In this theater, the media is also a combatant

The Board of Governors of the Federal Reserve is meeting over the next two days to discuss whether or not to raise the federal funds rate.  The federal funds rate is an interest rate that banks assess each other when borrowing money overnight from each other.  The Federal Reserve, America’s central bank, drove the rate to near zero in attempt to boost the economy after the financial markets crashed. 

Lenders became wary of the collateral other financial firms were carrying in their portfolios, typically asset and mortgage-backed securities that were declining in value due to the inability of commercial and residential borrowers to keep up with interest and principal payments. By buying these securities from financial firms on poor footing and giving them cash, the Federal Reserve hoped to prime the lending pump and provide financial institutions with the confidence to go out and lend again.

 Mr. Trump has been taking issue with rate hikes, making the argument that the timing is horrible for the financial markets and the economy overall.  To some extent, he has a point; increasing rates could eventually lead to a devaluation of assets sensitive to rate increases, and where these assets are used as collateral for loans, being awarded a loan becomes a lot tougher if a bank does not think collateral is strong enough.

From a political warfare perspective, the media has time to time pointed out Mr. Trump’s apparent lack of respect for the independence of the Federal Reserve, specifically taking issue with Mr. Trump questioning Federal Reserve Board chairman Jerome Powell’s rationale for rate hikes.

But by commenting on the direction of rate hikes, is Mr. Trump really attacking the independence of the Federal Reserve? My answer is no.  

Under the Full Employment Act, the Congress, the Federal Reserve, and the President are to coordinate their activities in order to bring about the effective control of inflation, genuine full employment, production, balanced growth, and a balanced federal budget. The chairman of the Federal Reserve is to connect his monetary policy to the numerical goals established by the president in his economic report. That the President was transparent and vocal in pointing out what he considers the Federal Reserve’s pursuit of a policy that seems out of sync with his may be brash, but is not out of step with the coordination the law requires and even the transparency that many citizens in the United States allegedly prefer.

How well has the Trump administration, the Board of Governors, and the Congress coordinated on the economy is subject to another discussion, but the point here is that the media and other critics have failed to give the public a full picture of what is entailed in economic management and this lack of full disclosure on the part of media only adds to Mr. trump’s assertion of fake news and unfair targeting of him by the press.

The other takeaway, of course, is going and investigating other sources of information on the management of the American political economy.  In political warfare, you need to know where all the bullets are being fired from.  In this theater, the media is a combatant.   

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Diversity is a fraud

As a black person I have grown increasingly suspect over the years of calls for diversity. It is not that I have succumbed to another race’s false sense of superiority over mine.  It is because diversity is really nothing but an expression of weakness by blacks in America.  It is a rallying cry for inclusion of those blacks who consider themselves the cream of the crop and deserving to be placed ahead of other blacks due to their education and their networks. Diversity is a willingness to shun the need to generate and contribute real economic value settling instead for creating arguments that have at their base the need to make white people feel guilty. Diversity is a feel good political package sold to black voters who stand as much of a chance of breaking glass ceilings as the Atlanta Falcons have at playing in the Super Bowl in Atlanta next year.

As an expression of weakness, calls for diversity are calls for permission to enter a house you are otherwise unwelcome in.  We’ve heard the arguments. “Inclusion is the right thing to do.” “Dr. King died because he believed we are all equal in character.”  ” It is immoral to exclude people, etc. etc.”  It really boils down to begging to be included, basing arguments on weak moral grounds that can fade away when tough economic times appear and animal spirits rise up to battle for scarce capital and jobs. 

Diversity benefits only those who come from a certain pedigree.  In the real world, diversity doesn’t get most blacks a full time job with benefits. What gets people work in the real world are skillsets that bring value to an employer’s efforts at output and a network that through his new employee an employer can tap into.  This is especially important in an information driven economy where workers are no longer “nodes for manufacturing”, where the emphasis is on an employee’s manufacturing skills, but instead is a “node of information”, where the employee uses technology to gather data that helps his employer make the best resource allocations. 

The flip side to this argument is that blacks may not be in the position to be “information nodes” given centuries of being locked out of certain networks.  My answer is, tough.  After being in North America for 400 years and 153 of those years post slavery, Black Americans have had opportune time to accumulate the educational and work experience to access information, garner the appropriate skills, and build valuable networks. Instead of diversifying ourselves into a system dominated by a racial majority and created for a racial majority, blacks need to offset the negative repercussions of the current system by supplementing the current system with a dose of increased self-reliance.

Earlier I described diversity as a feel good political package designed by a political party dominated by white people and sold by an educated small black elite to the masses of black voters.  It is a weak package that is comprised of slight modifications to existing civil rights and labor laws with no meaningful transfer of capital involved.  It is empty with the only blacks getting paid being the fraternity and sorority boys and girls who have some mid-level office driving cars that they look good in. Diversity has not translated into a political economy that takes us to a higher form of human engagement, one where the basic needs of all are truly provided for. 

