murray Rothbard's "indispensable framework." She was a scholar in her own right, but she devoted her life to helping Murray. She was a wonderful friend, and I miss her very much.

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"This Is Basically Clown World," Jeff Deist Talks Negative Interest Rates on RT

09/13/2019Jeff Deist

Jeff Deist joins Rick Sanchez to weigh in on the European Central Bank’s introduction of negative interest rates and why it signals a global recession.

Europe’s desperation move to avert global recession

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European Central Bank Doubles Down on Ultra-Easy Money

09/13/2019Ryan McMaken

Not that QE ever really went away, but the European Central Bank is taking it up a notch with today's rate cut. According to the Wall Street Journal today :

The European Central Bank cut its key interest rate and launched a sweeping package of bond purchases Thursday that lays the ground work for a long period of ultraloose monetary policy, jolting European financial markets and triggering an immediate response from President Trump.

The ECB’s pre-emptive move was aimed at insulating the eurozone’s wobbling economy from a global slowdown and trade tensions. It is the ECB’s largest dose of monetary stimulus in 3½ years and a bold finale for departing President Mario Draghi, who looks to be committing his successor to negative interest rates and an open-ended bond-buying program, possibly for years.

But the move triggered opposition from a handful of ECB officials, according to people familiar with the matter, while leaving key practical questions unanswered. Primarily: How long can the ECB keep purchasing bonds without significantly enlarging the pool of assets it can buy? Some analysts estimated it might be less than a year.

entralbanks.PNG

Meanwhile, the president attempted to use the move to put additional pressure on the Fed to ratchet up its own QE plans, writing: "European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!"

Trump, apparently is unconcerned by the effects of negative rates on the banking sector or on family budgets.

For example, the European banking sector has been hit hard by negative rates, as shown by Maurus Adam recently at mises.org:

Low interest rates make credit for private banks — and in turn, for consumers — cheaper. But at the same time, the low return on government bonds makes investment in these long-term options unattractive. Inflation and low return on investment options discourage people from saving and investing capital but encourage spending. Moreover, the low interest rates result in a low return for banks on the credit they grant to consumers. High consumption, low investment, and low profit on all banking activities strongly affects the ability of European banks to compete. Consequently, Markets Insider reports :

The bank has struggled financially amid rock-bottom interest rates in Europe and fierce competition in the German banking industry, limiting its ability to invest and expand in line with US rivals.

The extremely low interest rates in the Eurozone hit the bank’s investment branch hard...

And, as reported by Matt Egan at CNN:

Deutsche Bank's struggles have also been amplified by something the 149-year-old lender never imagined, mostly because it had never happened before in modern history: negative interest rates. In 2014, the European Central Bank wanted to boost the sluggish economy but interest rates were already at zero. The unconventional decision to take them into negative territory was aimed at encouraging growth and avoiding deflation, but it meant banks were charged a fee for parking their reserves with the central bank. The ECB's extreme policies may have injected some life into Europe's sleepy economy, in turn giving Deutsche Bank and other lenders a boost. However, negative rates are also crushing the profitability of all banks, Deutsche Bank included. And this unorthodox policy — one that the ECB is on the verge of doubling down on — is making it awfully difficult to revive the champion of Germany's banking system. But rates don't have to be negative to have a negative impact on savers and pensioners. In order to see any meaningful gains from saving in an economy with ultra-low rates, an investor must engage in yield chasing. but that;s much more difficult for ordinary households who don't have the tools of wealthy investors at their disposal - tools that allow for a variety of risky investments that may bring sizable returns. Ordinary people, in contrast, can't gamble their savings in that way, and can't even access hedge funds and other tools designed to seek out returns in an environment with so few opportunities for yield.

Moreover, pension funds that rely on more safe and traditional investments must pursue riskier investments, or do without the sorts of gains they need. That means future retirees will face far fewer returns and a falling standard of living.

None of this concerns the president, apparently, as he now appears to be champing at the bit to get his over version of European style QE.

Just yesterday, he was demanding the Fed cut the federal funds target rate "down to ZERO, or less":

That is, the president apparently believes savers should have to pay to save money, as is potentially the case under a negative-rate regime.

