A Black political strategy for debt markets. Stay out of them.

You cannot resolve poverty within the black population by attempting to put more blacks into credit markets. Poverty is a function of capital: the less capital you have, the greater the likelihood that you that you will be poor.  Specifically, the more income-generating capital you own, the less likely that you will be poor.  The black political elite believe that if more middle income and poor blacks can borrow money, they would be able to purchase homes, cars, appliances, and the other trappings of consumer life; thus, living the American dream while claiming a stake in assets.  This approach is wrong because it fails to properly address the first act that was necessary for capital acquisition in America and also fails to reconcile the original acts of acquisition with the current barriers to capital acquisition and the alternatives available especially to non-affluent blacks.

Original capital acquisition in America was the result of theft.  This may sound cynical unless you have looked at the history of capital acquisition in America from the beginning of its colonization by European countries.  Take for example the language used by U.S. Supreme Court chief justice Marshall in Johnson v. McIntosh when discussing the principle of acquisition of discovery:

“While the different nations of Europe respected the right of the natives, as occupants, they asserted the ultimate dominion to be in themselves; and claimed and exercised, as a consequence of this ultimate dominion, a power to grant the soil, while yet in the possession of the natives.  These grants have been understood by all, to convey a title to the grantees, subject only to the Indian right of occupancy. The history of America, from its discovery to the present day, proves, we think, the universal recognition of these principles.”

Chief Justice Marshall then goes on to describe how England went about implementing this universal law:

“So early as the year 1496, her monarch granted a commission to the Cabots, to discover countries then unknown to Christian people, and to take possession of them in the name of the king of England. In this first effort made by the English government to acquire territory on this continent, we perceive a complete recognition of the principle which has been mentioned. The right of discovery given by this commission, is confined to countries ‘then unknown to all Christian people’; and of these countries Cabot was empowered to take possession in the name of the king of England.  Thus, asserting a right to take possession, notwithstanding the occupancy of the natives, who were heathens, and at the same time, admitting the prior title of any Christian people who may have made a previous discovery.”

In short, we came and discovered the place. The natural capital lying above and below the land is ours and you leave when we say so.  Chief Justice Marshall said as much when he continued:

“Discovery gave an exclusive right to extinguish the Indian title of occupancy, either by purchase or by conquest … The title by conquest is acquired and maintained by force.  The conqueror prescribes its limits.”

This acquisition by discovery drove, in my opinion, the philosophy of manifest destiny; that white America was destined to spread western civilization and republican democracy to unoccupied territories from whence Native Americans had either been eliminated or removed. The Homestead Act of 1862 and resulting grants of land, this time from the American government, put into the hands of people of European descent more natural resources including land and access to minerals and fuel sources for little or nothing.

Americans of European descent had a considerable head start. But other than establishing that original land acquisition in America is mostly the result of theft, what does this have to do with capital and credit markets? Because land and other natural resources are the anchors for debt markets. They serve as the collateral that backs up loans that are invested into the debt markets. In other words, they create the funding used to underwrite consumer and other debt.  Make the wrong bet and you could lose the family farm. Make the right bet and you have expanded your commercial enterprise from farming into other lines of business.  Occupying the credit generator/underwriter portion of the debt market is where the wealth creation takes place. Asking blacks to occupy the consumer portion of this market, especially when blacks do not have substantial land or mineral resources ownership is the same as putting blacks back on the plantation.

The black political elite cannot take the black population back in time where blacks can set up their own system of original theft in North America.  The black political elite could discourage blacks from entering a credit system that charges them an interest rate on loans that exceeds those as whites, that treats a black couple looking for a mortgage as a credit risk even when that couple has more than sufficient income to qualify for a loan.

One policy recommendation is that while blacks pursue as many income opportunities as possible that they avoid credit markets.  Blacks do not have the political power nor does the rest of America have the political will to offer up another “Oklahoma land rush” specifically tailored for black Americans.  Blacks do have more control over their spending. Paying off debt (much easier said than done) and not purchasing any more money not only leaves more money in the pocketbooks of black people, but sends a message to the bond markets and eventually the U.S. government that if either the markets or the government want blacks to get back into the consumption game, then there will have to be major changes in capital allocation policy.