Diversity is a fraud.

The “economy” is doing better but I am seeing more homeless in Atlanta

I am seeing more homeless people in my West End Atlanta neighborhood. I have seen at least one sleeping in his vehicle. Others make use of the parks to sleep at night.  What I see on the ground does not coincide with the claims made in Washington of a booming economy.

WABE, citing data collected from the city of Atlanta, reported that the homeless population numbers around 3,000 people and is allegedly on a decline.  And last year, the Atlanta Journal Constitution reported that Atlanta ranks among America’s neediest cities based on 21 metrics including child poverty and the number of uninsured. Homelessness is the result of a number of factors including the lack of affordable housing, poverty, discrimination, and shifts in the economy. Can city policies adequately impact these factors?

Take the factor of affordable housing. Atlanta mayor Keisha Lance Bottoms has made affordable housing one of her top public policies, but it appears to me that such an approach falls out of line with one important goal of a city: to generate tax revenue necessary for providing the amenities that keep citizens interested in living in Atlanta.  Land owners want to see property values rise and see an increase in the revenues that their properties generate.

Also, as city leaders continue their efforts to make Atlanta a job center, they have to keep in mind that as part of the efficiencies offered by a city is the location of housing close to job centers.  Housing located close to job centers may also end up being some of the most costliest housing.

I ride into Buckhead every day from southwest Atlanta. I have blogged before about how the MARTA train feels more like those conveyor belts loaded with coal that go into a furnace to fuel a production facility.  In this case the human coal are the lower and middle income individuals heading into Buckhead to work a job that, ironically, may be on the chopping block in a few years due to artificial intelligence.  If these people can’t afford to live close to an employment center where they can walk to work, the pressures of living will really increase when they have to find alternative employment.

But even with current employment, there may not be enough affordable housing available because landlords will be under pressure to meet rising property taxes resulting from the increased values of their properties, at least in the short run. This rise in value and ensuing property taxes will result from increased demand for housing that Atlanta expects to face over the next ten years.

Let’s not forget the upward pressure expected on interest rates over the next two years.  Property owners will have to increase rents in order to cover higher mortgage rates.  For the city of Atlanta it means higher bond servicing costs as the city continues to raise money through bond issues for its development and operational needs.

Affordable housing, because of the above pressures, won’t increase in supply.  Only an economic downturn may bring about cheaper rentals but even that will be short lived because a downturn in the economy means a slowdown in hiring and the specter of non-affordability due to increased lost income.

Politics wise, it is time for elected officials, particularly Democrats, to eliminate the affordable housing mantra from their campaign slogans.  They won’t be able to achieve it at any meaningful scale.

 

On Powell, Trump, and low rates

Donald Trump has shown no shyness when it comes to lamenting his regrets. When those regrets take the form of personnel, he fires them.  Over the past 48 hours, Mr. Trump has been expressing his frustration with current Federal Reserve chairman Jerome Powell.  Mr. Powell has been on a rate raising course since his appointment earlier this year and Mr. Trump believes that, setting aside what he perceives as Mr. Powell’s enjoyment, that this is not the time, given the advances in the economy and the stock market, for rate increases that may dampen or slow down the Trump Effect.

The textbook logic behind the Federal Reserve’s rate increases is to control the growth in asset values. Assets serve as collateral for borrowing and lending money.  If a potential lender sees an opportunity to lend $1,000,000 at 5% and has a portfolio of assets valued at $1.5 million, it will use its $1.5 million in assets to borrow the $1 million at say 2% and lend those funds out at 5%, and with all things equal, bring home a net return of 3%.

If the Federal Reserve believes that discipline is in order, it will raise the rates at which  banks borrow from each other overnight. It may also raise the rates on the funds that banks leave on deposit with the Federal Reserve. Both moves are designed to keep potential loanable funds out of the system, making money scarce and more expensive to find.  Also, higher rates, because of their inverse relationship with asset prices, result in asset values falling. This means that banks, businesses, and individuals will receive less funding because the collateral they have has lessened in value.

Increases in rates threaten wealth growth and consumption.  With the advent of modern central banking, nation-states have transformed into payment systems where taxes are collected, interest payments made to bond holders, and budgets used by politicians to bribe voters are financed.

It is the role of government to ensure the political-financial payment system operates at maximum.  Rates should stay low to encourage borrowing and investing.  Deficits should be eliminated resulting in less pressure to increase interest rates in order to attract purchasers of Treasury notes and lower rates for borrowers in the private sector.

Mr. Trump, unlike most of his critics and I dare say most central bankers, has a better understanding of this reality.