It has been a bad December for the stock markets, but pundits across the land are predicting a recovery in the new year from this terrible drop. Short-term market fluctuations are unpredictable, but the reality remains: owing to decades of funny money the market has got far ahead of its equilibrium value, which is now around 11,000 on the Dow, half the present level. It is worth examining what a world with Dow 11,000 will look like. Continue reading →

President Trump’s economic policies are mostly very sensible, yet in two areas he has indulged in wishful thinking, proclaiming essentially that Santa Claus will bail out the United States. One is fiscal policy, where he has not restrained spending nor produced any plan beyond faster economic growth to solve the nation’s yawning budget deficit. The other is monetary policy, where he rails against the Fed’s attempts to restore sanity, and believes its job is to act as Santa Claus, bailing the U.S. out of recessions. Well, Mr. President, there is no Santa Claus. Continue reading →

Charles Mackay’s 1841 masterpiece asserted that the “madness of crowds” created “extraordinary popular delusions” that led to investment bubbles and crashes. Recent events suggest that when those crowds congregate in cities, rationality flies out of the window, and delusions infect the entire urban body politic. Rationalists, dwelling in leafy suburbs or deep in rural hideaways, need to find ways for their calm consideration not to be outvoted by the passions of the urban mob. Continue reading →

Retiring Senator Jeff Flake (R.-AZ), apparently concerned about President Donald Trump’s influence in all areas, wants legislation to make the Fed truly independent – of Congress as well as the President, presumably. However, independent central bankers like Ben Bernanke and Mark Carney have been responsible for most of the truly lousy monetary policy of the last two decades. Rather than mandating Fed independence, therefore, Congress must establish rules, constraining the Fed to observe monetarily responsible behavior. Continue reading →

This column has on a number of occasions been critical of President Donald Trump; his views on interest rates are especially unenlightened. Yet in two crucial areas, where corporate interests and the intelligentsia had spread a deep fog of deliberate lies to smother intelligent global discourse, Trump has acted as a mighty wind of clarity and illumination. I refer of course to those twin scourges of our times: global warming hysteria and excessive legal and illegal immigration. Continue reading →

The border between Northern and Southern Ireland has become the most important factor preventing a clean exit for Britain from the European Union. Yet British statesmen sacrificing the needs of the entire country to fulfil a 1998 commitment of the odious Tony Blair are omitting one consideration: even if Britain sacrifices everything to keep Northern Ireland as part of the Union, that sacrifice, for demographic reasons, is likely to be wasted within less than a generation. Far better to recognize the demographic reality now and get Britain’s EU exit right. Continue reading →

A year ago, I wrote about the worrying increase in leverage among America’s blue chips caused by share repurchases (“Hollowed-out blue chips are the next subprime”, November 13, 2017). Today I wanted to return to the subject, because the travails of GE (NYSE:GE) are a reliable advance signal of the trouble ahead for the large corporate sector of the U.S. economy. Continue reading →

Yesterday was the 100th anniversary of the Armistice that ended the world’s greatest avoidable tragedy, the Great War of 1914-18. In terms of human welfare, we would all have been immensely better off if that war had never been fought, with the benefits extending through the intervening decades even to today. Economically, however, the scale is more closely balanced. Continue reading →

Since this column appears on the 413th anniversary of Guy Fawkes’ attempt to blow up the Houses of Parliament, I thought it worth reflecting on why he got so close. The principal reason was the parlous state of early Stuart finances, which was due to two factors: the lack of a central bank and the lack of a reliable government bond market. Modern governments don’t have this problem; indeed, they feel able to finance deficits as large as they like for as long as they want, using a poodle central bank to print money when necessary. Given current policies, that will eventually end, and the era of Stuart finance will return. Continue reading →

The Sears bankruptcy, and the Schumpeteran creative destruction in the shopping mall sector that will follow, feels like it has been coming for a long time – and it has. Ever since the Fed went off track from sound monetary policy in February 1995, ultra-low interest rates have created new unproductive investment and postponed necessary bankruptcies. In 2019, if the Fed stays on its current path, we will enjoy 24 years of Schumpeteran creative destruction – all at once. With good management the experience should be highly invigorating. Continue reading →