Alton Drew

Traders need to understand politics …

Category: Joe Biden

Trump’s not a fascist. Biden’s not a socialist. Do the exercise …

Posted by on in democracy, Donald Trump, Joe Biden

Professor Jason Stanley recently wrote an article, “America is now in fascism’s legal phase”, for The Guardian where he argues that rhetoric and policy are laying the legal platform for a fascist United States.  Professor Stanley argues that the conservative portion of the American political spectrum is securing pathways to minority rule.  Racism, for example, is a mechanism used by the Right for securing minority rule.  By racializing democracy and creating a bogeyman from a volatile race environment, the Right can then hold up a figure like Donald Trump as the man who can save you from this environment.

Describing Donald Trump with such labels is nothing new, especially by those with political left leanings or who simply loathe his personality.  I have seen on mainstream and social media references to Mr Trump as being a “fascist” or a “Nazi”.  “Dictator” and “nationalist” are a couple other terms that have floated to the media surface.

My question is, why do we focus on these political prisms i.e., nationalism, fascism, Nazism, etc., versus where the energy itself is moving?  Aren’t assertions of nationalism, fascism, socialism, Nazism, etc., used by political factions to divert political energy and behavior either away from the party making the assertions or toward a party’s opponents?

These prisms are used to shed negative light on political opponents in most cases with the high probability that the audience will not subject these prisms to a definition check, or worse, they will rely on another to provide the definitions.

Let’s take a look at some definitions and I will leave it up to you to determine how any politician, on the Left or on the Right, fits into these definitions.

Fascism– A form of government characterized by dictatorship, belligerent nationalism and racism, and militarism.  Source: Webster’s New World Dictionary.

Racism-The practice of racial discrimination, segregation. Source: Webster’s New Dictionary.

Belligerent-at war, of war, warlike. Source: Webster’s New World Dictionary.

Government-An agency of the State.  A mechanism by which sovereign power expresses its will. Source: Black’s Law Dictionary.

Dictatorship-One in whom supreme authority in any line is invested. One who rules autocratically, and who prescribes for others authoritatively, and offers oppressively. Source: Black’s Law Dictionary.   

Autocracy-The name of an unlimited monarchical government.  A government at the will of one man (called an “autocrat”), unchecked by constitutional restrictions or limitations. Source: Black’s Law Dictionary.    

Nationalism-Devotion to one’s nation. Patriotism. The advocacy of national independence. Source: Webster’s New World Dictionary.

Militarism-A policy of aggressive military preparedness. Source: Webster’s New World Dictionary.

Communism-A system of social organization. Any theory of social organization involving common ownership of agents of production of industry. A system by which the state controls the means of production and the distribution and consumption of industrial products. Source: Black’s Law Dictionary.

Socialism-A theory or system of ownership of the means of production and distribution by society rather than by individuals. Source: Webster’s New World Dictionary.

Both the Right and the Left including their supportive media throw around these terms without defining them.  Your exercise, should you choose to accept it, is to identify specific, documented actions by Mr Trump that would put him in the fascist box.  Then, do the same thing for the current president, Joe Biden.

And I emphasize specific, documented action.  Not what Rachel Maddow or Sean Hannity claims that Trump or Biden did, but the regulation or executive order issued that makes either one fascist, communist, nationalist, etc.

If you exercise the necessary rigor in answering the above questions, your next questions should be, “Why did I hold these beliefs?”  “How did my household benefit from holding these beliefs?”  “How do I avoid falling into the narrative trap again?”  

As for Professor Stanley’s assertion that America is in fascism’s legal phase, I would argue that it is not there yet.  Before a fascist legal phase is arrived at, the United States government will have to spin and transmit a clear narrative that a sole figure, a dictator, is necessary to solve America’s domestic and global problems.  Political support for a dictator will need to be rubber stamped by the national legislature and legislation published. This legislation would codify the new narrative; tell the story of how the fascist faction won the political day; and order executive and independent agencies to implement public policy supporting a new form of government.

Only then would American fascism be in a legal phase.