Some thoughts on how I model the economy

This is still a work in progress. The old saying is money makes the world go ‘round. Spoken from a consumerist view, the conclusion I can understand. You want to eat, sleep, and shit in relative peace and safety you need coin. Lately I have been taken a harder look at my role in this political-economic ecosystem. I have concluded that we are merely extraction points for tax and sales revenues with intravenous tubing going into one side of our bodies and coming out of the other.

This may sound cynical but I suspect most heads of households feel this way as they try to balance their budgets with increasing expenses.  Will I be able to send my son to college? Can I pay that medical bill?  Will I meet my mortgage?  The frustration stemming from increasing difficulty to obtain the basics is like a stroke, sneaking up on Americans.  In a credit-driven economy, that heart attack may be on the horizon.

Forty-five economists surveyed by the National Association for Business Economics today have a less rosy outlook on the 2018 economy versus three months ago. Although expected growth in gross domestic product is still positive at 2.8%, the forecast is down from a previous forecast of 2.9%.  Current trade policies, according to economists surveyed, will have a drag on future growth with 82% of economists expecting a recession by 2019.

As I discussed in an earlier blog post, data from the Federal Reserve and the International Monetary Fund are not holding out the sunniest expectations for the economy over the next two years.  Inflation is expected to peak at 2.8% in 2018 but fall to 2.4% and 2.0% in 2019 and 2020, respectively. The years 2021 and 2022 will see inflation at 1.9% climbing slightly to 2.0% in 2023.

Also constraining spending will be the rise in interest rates as the Federal Reserve exceeds its targeted 2% federal funds rate goal. America runs on credit and the more expensive is to purchase, the less of it Americans have to spend.  According to IMF data, the ten-year bond rate ended at 2.4% in 2017. The rate on a ten-year note sets the interest rates for lending in the United States. By the end of 2018, the rate on the ten year is expected to climb to 3.2%; in 2019, 3.7%; and in 2020, 3.8%.  The rate will then level off to 3.6% in 2021 and 2022; and hit 3.7% in 2023.

If the last decade is any indication of how well household incomes keep up with inflation, then many American households are in trouble. Average annual growth in household incomes for the lower (.70%); second (.64%); third (.29%), and fourth (.90%) quantile of household income are all growing at rates lower than expected inflation. The top quantile is seeing growth in annual income at a rate exceeding inflation (2.8%).

Many Americans would be upset with this scenario. Why can’t we get ahead? Why this gap in wealth and income? As I mentioned earlier, we are extraction points. We sit, along with natural resources, at the start point of a conveyor belt. At the other end of the conveyor belt is capital made up of coin and credit.  The conveyor belt is fueled or supported by a transportation, communications, and energy infrastructure. Riding on top of the belt are the components trade, government rules, markets, and money. They are to the conveyor belt as application programming interface is to a computer network; a go-between that enables work and income to be extracted from human resources and transported to the eventual owners of capital.

For example, human resources enter markets in order to sell labor or buy goods. Government rules determine the level of tax revenue that will be extracted from human resources.  The amount of money held by a human resource transmits information about that resources economic and financial value; her spending power.

Communications networks provide the conduits for transmitting information about a human resources value. Transportation networks move human resources to areas of employment where human resources convert natural and other resources into goods and services. Transportation networks also move the goods and services produced to end users. The facilities that create goods and services and the vehicles that transport goods and services run on various forms and sources of energy, including coal, nuclear, oil, electricity, solar, wind, and geothermal.

The top 20 percent occupy the capital side of the belt. Social justice warriors who argue the use of politics in order to close the gap between the top 20 percent and everyone else are making a losing argument. Politics is ineffective as a wealth and income gap closer because of the grasp that capital has on the conveyor belt. Central bankers and treasury ministers derive their influence and prestige from ensuring the conveyor belt (which we can also call a tax and payments system) operates at optimal to deliver returns (income) to the conveyor belt’s bond holders. Capital invests resources in lobbying, advocating, and the electoral process to ensure there are politicians in place that will make rules that do not impede the conveyor belt.