The president might also want to consider the fact that even after a decade of extreme easy-money policies, the European economy is still weak, and the euro zone's growth has slowed to under one percent.

This won't surprise hawks who understand that easy money is not exactly a miracle formula for economic growth. But this fact is seemingly irrelevant to the president who sees monetary policy as little more than a tool to spur exports.

Although the Fed is now expected to cut its own target rate later this month, one can only hope that it keeps to only 25 basis points.

fedfunds_0.PNG

After all, the good news here is that, with a target rate of 2.25 percent, the US's central bank looks relatively sane compared to the ECB and the Bank of Japan, both of which are employing negative rates. The Fed is even clocking in at well above the Bank of England's target rate of 0.75 percent.

So long as the Fed does not significantly increase its own balance sheet and other QE efforts in response to the ECB and other central banks, the dollar will continue to look relatively attractive compared to other currencies. Predictions that the dollar will quickly devalue in relation to other currencies are likely overstated. It is true that larger geopolitical trends, such as de-dollarization efforts among some major world economies , are a threat. But these efforts lie outside run-of-the-mill monetary policy right now which continues to point to a relatively sound dollar.

A summary of the most recently set rates:

  • USA: 2.25%
  • Canada: 1.75%
  • UK: 0.75%
  • Australia: 1.0%
  • ECB: -0.5%
  • Japan: -0.1%

Note: All graphs by Ryan McMaken. Here are the specific key rates discussed here, with links:

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America After 9/11: The Terrorists Won

09/11/2019Ryan McMaken

In September 11, 2001, terrorists flew planes into the World Trade Center and the Pentagon. Hours later, more than 2,900 people were dead, the overwhelming majority of them in the civilian office buildings at New York's World Trade Center.

Within 24 hours, the US government was doing what it does best. It demanded more power, and set to work coming up with schemes for using its enormous military and national security apparatus — a group of agencies which had received more than half-a-trillion dollars during that fiscal year.

When the US national security state failed on 9/11, not a single person with any significant level of responsibility lost his job.

Notably, the very same people who failed utterly to provide national security on September 11th were the same people who were entrusted with providing security on September 12. Except now, those people, and their government agencies, were granted more power, bigger budgets, and were held to less legal and public scrutiny than ever before.

By November, the federal government had already rewarded itself lavishly for its incompetence. Congress passed, and the President signed, the USA Patriot Act a measure that transformed American jurisprudence and made every American a suspected terrorist, open to surveillance by government agents. DC politicians had also created yet another federal department, the department of Homeland Security, because apparently the Defense Department is concerned with things other than the defense of the US "homeland."

This war against the American people was complemented by ordinary shooting war against other nation states, including ones that had absolutely nothing to do with the 9/11 bombings. The invasion of Iraq, for instance was built upon intelligence manipulated and distorted by the White House and by CIA Director George Tenet. Iraq was not threat to the United States at all. But Washington, DC loves a war, and in the wake of 9/11, the American public was apparently willing to believe anything. So the politicians got their war. And have gotten many since.

Meanwhile, back home, the US government was transforming itself into something that looked like it was modeled more on China than on a government that claimed to revere the Bill of Rights.

As Jacob Hornberger writes :

Moreover, the [Chinese] regime can and does torture prisoners. Again, there is nothing anyone can do to prevent this. The torture is oftentimes so brutal that some independent minded, courageous individuals who were were protesting come out of the prison process as broken people, ones whose minds have been fixed through brutal and tortuous reeducation.

Before the 9/11 attacks, that sort of thing could not happen here in the United States, at least not legally. If the government arrested someone, it was required to file formal written charges (e.g., an indictment) that would notify the person of what he was being charged with. He also would be entitled to a jury trial instead of judge trial or a tribunal trial. He had the right to an attorney to represent him. He also had a right to an independent judge. And no cruel and unusual punishments, such as torture. That’s all because our American ancestors had the wisdom to guarantee such rights in the Bill of Rights.

