Fareed Zakaria GPS – CNN 07-19-15

Salient to Investors:

Fareed Zakaria said:

  • History shows that the more countries integrate within the global community, the less incentives they have to be spoilers.
  • Iran and the US share common interests on the threat from ISIS, the stability of Iraq and Afghanistan.
  • The most successful and dominating countries in the Middle East are all non-Arab: Iran, Turkey and Israel.
  • In 2014, the number of global refugees reached 60 million: 20 million had to leave their own countries, 40 million had to move within their own county.

Robin Wright at the Wilson Center said:

  • The majority of Iranian people and voters in Iran were born after the revolution, and very much want to be part of the 21st century.
  • Diplomacy failed to prevent the last four countries from joining the nuclear club – Pakistan, India, Israel and North Korea.
  • Iran is one of the most stable states in the region.

Bret Stephens at the Wall Street Journal said:

  • Iran put its 2009 midlife crisis in jail. We are not dealing with the Iranian people but an Iranian regime that thinks it is winning regionally and internationally on many fronts.
  • The nuclear deal will turbocharge Sunni-Shia competition – the Saudis are not going to take this lying down. Expect more radicalism and more regional confrontation as a consequence of the Iran nuclear deal.

Vali Nasr at Johns Hopkins said:

  • Iran’s major headache in the region is ISIS. Iran is very much in a defensive mode and why they wanted the nuclear deal.
  • Iran spends less in absolute terms per capita on defense than all of its neighbors who have much more technologically advanced weaponry.
  • Want ISIS defeated but not by the Iranians or for the benefit of the Iranians.

Patrick Radden Keefe at The New Yorker said the escape of El Chapo will be a huge problem for security cooperation between Mexico and the US.

Paul Krugman at the New York Times said:

  • The Greek bailout deal humiliates Greece and does not end the crisis. The strategy of cut, cut, and austerity your way back to solvency remains unchanged: it was not working, has never worked in this kind of situation, and will not work. The trap that the euro has turned into, along with the austerity policies imposed to try to keep Greece in the euro, are really responsible for the disaster.
  • In the end, Greece will get either the enormous debt relief it is not getting now or have to exit the euro, which would have huge implications for the future of the EU. Greece would start to recover, which would encourage other challenges to he euro. But no repeat of 2008.
  • This is not a Lehman-like crisis. A Lehman event would not cause a Lehman-like event now because of buffers since erected.
  • Despite the holes, Greece collects a lot of taxes – a higher share of GDP than the US. Greece is not as overregulated and problematic an economy as it once was and has done far more reform than people think.

David Miliband at the Intl Rescue Committee said:

  • World political fragility is not surprising given that a country like Niger, twice the size of France, has an average per capita income of $1 a day.
  • 30 to 35 fragile states in the world cannot contain ethnic and political and religious difference within peaceful boundaries and lack the anchor of either regional or international sponsors to keep order. Globalization is operating with an assertion of local, ethnic, religious identity.
  • There is no real poliitical power that will bring a diplomatic solution in Syria. This is has become a Syria and Iraq problem and is worse than a year ago and will be worse again in a year because the humanitarian catastrophe is feeding the political instability.

Nicholas Kristof at the New York Times said:

  • The rise in world refugees reflects the decline of the Cold War where states are no longer pawns to be supported in a larger game.
  • There is a weariness, an exhaustion, with these crises around the world.
  • US food aid programs are not based on saving people from starvation but are essentially US agriculture support programs and US shipping programs.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at  http://transcripts.cnn.com/TRANSCRIPTS/1507/19/fzgps.01.html

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Depression Denial Syndrome – The New York Times 10-02-14

Salient to Investors:

Paul Krugman writes:

  • Bill Gross’s fall is a symptom of depression denial syndrome: the refusal to acknowledge that the rules are different in a persistently depressed economy.
  • Since 2008, the US has been stuck in a liquidity trap – a desired saving glut with no place to go. Because the government is not competing with the private sector who do not want to borrow, deficits need not cause interest rates to rise.
  • People who were predicting soaring inflation and interest rates 5 years ago have not changed their prediction, yet Bill Gross is pretty much the only major deficit hysteric to pay a price for getting it wrong.