Those who are fed up with being extraction points want to stay off of the conveyor belt. We want to limit or eliminate our use of the communications, energy, and transportation networks that power the conveyor belt. Use of unlicensed spectrum to create our own networks; use of renewable energy sources in order to remain off grid; avoiding the purchase of vehicles in order to avoid the taxes and surveillance that are attached to them should be a goal.

I do not endorse living like a hermit (although I have no problem with prolonged peace and quiet), but we should pursue self-sustainability in order to minimize the consumerism that pulls us into unnecessary trade and market engagement.  We will free ourselves to accumulate more capital while starving the beast that created the imbalance in wealth and income in the first place.

Fiscal policy is about the bond markets not you

Fiscal policy isn’t about growing the economy. That’s a lie we tell you in chapter six of the $200 economics textbook you buy for your delusional kids during their second semester of college.

Fiscal policy is about manipulating the bond market in such a way that bond holders are happy about the capital gains they experience in the assets they hold while experiencing stable prices upon which to plan and make purchases. As titular head of the political economy, the only success rating that matters for a president is how well he manages fiscal policy. In other words, how well he mitigates the level of piss-offness bond holders endure.

Reagan, Clinton, Bush, and Obama understood this and it’s the only reason they can say they were successes. Whether or not they, as candidates, whispered sweet nothings about Medicaid, food stamps, public schools, gay rights, national defense, or taking America back to “Leave it to Beaver” days is immaterial bullshit.

And once you realize that unless you make a living off of interest paid by your treasury notes that economic policy has nothing to do with you to the extent that you feed the machine by paying your taxes, then you learn to ignore politics and go your own way.

Government defined by distraction

The past 85 years have created an illusion as to what American government is. In the 1930s, government became a fuel injector for the American economy where the Executive branch pumped money into public works programs designed to employ idle labor. New regulatory regimes were created to regulate away the excesses of speculation and manage the extraction and use of natural resources.

By the 1960s, government took on the additional role of social justice guarantor, crafting and delivering legislation designed in part to further incorporate black Americans into national society and to provide other social services including healthcare to children and the elderly.

Through its military and science branches, government continued its research, development, and investment into computer networks and outer space. It was out of these activities that the internet was spawned allowing my five faithful followers to read this blog.

It is no wonder that Barack Obama said in 2012 with some authority the following:

“If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.”

The reality is that government as a noble entity is a myth; that the past eight plus decades have been a distraction from what we should only expect from government; that it is an entity that expands its control over jurisdictions anywhere in the world for the benefit of its financiers. What we should expect from government should be more in line with Donald Trump’s views on Iraqi oil:

“If we kept the oil, you probably wouldn’t have ISIS because that’s where they made their money in the first place, so we should have kept the oil, but, OK, maybe we’ll have another chance.”

While many were taken aback at the bluntness of Mr Trump’s statement, the President honed in on the primary expectation we should have of government, an entity that acquires and manages resources.

Americans have an issue with ugliness being exposed. They are weary of the guilt-fest they have endured over the past sixty years in particular, from scenes of police dogs attacking black Americans in Birmingham, Alabama to American military personnel being accused of murdering civilians in Iraq. But in the words of Mr Trump, “There are a lot of killers. We have a lot of killers. Well, you think our country is so innocent?”

Unbeknownst to him, Mr Trump summed up the core expectation of government; that of acquirer of resources. Any “noble” distribution is a response to the distractions caused by the powerless who are able to sneak into democracy’s nooks and crannies to agitate just long enough for social benefits that pale in size to the benefits flowing to the holders of government bonds. An irony, that there is distraction on both sides ….

 

My simple take on what a city is

People move to Atlanta for various reasons. An individual may be a recent college graduate that received their first job offer from a company located here. Others are moving here to start a new business or expand an existing one. Some are leaving a traumatic experience that occurred in another city, like death in the family or divorce hoping that Atlanta provides a platform for a new life. Others simply like the weather and the city’s southern charm.

