Is The Donald Smarter Than He Lets On? - Vivek Kaul's Diary
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Is The Donald Smarter Than He Lets On?

Mar 30, 2016

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BALTIMORE - 'Ike and Dick Sure to Click' was an exciting election slogan.

Their Democratic opponents, Adlai Stevenson and Estes Kefauver, had their snazzy campaign jingle, too: 'Adlai and Estes... They're the Bestes.'

Surely, the men behind these slogans had their private hungers and perversions. But they kept them to themselves.

The 1956 presidential election campaign was a dull affair.

Google 'Adlai Stevenson's wife', and you will get only the barest biographical information.

But Google 'Melania Trump' or 'Heidi Cruz'... oh la la! Just be sure there are no children around.

It's all out in the open now. This is the most entertaining election in US history...and the first episode of Reality Democracy, in which the only apparent goal - or effect - is to get the ratings up.

When we were in grammar school, the teacher told us that 'anybody in this classroom could grow up to be president'. We looked around the room with dread and foreboding. But now it looks as though she was right.

But this election ought to have a very salutary effect on the public: No one will ever take an election seriously again.


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Silver-Haired Crooks

On Easter Sunday, we met a smart man who confessed to having voted for Donald Trump in the Florida primary.

Of course, we wanted to know: What was he thinking?

More on that in a moment...

A headline in yesterday's paper jolted us away from the election.

'Japan's hard-up retirees turn to crime', begins the headline in the <>Financial Times.

After years of QE (quantitative easing), ZIRP (zero-interest-rate policy), NIRP (negative-interest-rate policy), and Abenomics (Japanese prime minister Shinzo Abe's stimulus-focused economic policies) - which is to say, all the standard deviations of modern central banking - older Japanese people must now break the law...to get 'free board and lodging behind bars'.

Is this what is coming to the US?

'Yes', is the safe answer.

Japan has been ahead of us on this entire trip. Its stock market crashed in 1989. That led to a Great Recession, which the authorities fought like the Imperial Army defending Okinawa. Japanese policymakers invented QE...and for 26 years, they've held interest rates near zero.

Shinzo Abe became prime minister specifically to end Japan's quarter-century-long slump. He failed.

The 'three arrows' of his Abenomics platform - fiscal stimulus, monetary easing, and structural reform - seem to have driven the defenders even further to ground.

Hard Choices

It should, by now, be obvious to everyone that William McChesney Martin was right.

As the ninth chairman of the Board of Governors of the Federal Reserve, he was the man on duty during the election cycle of 1956.

And he was the man responsible for 'normalising' interest rates, after the Fed's war-time deal with the Treasury to help fund the deficit with ultra-low rates.

Some feared this would trigger economic calamity. But Martin saw clearly what his homologues of the 21st century would rather go blind than see:

  • Under the hard choices left to us in wartime, we had to dictate even some of the smallest details of our economic life, but that strait jacketing of the economy is wholly inconsistent with democratic institutions and a private enterprise system...
  • In a Free Market, rates can go down as well as up and thus perform their proper function in the price mechanism. Dictated money rates breed dictated prices all across the board.

He then described the consequences of what would become the Bernanke-Yellen Money Dictatorship:

  • [W]e would have no reliable safeguard against the erosion of our savings, our pensions, our life insurance policies - the capital upon which the institutions of private enterprise rest...

So far, Mr Bernanke and Ms Yellen seem to have the matter under control.We see no erosion of the value of our financial assets. Instead, stocks and bonds have gone up in price.

But the companies behind them are now encrusted with crony barnacles like an old boat. The boat slows...and rides lower and lower in the water. Real capital formation declines... productivity sinks...wages stagnate...

And then, you have people who get poorer, not richer...and silver-haired crooks...desperate to be behind bars, where they find warm beds and old friends.

Mr Martin, who lived to be 91 years old and died in 1998, would have understood it.

The Genius of Trump

But let's return to our intelligent friend, casting his vote in the primaries for Donald J Trump:

'I know him well. He's a friend of mine,' he began.

'A lot of the things he says you can't take literally,' he replied under cross examination.

'Like that wall. He's not going to build a wall. The Mexicans aren't going to pay for it. But it's a great image. It's one that sticks in your mind.

'You get lost when you talk about trade policies and export account deficits. People don't know what you are talking about. And they take you for another Hillary Clinton or some other Beltway Insider. Blah, blah, blah...more of the same.

'But the wall is a strong image. It announces that Trump is different. And he's going to protect the American people. That's all it's meant to do. It's not meant to be taken literally.

'That's why Donald Trump is a genius. He's able to communicate in a different way. The wall image tells people what they really want to know, without getting lost in details.

'He'll do things differently. And that's why the cronies and the Deep State are so afraid of him.'

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "Is The Donald Smarter Than He Lets On?"

V Thiruvalluvan

Mar 30, 2016

Thiruvalluvan

I agree with your view of 0.25% reduction i.e. gradual reduction. We have to see and act in a balanced way.

Otherwise we will end up like Japan, USA & China. What is perplexing me is that even after knowing all these things How HONEST TRUTH wrote in a one sided way?

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Jayabrata Deb

Mar 30, 2016

I have following comments to make.

It has been mentioned that the value of the bonds held by bank will increase 10-15%, if the interest rate is reduced by 1%. Thus it assumes that weighted "Modified Duration" of bonds held by Banks is 10-15 years. I have some doubt on this. The difference between the actual number of years to maturity and modify duration increases with Actual number of years to maturity. Thus I have the doubt if the banks hae weighted modified duration of more than 10 years.

It has been said that the Bank will reduce the deposit rate but not the base rate of the loan. As per RBI circular of last year, effective 1st April 2016, Banks have to fix the Base Rate based on weighted average of cost of funds including Fixed Deposits. Thus Base Rate of the loan will automatically get reduced when Fixed Deposits Rates are reduced. However there will be some lag as the Banks will be fixing the Base Rates every quarter.
Banks will reduce the Deposit Rates at the beginning of the quarter there by decrease in base rate will take place from the next quarter. It is thus expected that if RBI reduces REPO Rate on 5th April, all banks will rush to reduce the fixed deposit rates immediately and if they cannot do the quickly for other reasons, they will postpone the reduction to next quarter.

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