As long as the democratic institutions of an executive, national legislature, and federal court system exists, it will be hard to sell the majority of Americans that they are in fascism’s legal phase.  If this is the case, then Americans should ask Nancy Pelosi why she and her fellow Democrats are wasting time with a January 6th witch hunt versus amending the Constitution and passing legislation ordering all federal agencies to clean their houses of any remnants of Benito Mussolini or Adolf Hitler.

Alton Drew

3 July 2022

Disclaimer: This blog post should not be construed as legal advice or an agreement to provide legal or political analysis.  To set up a consultation, contact us at altondrew@altondrew.com.

We appreciate your readership and support.  Feel free to donate to us via PayPal or support our advertisers. We are also seeking sponsors for our blog.  Contact us at altondrew@altondrew.com.

The Framers eradicated democracy 246 years ago …

Posted by on in democracy, Democrats, Donald Trump, Election2020, Joe Biden

Mr Biden’s party has initiated a crucible, the January 6th hearings, putting the Republican Party, specifically Donald Trump and his cabal, on trial for attacking “democracy.”  It is an irony worth a brief digress.  Over the past twenty years, Democrats have taken issue with America’s “institutions of democracy.” 

Progressives took issue when the Electoral College gave George W. Bush a victory over Albert Gore in November 2000.  In 2016, the Electoral College handed Donald J. Trump a victory over Hillary Clinton.  Progressive Democrats have been calling for the dismantling of the Electoral College, referring to it as “archaic” and “anti-democratic” because it handed victories to candidates that did not earn the popular vote.

In 2020, Donald Trump challenged the results of the election and even asked his vice-president, Mike Pence, to decertify the electoral ballot count.  Mr Trump also went to court in a number of states to challenge and overturn election results.  A mob rush on the Capitol Building during the certification of Electoral College votes only buttressed the Democrats’ argument that Mr Trump was more interested in tyrannical rule than the protection of democracy.

The thing is, America is not a democracy.  One man, one vote was never the intent of the framers of the U.S. Constitution.  The framers never meant for direct election by electorate-taxpayers of the chief executive. Symbolic, in-direct participation in the process, okay.  Direct participation, hell no, and smartly so.

Why do I say, “smartly so”?  Direct democracy is tyrannical. I find nothing attractive in masses of people having sway over my personal, household decisions because of “majority rule.”  Also, why deceive voters into believing that their individual vote matters when campaigns financed by a numerical minority of wealthy donors and campaigns run by an educated and disconnected political class.

And besides, the majority of electorate-taxpayers hardly read and know little to nothing of America’s political history.  Subject to media persuasion and unread on their political environment, I would rather immigrants newly minted as US citizens be the sole entrants in a voting booth.  At least they would have a fresh understanding of their adopted political system.  

No portion of the process for electing a president outside of the Electoral College is democratic.  The masses choose a slate of electors and that is the extent of their participation.  This is not ancient Greece.  If there is anything those white boys from 1776 were right about is that you don’t want a bunch of rambunctious, over emotional, pain and suffering types having direct participation in the process.

There was no attack on democracy because the election process for president does not allow for democracy.  Democracy does not exist.  If anyone attacked democracy it was the Constitution’s framers.  They denied the masses democracy 246 years ago.  

Alton Drew

13 June 2022    

Elizabeth Warren’s bill almost gives Joe Biden some cover … almost.

Posted by on in Elizabeth Warren, inflation, Joe Biden

Inflation

Inflation, not climate change, will be at the top of the taxpayer’s electoral cheat sheet come the mid-term elections in November.  I expect Democrats like U.S. Senator Elizabeth Warren of Massachusetts will lead the way with an argument that price gouging is at the heart of the high rate of inflation Americans are seeing.

Last month, Mrs Warren, along with other Senate colleagues, introduced the Price Gouging Prevention Act of 2022 which is intended to prohibit price gouging during all periods of market disruptions.  The Federal Trade Commission will be the lead agency on its enforcement.  

