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Update; while the Fed did not break the economy as this article predicted, the Coronavirus did. And the Fed likely is relieved, being afraid of Trump, although we now face deflation. This article was first published by me on Talkmarkets:
https://talkmarkets.com/content/economics--politics-education/fed-signals-will-break-the-economy-wait-til-trump-finds-out?post=190135&uid=4798


Tim Duy, economist at University of Oregon and contributor to Bloomberg View has an ominous prediction. The Fed won't change, just like a leopard won't change its spots, and will likely establish the same policies that it has in the past to break the economy. Duy said:

...What I find most interesting is the adherence to these models even though, as Evans says, they will sustain the economy in the zone where the zero lower bound is likely to be an issue once again. One would think the Fed would continue to adjust policy accordingly in a dovish direction but increasingly is looks like many policymakers…

This article was first published by me on Talkmarkets. The pandemic has complicated our relationship with China. Yet we have prospered from the relationship in recent times until the trade wars of Donald Trump reversed that prosperity. https://talkmarkets.com/content/global-markets/scott-sumner-destroys-financial-times-fear-of-china?post=186426&uid=4798

The Financial Times has come out with an article fearful of China. Scott Sumner of the Mercatus Centerdecimated it. For the FT, fear of losing a cultural war with China must be widely understood. The FT said:

 While tariffs are President Donald Trump’s personal preoccupation, fears over losing an economic and cultural war (and possibly a real one at some point) with China is a worry that is shared broadly in the US, no matter what circles you travel in.

Sumner destroys the FT author's arguments by pointing out a few choice facts:

1. The worry of losing a cultural war with China is not widespread. Both Sumner and I have never met…

This article was first published by me on Talkmarkets: https://talkmarkets.com/content/bonds/fed-in-a-box?post=185070&uid=4798

There is an economic debate over the affect of rising interest rates upon the R*, otherwise known as the natural rate of interest, the Wicksellian rate, the Equilibrium rate, or the neutral rate. The definition of the natural rate is as follows:

The concept was originated by the Swedish economist Knut Wicksell who published a paper in 1898 defining it as a real short-term rate that makes output equal to natural output with constant inflation. Specifically, Wicksell defined the NRI as “a certain rate of interest on loans which is neutral in respect to commodity prices and tends neither to raise nor to lower them”. It is hard to argue that the Fed cares much about the natural rate, since commodities often rise forcefully, and the cost of living is pinching main street. However, it says it does care, that it cares about price stability as one mandate. So what…

This article was first published by me on Talkmarkets: https://talkmarkets.com/content/economics--politics-education/the-lowdown-federal-reserve-bank?post=183282&uid=4798

I will go so far to say that, in the remembrance of Boz Scaggs' famous lyrics, it is a "dirty lowdown" Fed Bank. This blogger has been arguing here at Talkmarkets that the Federal Reserve is a conspiratorial bank, mispricing risk and liquidating the ill fated results of speculation from mispricing risk!

Well, now, George Selgin Phd., esteemed lead economist at the CATO Institute and the Alt M blog, has confirmed the conspiracy in a recent blog post. I will try to encapsulate the main points of his work while adding what I have written before on the subject in order to help clarify the issue.

First, Professor Selgin probably knows more about excess reserves than anyone else outside the Fed. His blog post begins with a view that the Fed is trying to sell how good interest on excess reserves (IOER) po…

This article was first published by me on Talkmarkets: https://talkmarkets.com/content/commodities/suicide-watch-farmers-are-hurting-mr-trump?post=182941&uid=4798

Farmers are losing ground under Donald Trump. Farm gross receipts grew from the end of the Great Recession peaking in Q2 of 2014. Under Barack Obama, receipts looked good until a steady decline caused a likely defeat for Hillary Clinton in rural states.

The only problem is that Donald Trump is putting farmers on the front line with trade. There is a mental health danger discussed below as well as farmers being subject to demand shocks that come with trade uncertainty.

So the following chart is one to watch, though Trump was failing them miserably before the tariff applications, although NAFTA was in discussion. There will be financial and real bloodshed from suicide out in the field unless farmers can convince POTUS to stop sacrificing a group that is very important to the well being of all Americans.

The decline was pr…

This article was first published by me on Talkmarkets: https://talkmarkets.com/content/global-markets/trumps-punishment-of-china-the-start-of-a-radical-rejection-of-foreign-capital?post=182537&uid=4798

Donald Trump really wants to punish China and the world. We can focus on China and see what will happen to our relationship with the world. Tariffs keep escalating. Trump says the trade war is easy to win. Chinese stocks are leveraged as collateral to other deals, and are subject to margin calls. There may be some weakness in China.

The one thing we need to know about Donald Trump is that he has certain principles. They can be dangerous, and against all sound economic reasoning. But that doesn't matter to him. His tariffs are one manifestation. His desire to buy back treasuries on the cheap is another manifestation.

And yet, reading the Chinese is difficult. If the going gets rough, and as the stock markets in China continue to decline, China will likely sell a lot of US Treasu…

This article was first published by me on Talkmarkets: https://talkmarkets.com/content/stocks--equities/the-achilles-heel-of-trumps-tariffs?post=181415&uid=4798

The Trump Tariff plans have an Achilles Heel. We know that there are basic weaknesses that can be found in all tariff plans. For example, the consumer in the US is very weak, tariffs have failed in history, etc. But the real weakness of the plans for our time is the global supply chain.

As auto companies turn on Trump, we are learning more about them. General Motors has said it may have to shrink the presence of its operations in America, and we can read into this, to avoid tariffs from Europe and the rest of the world.

Cars made in the USA are loaded with a certain percentage of foreign parts. It is this supply chain reality that makes it impossible for companies like Kia to put more factories in the US while tariffs are in place. The investment would be huge, and immediately roughly 30 percent of the car would be subjec…