Read the full article at http://www.nytimes.com/2014/10/03/opinion/paul-krugman-depression-denial-syndrome.html?_r=0

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Fareed Zakaria GPS – CNN 09-07-14

Salient to Investors:

Fareed Zakaria said:

  • Islamic terror is not the isolated behavior of a handful of nihilists but a broader culture that has been complicit in it or at least unwilling to combat it.
  • Zawahiri’s effort to recruit Indian Muslims will fail.
  • The Arab world produces fanaticism and jihad because it is a place of complete political stagnation. Islam has become the language of political opposition to Arab dictators and the dynamic between dictators and Jihadists has not broken.
  • Egypt is now a more brutal police state than it was under Mubarak.
  • There is little danger of inflation in the US.

Brett Stephens at the Wall Street Journal said:

  • ISIS is a direct threat to the West and to the United States
  • Putin won’t stop in Ukraine but go on to Kazakhstan, the Baltics, and other parts of the former Soviet Union.
  • The US has walked away from the Budapest Memorandum – which guaranteed Ukraine’s borders – showing that its promises are paper deeds and that other countries should not allow the US to handle their foreign policies.

Peter Beinart at The Atlantic said the US tragically does not have the capacity to make a Ukraine that does not accommodate Russia.

Richard Haass at the Council on Foreign Relations said the world is getting messier and the time has come for the US to increase defense spending and use its energy abundance to strategically take on Russia.

The CBO says:

  • The US is firmly in economic recovery with substantially lower federal deficits, lower interest rates.
  • The federal deficit will be just 2.9% of GDP in 2014, slightly lower than the average deficit over the last 4 decades, and versus 9.8% in 2009.
  • The US will spend $95 billion less on Medicare in 2019 than it had predicted just 4 years ago.
  • The US could stabilize its debt to GDP ratio by finding tax increases or spending cuts equivalent to just 1.2% of GDP.

Paul Krugman said:

  • The debt and budget crisis were imaginary and the new CBO projections prove the debt apocalypse has been called off.
  • The debt-to-GDP ratio will increase after the next decade due to the aging population but health care costs have slowed dramatically.

Peter Bergen at the New America Foundation said al Qaeda is very conscious that they are yesterday’s story, while ISIS offers a much more appealing media strategy and are more successful than al Qaeda has ever been in terms of getting territory, money, fighters, and establishing a large foothold in the Middle East.

The World Economic Forum ranked Switzerland as the most competitive nation for the 6th year in a row, with the US moving up to 3rd place.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://edition.cnn.com/TRANSCRIPTS/1409/07/fzgps.01.html

Paul Krugman Won the Crisis—and Lost the Argument – Bloomberg Businessweek 09-12-13

Salient to Investors:

Krugman has been unable to get the Fed to raise its inflation target to 4 percent or persuade Congress to increase spending to stimulate growth

Jeffrey Sachs at Columbia University says Krugman shows too little concern for wasteful government spending, an approach which is disastrous both politically and economically.

Read the full article at  http://www.businessweek.com/articles/2013-09-12/paul-krugman-won-the-crisis-and-lost-the-argument#r=rss

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Krugman Tries to Bury Friedman, Buries Himself – Bloomberg 08-14-13

Salient to Investors:

Caroline Baum writes:

Paul Krugman at Princeton says Milton Friedman has virtually vanished from the policy discourse and a few decades from now, historians will regard him as little more than an economic footnote. I believe Krugman,  not Friedman, will end up as the footnote.

Krugman’s claim that the post-2008 period demonstrates that monetary policy is ineffective when interest rates are close to zero and that fiscal policy saved the day is wrong, and the evidence suggests just the opposite.

The FRB of San Francisco said the results of federal fiscal policy more expansionary than since the Great Depression were lousy and the Fed is mostly to blame. Fiscal policy gets its bang from monetary policy, and monetary policy was still tight when the economy slipped into recession in December 2007. Government spending, without expansionary monetary policy, is just a transfer of resources from one party to the next.

The federal deficit started to shrink in mid-2010 and is falling fast now. This time, the Fed was proactive, offsetting the effect with asset purchases. Forecasts of dire consequences from automatic spending cuts have failed to materialize.

David Beckworth at Western Kentucky University said continued economic growth in the face of contractionary fiscal policy is one big piece of evidence that monetary policy is effective at the zero bound. Beckworth says unconventional monetary policy in the face of contractionary fiscal policy is the reason why the US is outperforming Europe

M2 never collapsed during or after the recent recession, as it did in the early years of the Great Depression. In Japan’s two lost decades the Bank of Japan never committed to a permanent increase of the monetary base. The BOJ is finally following Friedman’s advice and is committed to doubling the monetary base. Europe’s tepid recovery and fallback into recession shows that money matters.

Michael Bordo at the Center for Monetary and Financial History said Friedman was a pragmatist and said the US needed an authority to set the nominal anchor for the dollar and act as a lender of last resort.