Whatever the reason, I think continued success here needs to be based on a couple realities about cities in general and Atlanta is particular. While we tend to look at a city from a perspective of what can this city do for me, we should round out our perspectives by asking what does this city expect from me? What is its role? To whom do the benefits of a city truly flow?

I admit that my connection to Atlanta is far from emotional. The city doesn’t feed an emotional need for me. While I would not want to live in a town with one traffic light and no movie theater, I don’t rely on a place for happiness.

What I appreciate and do need from a city is its ability to function as a hub for trade. A city should foster an environment that drives thought. It should have the infrastructure that provides an adequate platform for the exchange of ideas. It should, as a community or society, provide a safe environment for exchanging information. Since people are the primary source of information, people should feel safe and secure moving about and engaging with each other.

City governments promote themselves as suppliers of protection and infrastructure for its city’s residents. City governments exercise a near monopoly over protection services, organizing and regulating violence in order to meet their marketing message. I won’t get in to how individuals can and should compete with government to provide these services for themselves, but for now bear in mind that individuals can, but government does its best to dissuade the individual from doing so.

To stay viable as a service provider to taxpayers, city governments are expected to create public policy that supports the city’s function as a trading post in the digital age. For example, reviewing and approving broadband provider requests to use public rights-of-way to lay cable or construct and deploy cell towers in an expedited fashion provides information entrepreneurs increased assurance that they can conduct commerce in the city. It also provides broadband providers assurance that they can maintain returns on their capital while meeting their customers needs.

The city’s other function is that of a tax collector for its investors i.e. bond holders, members and employees of government, income-transfer beneficiaries. It aims to turn every resident into a tax-generating event, whether through the payment of sales taxes, property taxes, or business licenses. By providing infrastructure i.e. cell towers, streets, airports, the city contributes to the increase in the number of information seekers and information providers that trade in its jurisdiction, leading to an increase in entities that pay taxes and the amount of taxes collected.

How does knowing this contribute to your success in Atlanta or any other city? You can best guess the value you are bringing to Atlanta’s table when you understand what is being traded in the city, the information that is being demanded. You can best structure your labor or entrepreneurial activities to meet those trading needs. You become an asset.

Unfortunately, the State will wish to extract a significant portion of your success via income taxes. We’ll save that for another discussion.

 

Voluntary market agreements not FCC should create incubators.

The Federal Communications Commission today issued a notice of proposed rulemaking as a first step toward creating an incubator program for disadvantaged groups that want to enter the television and radio broadcast industries. According to the Commission, “Such a program would seek to encourage new and diverse broadcast station owners by drawing on the technical expertise and/or financial assistance of existing broadcasters.”

The NPRM also seeks comment from the public on how best to structure and implement the program.

The State via the Commission has a monopoly on access to spectrum. It has the force of law behind this monopoly. It should, for the sake of bond holders, pursue policies that help increase returns on the spectrum that it licenses to private companies. The better broadcast companies perform i.e. attract listeners and views and sell advertisement, the more taxable income for the State and continued flow of income to bond holders.

I don’t see this incubator program doing that. It is a pure political move. It is designed to keep the barbarians aka social justice warriors from knocking down the gate. The Commission has been holding the warriors off since the Clinton Administration by not following through on recommendations to institute such programs. It appears now, with this NPRM, that they are trying to give the impression of progress on the issue of diversity.

They should save their strength.

Any incubation for future broadcast station owners can be done in the private sector. Potential and existing broadcast station owners can enter into voluntary agreements to exchange expertise and financial assistance in exchange for a piece of a minority owner’s action. It should be up to a potential minority owner to explain the economic and financial value that an existing broadcast station owner can glean from an investment in a minority-owned station or outright sale of an existing station to a minority-owned firm.

Think of the decision rule the British Empire imposed on itself when it decided to decolonize. The second world war drained the Empire of resources. Holding on to territories in Africa and the Caribbean was expensive, so they cut a deal with these protectorates. We’ll prepare you for independence and you’ll give us a piece of the economic action.

This is the model that existing broadcast station owners and potential minority-owned firms should enter. Where the existing owner wants to off-load a station and a minority firm shows it can bring value, then they can enter an exchange. The State via the Commission need not involve itself by establishing incubator programs.