What if U.S. officials did to someone what the Chinese government has done to Simon Cheng. In that event, the Constitution enables him to file a petition for writ of habeas corpus, a right that stretches back several centuries in English history and which actually is a lynchpin of a free society. An independent federal judge orders the government to bring the person to court and show cause why he should not be released. At the habeas hearing, the judge orders the government to charge the person with a crime or release him. No indefinite detention, like there is China. And of course no torture.

All that came to an end with the 9/11 attacks. At that point, the national-security branch of the federal government adopted many of the same powers as the Chinese communist regime, and without any amendment to the Constitution. The military and the CIA, two of the principal elements of the national-security state, now wield the power to take anyone, including both Americans and foreigners, into military or CIA custody by simply labeling them a “terrorist,” hold them as long as they want in a military dungeon or secret CIA prison camp, torture them, and even assassinate them. While Americans still have the right to file a petition for habeas corpus, federal judges will customarily defer to the Pentagon and the CIA on their determination that a person poses a threat to “national security.”

In today's America, everyone is a potential terrorist. The country is always at war. "National security" demands American citizens be murdered by drone without trial. Or dropped into Guantanamo and forgotten about. Just in case.

In the wake of the terrorist attacks, we were often told that we must go on about our daily lives, or else "the terrorists win." Except it wasn't the terrorists who did the most to change America. For America, the post-9/11 world meant more searches, more regulations, more spying, more debt, and more endless haranguing about how we must all "support the troops" and how "you're either with us or with the terrorists." "We must sacrifice" we were told. Your "freedom" demands it.

What was the upside? So far, there's no reason to believe that there is one. No evidence is provided, especially since the federal government maintains everything is secret, classified, or unfit for the public. "Trust us, we're keeping you safe" is the constant refrain. For some reason, a lot of people buy it.

Meanwhile, the feds themselves didn't sacrifice anything. For the feds, it was just more of what they'd always wanted. More taxpayer money. More power. More untrammeled authority to imprison, spy, tax, search, and control. Their abysmal failures on 9/11 led to no changes, no reforms, and no accountability. For them, everything got better.

If the destruction of American liberties was something the terrorists wanted, then they got what they wanted, too.

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Modi's Policy of Higher Taxes, Spending, and Inflation Make India a Growing Risk in Emerging Markets

09/10/2019Daniel Lacalle

India’s economy had an annual growth of 5.0 percent in the April-June quarter, the slowest in more than six years dragged down by weak consumer demand and private investments.

A Reuters poll of economists had forecast annual growth of 5.7 percent for April-June, compared with a 5.8 percent rise the previous quarter. For April-June 2018, India reported 8 percent growth.

Last year I commented about the risks for India here.

Governments always consider that economic problems come from lack of demand, and they assign themselves the task of “correcting” that wrong assumption by massively increasing deficits and using monetary policy well beyond any logical measure.

India’s rising populist policies are part of the nation’s current problems.

Recent data is quite concerning.

Industrial production, manufacturing PMIs  and growth estimates are coming down (according to Focus Economics).

According to Kotak Economic Research, India’s current account deficit is forecast to be the highest in six years. The overall balance of payments is moving into larger deficits than expected, as capital inflows weaken and are unable to current account deficit.

Another warning comes from the maturities in foreign exchange. Nearly $220 billion of short-term debt, equal to more than half of India’s foreign exchange reserves, will come up for maturity in 2018-2019 fiscal year. Moody’s states that India is one of the countries that are least exposed to a rising US dollar. However, Moody’s did not expect the rupee to fall this much.

The average maturity of debt is close to 10 years and over 96 percent of it is in the local currency, according to Moody’s. However, it also notes the country’s low debt affordability. Given that the vast majority of debt is in the local currency, the incentive to depreciate the rupee is very high.

Foreign exchange reserves remain acceptable but can fall rapidly. Foreign exchange reserves are likely to suffer another dip as the rupee falls against the US dollar.

At the same time, 68% of the fiscal deficit target for 2019 consumed in the first quarter. 