Co-sponsor Senator Tammy Baldwin, Democrat of Wisconsin, tied inflation to the bill by saying, “This legislation will shine a light on price hikes and help prevent big corporations from exploiting a period of inflation to gouge consumers with higher costs.” 

The bill appears to be an attempt at making Congress appear as a significant player in fighting inflation by using red herring buzz words like “price gouging” and “inflation.”  The bill at the same time distances itself from the narrative spin by not even defining the word “inflation.

Instead, the bill throws out into the universe a concept it labels, “exceptional market shock” which it defines as, “any change or imminently threatened (as determined under guidance issued by the Commission) change in the market for a good or service resulting from a natural disaster, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency, public health emergency, or any other cause of an atypical disruption in such market.”

The text book definition of inflation is an increase in the average level of prices of goods and services.  But what is driving this increase in average price levels?  In this case it is an expectation of disruption in the money markets.

I believe that goods, services, and money markets are responding to the narrative of inflation and particularly in the money markets the expectation of rate increases is being passed from short term lenders to wholesalers to retailers and finally to end-user customers.

As the narrative of short-term rate increases pervades the markets, businesses still have short term consumer demand to meet so they borrow at the higher rates.  In the immediate term these borrowing costs get passed down to the end-user consumer in the form of higher prices.

To Mrs Warren’s credit, she is two-thirds of the way in meeting her thinly-veiled objective which is to provide Joe Biden and the Democrats with as much cover as possible going into the mid-terms.  The objective here is to separate the Democrats from the inflation problem by providing a legislative initiative while reminding the electorate that the management of the money supply, the real cause of inflation, is in the Federal Reserve’s lane.

The public will push back and say that Mr Biden re-appointed Jerome Powell as chairman of the Federal Reserve System’s Board of Governors so why should Biden be pulled off the hook unscathed?  Mrs Warren could argue that she tried to warn Biden and the rest of the Senate that Mr Powell was a “dangerous man” and now we are reaping what we sow.

Like I said, Mrs Warren is two-thirds of the way there.  Had she expressly defined inflation; included money markets in the definition; and firmly expressed that this bill is about monitoring price levels, the bill, at least narrative wise, would have offered more punch. 

Alton Drew

12 June 2022

The Federal Reserve is signaling to Biden that 2024 could be rough …

Posted by on in Democrats, Federal Reserve, inflation, Joe Biden

Political odds makers don’t see the Democrats faring too well in this November’s midterm elections.  With 21 weeks to the elections, Democrats have work to do in convincing the American electorate that their party will be best at governing in a post-pandemic economy.

The doomsayers are out in full force expecting interest rates to climb as the Board of Governors of the Federal Reserve today begins selling off Treasurys and mortgage-backed securities from the portfolio it built up during the pandemic.  As securities hit the street, the issue of who wants these securities and at what price, I believe, will be the question in New York and Washington as interest rates are expected to inch up while the prices on these securities due to increased supply goes down. 

However, rising rates is what the Board of Governors wants.  Higher interest rates are expected to discourage the rise in inflated consumer prices which at the last Bureau of Labor Statistics print is 8.3%, year-over-year. The Board hopes to get this rate closer to two percent per year. 

The Board has its work cut out for it in its pursuit of a two percent inflation target. One of the monetary policy tools in its arsenal is the closely watched federal funds rate, the overnight rate that banks charge each other when lending and borrowing excess reserves overnight.  Raising the fed funds target rate signals an increase in lending rates which in turn makes doing business more expensive leading to a slow-down in national economic activity.

The current range for this rate is 0.75% to 1.00% with a reported effective fed funds rate of 0.83. On 30 May 2022, Federal Reserve System governor Christopher J. Waller shared in remarks that the he expects the federal funds rate to be around 2.65% by the end of the year.

If the Board of Governor’s monetary policy leads to a contraction in the economy, there is a chance that labor will suffer with the potential loss of jobs.  Job losses, while not boding well for most Americans, is particularly harrowing for low-income workers.  Inflation and job loss are a double tax on the poor. 