Manafort and the bond market.

The Wall Street Journal today reported that investors did a little flight to safety moving money from equities into the bond markets as a result of today’s federal indictment of Paul Manafort, the former campaign manager for President Donald J. Trump. The increased demand drove up bond prices while sending bond yields down.

According to The Journal, yields fell to 2.374% from 2.426% for the ten-year Treasury note. Investors believe that the indictment will divert Mr Trump and Congress’ attention from tax reform and other economic growth initiatives. As the investigation continues and hearings for Mr Manafort get on the way, investors probably believe that the Administration will be in denial and prevent mode between now and mid-terms.

I believe that this indictment alone should not engender this type of fear and that by tomorrow it may pass.

My more experienced litigation posse may confirm this, but you are supposed to make your strongest argument up front, and if your argument is that there was complicity between the Trump campaign and Russia but your indictment of the campaign manager doesn’t even include the word, “Russia”, something is wrong.

Maybe Shonda Rhimes wrote this indictment or is running this investigation. Maybe she wants Mueller to do a Perry Mason and build up to a dramatic finish at the end.

So far, however, failure to properly vet a campaign manager is not an impeachable offense although one could raise questions about the judgment of Mr Trump.

Maybe there is a surprise ending being written in this script, details forthcoming. In the meantime, I don’t see the Trump administration being overly distracted by this indictment. I expect them, however, to create a few more of their own as their inside the Beltway experience grows.

How does regulating Facebook optimize returns on resources?

Farhad Manjoo writing for The New York Times argued in a recent article for increased regulation of “The Frightful Five”; Amazon, Apple, Facebook, Google, and Microsoft. For Mr Manjoo, their increasing intrusion into personal privacy and growth in the retail sector market should raise concerns on the part of regulators.

My takeaway from Mr Manjoo’s article is that government is moving further and further away from the opportunity of being simply a fair allocator of capital to oppressively regulating its distribution to the point where growth in the value of capital is squashed.

In addition, the Frightful Five have no monopoly on natural resources. They do not control land or access to air or minerals. As demand grows for internet services so too does demand grow for electricity use of the part of internet companies. In an article for Forbes.com, Christopher Helman estimates that internet firms account for 1.8% of electricity consumed in the United States. On an annual basis, internet companies are spending $7 billion a year to consume 70 billion kilowatt hours per year of electricity.

And given their two percent contribution to total greenhouse gas emissions, companies like Google have been purchasing energy from renewable energy sources with a 2017 goal of going 100% renewable, according to a piece by Adam Vaughan for The Guardian.com. As a consumer, Google and other internet companies aren’t in the energy extracting and generation business, making them susceptible, like any other consumer, to the whims of energy companies that actually have a license to extract, generate, and distribute energy.

In terms of human resources they higher relatively few people compared to other large companies in different sectors. The data processing, hosting, and related services sub-sector, within which companies like the Frightful Five belong, employed 364,000 people in September 2017, according to data from the U.S. Bureau of Labor Statistics. This total represents approximately .23% of the approximately 156 million people employed in the United States.

What the Frightful Five are first and foremost are tax revenue generators. While not responsible for extracting and managing the United States’ natural resources, by employing 364,000 wage earners and providing platforms for the sale of goods and services including advertisement, internet companies are providing a tax revenue stream for the United States government that didn’t exist twenty years ago.

How much in taxes would the United States be willing to forego by regulating the profit centers of internet companies? For example, in 2016, Alphabet, the parent of Google, had tax expenses of $4.7 billion at a tax rate of 19%, while Microsoft posted tax expenses of $3.3 billion at a tax rate of 16.5%. Apple paid $15.8 billion in taxes at a tax rate of 25.8%.

As Congress considers a corporate tax overhaul and the impact reform may have on its coffers and the deficit, does Washington want to risk reducing the tax revenues that keep its bond holders calm?

Rather, a better scenario for bond holders would be for government not to interfere in the Frightful Five’s ability to generate taxable income. Since internet companies do not manage directly the United States’ natural resources via extraction or distribution, there should be less reason for regulating these entities.