India expects a fiscal deficit of 3.3% of GDP in 2018-19 that seems quite challenging, given the weakening of data and the rise in expenses. The deficit was revised up to 3.5% of GDP in 2017-18.

The combination of wider trade and fiscal deficits added to lower reserves makes the currency weaken severely. The rupee keeps plummeting to new lows vs the USD.

India’s government usually solves this equation increasing subsidies and raising taxes. That combination will not work in a world that has a lower tolerance for fiscal and trade imbalances and a risk-off scenario. Additionally, the tax wedge is already a high burden. As Prateek Agrawal notes, “if one looks at GST and taxes on the affluent sections, India would rank as one of the highest taxed countries globally. For consumption, these sections are actually paying close to 60 percent of the income as taxes).

Additionally, printing more rupees is not going to solve the challenges.

The situation in India is not as desperate as in Turkey or Argentina, because FX reserves are not being depleted at a high rate, but the trend is concerning and the outlook for growth, trade and fiscal balances is weakening.

The government has preferred to raise taxes and increase spending, and the demonetization policy was a big mistake (read). All the cash that was taken out of the system came back a few months later. It is time for India to change its historical policies of subsidizing the low productivity sectors to penalize the high productivity ones with more taxes.

India can easily navigate this turmoil if it changes some misguided demand-side policies. The question is, will the government do it? Or will they prefer to blame an external enemy and increase the imbalances?

If the government decides to ignore these issues, India could become a big risk in emerging markets.

 

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Trump Pauses the Government's War Against Incandescent Lightbulbs

09/09/2019Gregory Morin

This past week Trump’s Energy Department announced a relaxation of a set of light-bulb energy efficiency standards ( EISA ) first implemented under George W. Bush and finalized under Obama. The standards were set to go into full effect in January 2020 (eliminating incandescent versions of three-way bulbs, candle-shaped, globe-shaped and reflector bulbs).

The autistic screeching from the corporate press and leftist “public policy” lackeys only underscores the lengths to which “ the Cathedral” will go to in order to maintain the hell-fire of climate alarmism. For Cathedral adherents the sky is quite literally falling. It is because of their prescient guidance that the rest of us are corralled into doing “the right thing” – namely spending $10 on a bulb to save $15 in electricity – over the next 30 years. Even though the market has always deprecated older technology in favor of newer, we just can’t wait when it comes to energy efficiency. In the words of New York Times columnist John Schwartz , we need the federal government to “force(d) Americans to use more energy-efficient light bulbs.” Please note that “force” here is a politically correct euphemism for “threaten with initiatory violence”. Now it is true, force can solve problems quickly. All the mugger needs to do is to wave his gun in my face and moments later his monetary problems are solved. One would like to believe that in the “land of the free” such state sponsored aggression would not be so readily lauded as the primary method deployed against perceived societal problems. Of course I do not expect the state to abjure this special power it has any time soon, it is the qua sine non of every state/government. When a such a body dictates to the citizenry what they may or may not manufacturer and buy, then that country is no longer entitled to call itself “the land of the free” or claim “liberty and justice for all.”

One of the more vocal critics of this rollback, an Andrew deLaski of the Appliance Standards Awareness Project went on record with some rather eyebrow-raising comments. For example

“The Trump administration is trying to protect technology that was first invented in the 1800s. It’s like trying to protect the horse and buggy from the automobile technology.”

Correct me if I’m wrong, but as I recall the government did not OUTLAW the sale or manufacture of the horse and buggy in favor of promoting the automobile. Consumers transitioned to the newer technology over time at a rate mediated by both the cost and advantages of the new technology.

To imply that removing regulations that are annihilating an industry is equivalent to “protecting” said industry makes about as much sense as saying someone who was in the process of knifing you to death but then pauses and begins to only punch you in the face is actually now “protecting” you. The truth is the polar opposite. The manufacturers of fluorescent and LED bulbs are the ones receiving state protection insofar as competing technology have being outlawed. But we’re “protecting” the planet so greater good trumps all. Makes one wonder what the left is capable of when they eventually hold power and the climate apostates are in their cross hairs. In the words of Cole Porter I suspect it will be “anything goes!”

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