As Board of Governors vice-chairman Lael Brainard shared in remarks last April, lower income households spend 77% of their income on necessities, i.e., food, shelter, energy, versus 31% of income spent on necessities by high-income households. Vice-chairman Brainard also noted that the inflation index for low-income households increased faster than the overall consumer price index while the inflation index for higher income households increased at a rate lower than the CPI.

The economic tea leaves should tell President Biden that he will have to come up fast with a sales pitch to low-income voters.  His sinking poll numbers mean that he cannot afford to leave any votes on the table.  His sales pitch will have to contain a narrative that recognizes the pain in low-income households suffering the double-whammy of higher interest rates and contracting economic growth.

Mr Biden’s package will also have to tackle the apathy, particularly amongst the poor, that their votes don’t matter.  The poor are less likely to vote than the affluent.  Approximately 48% of households in lowest income category go to the polls versus 86% of families in the highest income categories.

The irony Mr Biden faces in putting together political packages for the poor is that the financing of his proposals will be hamstrung by rising interest rates going into the remainder of 2022.  A politically ineffective 2022 will in my opinion seep into 2024.

Alton Drew

1 June 2022

Disclaimer: This blog post should not be construed as legal advice or an agreement to provide legal or political analysis.  To set up a consultation, contact us at altondrew@altondrew.com.

We appreciate your readership and support.  Feel free to donate to us via PayPal or support our advertisers. We are also seeking sponsors for our blog.  Contact us at altondrew@altondrew.com.

Joe Biden and the Federal Reserve: The competing inflation fighting narratives …

Posted by on in Congress, Federal Reserve, inflation, Joe Biden

John Williams, president of the Federal Reserve Bank of New York, today remarked on the state of inflation in the United States and the Board of Governors of the Federal Reserve System’s (“Board” or “Federal Reserve”) efforts to address rising prices throughout American markets for food, energy, other goods and services. 

Mr Williams reminded listeners of the Board’s dual mandate of maintaining stable prices and attaining maximum employment and reiterated that the Board has the monetary tools to address inflation stemming from congestion in the supply chain, China’s recent attempts to combat the surge in new Covid cases, Russia’s invasion of its Eastern European neighbor, Ukraine.

With demand exceeding supply and a tightening labor market, Mr Williams expects monetary actions to cool the demand side of the equation.  The Board has already embarked on cooling down the demand side, first by announcing during its last Federal Open Market Committee meeting (a committee that Mr Williams is a member of) an interbank overnight lending rate range of .75% to 1.00%. 

In order to influence its member banks to borrow excess reserves from each other within this range, the Board will begin unwinding its holdings of US Treasury notes and agency-backed securities on 1 June.  In theory, as more securities hit the market for sale, the price of these securities fall while the interest rates paid on these securities increase.  As interest rates increase, the Board believes the increase will be accompanied by a slow-down in lending by commercial banks and borrowing by businesses and consumers which is expected to result in a less heated economy. 

But as the campaign season heats up in the United States, how well will the Biden-Harris administration manage the political economy during a downturn?  Today, Mr Biden, in remarks addressing inflation, spun a narrative that inflation is the result of Vladimir Putin’s antics in Ukraine and by a federal budget deficit caused by wealthy individual and large corporations’ unwillingness to pay their fair share of taxes. 

Admitting that monetary policy is the purview of the Board of Governors, Mr Biden offered up a fiscal solution contained in his Build Back Better agenda.  Components of the Build Back Better agenda offered in his remarks included investment in renewable energy infrastructure; passing clean energy and electric vehicle tax credits; promulgating fuel regulations that would increase miles per gallon for fossil fuel vehicles; and releasing one million barrels a day from America’s strategic petroleum reserves.

Throughout Mr Biden’s speech, Vladimir Putin’s name was cited repeatedly giving me the impression that remarks were intended to drum up electorate support for continued U.S. and NATO involvement in the Ukraine-Russia conflict versus resolving the inflation issue.  I also get the sense that by early summer, Mr Biden will tie Mr Putin to former president Donald Trump, thereby turning the inflation messaging into a strategic communication that garners more electoral support for the Democratic Party.