Friedman believed a monetary standard provided a degree of certainty and that deposit insurance was key to preventing 1930s-style bank runs. Robert Hetzel at the FRB of Richmond said Friedman was basically a free-market guy for the non-financial sector and not a free-banking guy.

Read the full article at  http://www.bloomberg.com/news/2013-08-14/krugman-tries-to-bury-friedman-buries-himself.html

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Recognizing the End of the Chinese Economic Miracle – Stratfor Global Intelligence – 07-23-13

Salient to Investors:

George Friedman writes:

China has been in an economic crisis for a while, unrecognized outside China and particularly in the US.

Paul Krugman last week wrote in The New York Times that the signs that China is in big trouble are unmistakable, its economic system has reached its limits, and the only question now is just how bad the crash will be. Krugman said Chinese statistics are even more fictional than most. Ben Levisohn wrote in Barron’s that the markets seem to have accepted the fact that sluggish growth for China is its new normal. Goldman Sachs cut its forecast of Chinese growth to 7.4 percent.

The New York Times, Barron’s and Goldman Sachs are all both a seismograph of the conventional wisdom and the creators of the conventional wisdom.  We have gone from China the omnipotent to the realization that China no longer works.

China’s growth surge was built on a very unglamorous fact: Chinese wages were far below Western wages.

900 million Chinese have an annual per capita income at the same level as Guatemala, Georgia, Indonesia or Mongolia, of which 500 million have an annual per capita income at the same level as India, Nicaragua, Ghana, Uzbekistan or Nigeria. China’s overall per capita GDP is at the same level as the Dominican Republic, Serbia, Thailand or Jamaica. Stimulating an economy with more than a billion people in deep poverty is impossible.

Continuing aggressive lending to failing businesses results in inflation, but allowing them to fail brings unemployment.

The Chinese economy is  growing nowhere near 7.4 percent. Producing and selling at or below cost will boost GDP numbers but undermines the financial system – viz Japan in the early 1990s.

Japan had a lost decade only in the minds of Western investors, who implicitly value aggregate GDP growth over other measures of success such as per capita GDP growth or full employment.

The extravagant expectations for Chinese growth will not be met, and therefore expectations for commodity prices won’t be met – the degradation in prices has already happened.

Chinese will continue to invest in US government securities – China’s problem is not a lack of capital, and repatriating that money would simply increase inflation.

China’s role in the region will decline. Its ability to project military power in Asia has been substantially overestimated. Japan will re-emerge as the dominant economic and political power in East Asia.

China will no longer be the low-wage, high-growth center of the world.

Read the full article at  http://www.stratfor.com/weekly/recognizing-end-chinese-economic-miracle

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Fareed Zakaria GPS – CNN 06-02-13

Fareed Zakaria said:

  • The great American housing market is back as the Case-Shiller housing index showed its largest annual increase in prices in seven years, showing its core character: flexibility and resilience.
  • The US is the only rich country whose population is growing, increasing by 3 million people every year, thanks largely to legal immigration – meaning we will need new housing.
  • Americans have been paying off their debts at a steady clip since the financial crisis.
  • The US economy is susceptible to bubbles and manias, but has the flexibility to adjust. American people and companies change past practices, take pain and prepare for the future.
  • American companies are ruthless in restoring productivity even at the cost of firing people, and often come through a crisis stronger and faster. Companies are posting strong sales and profits.
  • American banks are far better capitalized than their principal competitors in Europe, more secure with stronger balance sheets. Recovering home prices will create a virtuous cycle between credit and housing that will enhance both stability and growth.
  • Washington handled the 2008 financial crisis extremely well, acting quickly and with massive firepower rescuing overextended banks, enacting a large stimulus, saving, but restructuring two automobile giants.
  • The Fed is to be congratulated for its bold strategy of flooding the markets with liquidity and  lower rates while the economy was depressed, unlike Europe’s response and Japan’s after its crash.
  • China controls and manipulates almost every major industry. China is ranked as the 80th most corrupt country in the world. State controls, nepotism and a culture of bribery made it difficult to do business – the World Bank ranked China 91st in the world behind Azerbaijan and the Kyrgyz Republic. The buildup of these conditions is beginning to show – foreign investment is declining, trade with Europe and the United States is slowing.
  • China needs serious reforms but economic reforms everywhere are politically difficult. China wants growth, modernity but does not want to become a Western-style, liberal democracy. But its growing middle class will seek greater individual autonomy and freedom.
  • The OECD says the best developed country to live in for the third year in a row is Australia, but only if you measure all the factors in the study equally. Japan ranks highest for safety; Switzerland is first for overall life satisfaction; Finland is best for education, Sweden is best for environment; the US far outranks the rest for income.