As an economic narrative, Mr Biden’s fiscal and legislative policy will depend on a defacto gridlocked Congress.  By keeping attention on Mr Putin and to a lesser extent Mr Trump, Mr Biden hopes Americans do not notice his inability to manage the political economy out of an inflationary mess.

All ears should stay open to what the Federal Reserve says and eyes open to what the consumer does.  While the Board lost credibility by continually repeating that inflation was transitory, it is in a position to take faster and more measurable action via monetary policy as opposed to Mr Biden’s fiscal and legislative agenda.

Alton Drew

10 May 2022

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Remarks by President Biden Before Meeting with Small-Business Owners

Posted by on in business, Economy, Joe Biden

2:08 P.M. EDT

THE PRESIDENT:  Good afternoon, everyone.  We’re joined today by five small-business owners who are helping power America’s economic recovery.

And I want — I want to welcome the Administrator of the Small Business Administration, Isabella Guzmán.  Nice to have you, kiddo. 

ADMINISTRATOR GUZMÁN:  Thank you.

THE PRESIDENT:  And these enterprises and entrepreneurs know that an American economy is strong because America’s small businesses are strong.

Small businesses typically account for more than 40 percent — people don’t realize it — 40 percent of the gross domestic product of the United States.  They create two thirds of all new jobs.  And they employ nearly half — nearly half of all the private sector workers.

And today, thanks to the economic strategy, more — more small businesses are being created, and small businesses are creating more jobs faster than ever before.

Thanks in large part to the American Rescue Plan, last year, Americans applied to start 5.4 million — 5.4 million new businesses, 20 percent more than any other year on record. 

We saw businesses with fewer than 50 workers create 1,900,000 jobs for the first three quarters of 2021 alone.  That’s the highest rate of small-business creation ever — ever recorded in a single year.  And we have some of the folks right here who did it. 

We have every indication that this trend is going to continue.  The reason for that is because we’re giving people financial security to take a risk and pursue their small-business dreams.

This boom has been particularly strong for entrepreneurs of color.

Hispanic entrepreneurs started new businesses in 2021 at a faster rate in more than a decade, 23 percent faster than the pre-pandemic levels.

And, you know, the five folks that join me today exemplify what a difference it makes when — when everyone gets a fair shot.

Jennifer was — was able to start growing her engraving business last year because of the Child Care Tax Credit and the small-business support of the Small Business Administration.

Jeff and Nicolas are master coffeemakers — roasters — who were able to open their first brick-and-mortar café last year.

And Eddie and Daniel were able to turn their food truck into a brick-and-mortar company of their own.  (Laughs.)  That must feel pretty good, huh?

And they’re just some of the folks driving this economic recovery and reminding us that everything — that anything and everything is possible in America.

And my administration is working tirelessly to open doors for more outstanding entrepreneurs.  You know, unfortunately, Republicans have a different approach.

The Republican plan, led by Senator Rick Scott of Florida, Chairman of the National Republican Senatorial Campaign Committee, would tax half of our small-business owners an extra $1,200 a year on average.

Not only do they oppose making big corporations pay their fair share, they want middle-class families and small-business owners to pay more.

Our administration estimates that the Republican proposal would raise taxes on 6.1 million small-business owners, including 82 percent of small-business owners who earn less than $50,000 a year.

That just doesn’t — that’s — that’s just not right.

Our administration wants to make it easier to start a business, easier for a small business to succeed.  And our plan is to, one, expand access to capital for small businesses; make historic investments in technical assistance programs to help entrepreneurs thrive; and direct hundreds of billions of dollars in government contracts to small businesses in every community; and level the playing field — and I mean level the playing field for small business, making sure the largest corporations in America begin to pay their fair share.

And now I’m looking forward to discussing my plan and hearing from these remarkable entrepreneurs.  Thank you for being here.