Paul Krugman at Princeton said

  • During Clinton’s term the US economy added 236,000 jobs in an average month and we’ve had hardly any months that look as good as an average month during the ’90s.
  • Many state and local governments have stabilized their finances but we are still too deep in a hole to call this anything like prosperity.
  • Rogoff-Reinhart’s claim that growth falls off a cliff when debt exceeds 90 percent of GDP is clearly not true – there is a mild, negative correlation between debt and growth, but that cliff doesn’t exist.
  • The US has handled the global economic crisis abysmally. It is not over: we have massive long-term unemployment in the US, massive youth unemployment in Southern Europe.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1306/02/fzgps.01.html

Reinhart-Rogoff Rebuttal Says UMass Critics Politicized Debt – Bloomberg 04-26-13

Salient to Investors:

Carmen Reinhart and Kenneth Rogoff at Harvard acknowledged on April 17 that they had inadvertently left some data out of their calculations in “Growth in a Time of Debt”, but the error did not change their basic findings that countries with public debt in excess of 90 percent of GDP suffered measurably slower economic growth.

A study by Bradford DeLong at University of California and Lawrence Summers concluded that stimulus could generate so much growth that it would pay for itself.

Paul Krugman has continued to be one of the most vocal critics of fiscal cuts.

Read the full article at http://www.bloomberg.com/news/2013-04-26/reinhart-rogoff-dispute-umass-criticism-of-debt-study-findings.html

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The 1 Percent’s Solution – The New York Times 04-25-13

Salient to Investors:

Paul Krugman writes:

Keynesian economics is close to a TKO over austerian economics, whose predictions about the real world failed completely and supporting academic research has turned out to be riddled with flaws.

The two main studies supporting austerity – Alesina/Ardagna and Reinhart/Rogoff – were criticised almost as soon as they came out and did not hold up under scrutiny. The IMF reworked Alesina/Ardagna with better data and reversed their findings, and Reinhart/Rogoff suffered the famous Excel error.

The dominance of austerians in influential circles is due in part to the widespread desire to see economics as a morality play, a tale of excess and its consequences, despite the fact that the people suffering now are not at all the same people who sinned during the bubble years. In part due to upper-class preferences.

Page, Bartels and Seawright found that the policy preferences of ordinary Americans differ significantly from the very wealthy. Joe Public is somewhat worried about budget deficits and wants entitlement spending to rise, but the wealthy regard deficits as the most important problem and want to cut entitlement spending.

Read the full article at http://www.nytimes.com/2013/04/26/opinion/krugman-the-one-percents-solution.html?nl=todaysheadlines&emc=edit_th_20130426

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Stockman KO’s Krugman in Big Fed Brawl – Bloomberg 04-14-13

Salient to Investors:

William D. Cohan  writes:

Paul Krugman is wrong in denigrating David Stockman’s cogent argument that the Fed is fomenting economic trouble.

David Stockman is exactly right when he says the Fed has basically become a bubble machine, and almost all of the new money created, $1.7 trillion, is simply circulated through the banking system, through Wall Street, and back on the Fed’s balance sheet. Stockman says this allows people to speculate and hit home runs, does not help the Main Street economy, and crushes savers – if you saved your whole life and you have $100,000, you’re making $400 a year.

QE has been an unqualified boon to Wall Street, a gift to traders by the Fed’s promise to keep interest rates low for the foreseeable future, and a willing buyer in the Fed, at market prices, for squirrelly mortgage-backed and other complex debt securities.  The Fed’s low short-term interest rate policy has allowed money-center banks with access to the Fed’s discount window to back up the truck and get as much short-term funding as they need at virtually no cost.

Stockman correctly says banks pay virtually nothing to depositors for the use of their money, which lend out at wide spreads. In 2012, despite losing $6.2 billion in the London Whale debacle, JPMorgan Chase still earned $21.3 billion in profits, its best year ever.

Stockman says Bernanke is the single most dangerous man ever to occupy high office in US history, and what the Fed is doing is terrible.

Paul Krugman wrote Stockman’s argument is cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge.

The Fed’s low interest-rate, easy-money policies are literally creating the next financial bubble sooner than we care to admit – the very same thing happened just 8 years ago and led to the Great Recession of 2008.

Read the full article at http://www.bloomberg.com/news/2013-04-14/fed-is-the-villain-in-krugman-stockman-brawl.html

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