2:12 P.M. EDT

Source: The White House

The Narrative: Joe Biden attempts to protect the US dollar

Posted by on in cryptocurrency, currency, digital assets, Joe Biden

Yesterday, President Joe Biden issued an executive order regarding cryptocurrencies.  To summarize the order, Mr Biden has asked heads of politically independent agencies like the Board of Governors of the Federal Reserve System and Federal Deposit Insurance Commission, etc., and ordered heads of certain cabinet agencies, like the Secretary of the US Treasury, to take a closer look at the impact of cryptocurrency design and deployment on six areas:

1.Consumer and investor protection;

2. Financial stability;

3. Illicit finance;

4. U.S. leadership in the global financial system and the country’s economic competitiveness;

5.Financial inclusion of marginalized consumer groups; and

6. Responsible technology innovation.

This is at least the spoken narrative, what I refer to as the “Madison Avenue” narrative; one that is designed persuade the electorate to come onboard with the President’s agenda.  The electorate plays a crucial role as the political actor providing the primary source of votes every two years.  A president’s primary power is that of persuasion and his message has to either win additional votes or at least secure the votes he has going into a general election.

I was taken aback not only by the executive order’s length but also by how weak a platform it provides for future political, policy, and legal action.  From the political perspective, it fails to counter any arguments from the opposition.  For example, Mr Biden makes nary an attempt to clearly address the philosophy of crypto proponents. 

Proponents, especially bitcoin users, will tell you till blue in the face that using crypto is about wealth preservation.  They see the US dollar as declining in wealth protection and spending value because of ineffective monetary and fiscal policies that have done nothing but send the dollar on a decline for the last fifty years. With a significant amount of the dollars printed by the central bank over the last forty or so years being printed in the last 24 months, proponents of bitcoin use believe they have a base case for seeking an alternative method for medium of exchange, store of value, and account of wealth.

Currency is about trust and according to the President’s own statistics, 16% of the nation is exhibiting some degree of trust in crypto as a payment system and store of wealth versus the dollar.

Mr Biden could have scored more points in the direct and honest department with a concise narrative bluntly stating that cryptocurrency is a clear and present danger to the US monopoly on the payment system that is used to sustain commercial transactions and collect taxes.  This “Power Narrative” would better capture western philosophy: that the world is a place divided up in order to generate yield and the energy derived from dividing up and extracting from the environment is best captured and transferred in our current system of money and to maintain an orderly transfer of “monetary energy”, there can only be one issuer of the money: government.  Unfortunately, such a brazen power narrative would not go over well with the electorate, thus forcing Mr Biden to throw in the usual feel-good concepts like “consumer and investor” protection.

Traders who want to include bitcoin in their portfolios when collateralizing loans should expect Mr Biden’s executive order to act as a green light for regulators seeking to increase their scrutiny of digital assets.  Traders should also expect continued litigation over the use of digital assets.

In the short run as political narrative, Mr Biden’s executive order is a major fail.  Sure, 16% of Americans may take an interest in the government’s approach to bitcoin, but as political narrative that should be designed to win votes, this executive order does not cut it.  Most Americans are concerned about inflation and how their wages are being eaten into by increasing prices.   

Alton Drew

10.03.2022

For consultation on how this political or legal event impacts your foreign exchange trade, request an appointment at altondrew@altondrew.com.

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Biden’s strategy on Ukraine can push Russia to find an alternative to SWIFT and price oil in yuan …

Posted by on in currency, economics, Economy, foreign exchange, foreign policy, Joe Biden, payment system

Elected officials and financial analysts have been expressing concerns that China’s currency, the yuan, could become the world’s reserve currency, replacing the American dollar as the go-to currency when seeking out a safer haven of assets like U.S. Treasurys or American real estate. In response to Russia’s invasion into Ukraine last weekend, the United States and a number of its European allies announced an initiative to remove certain banks from the Society for Worldwide Interbank Financial Telecommunication, a financial communications network used by 11,000 financial institutions in 200 countries for the movement of financial transactions. The United States, as a leader of the effort, hopes to hasten Russia’s withdrawal from Ukraine by making it very expensive for Russia to maintain a military presence in the country.

It’s not like Russia has been opting for staying in reactive mode to such a move. Russia and the rest of the world watched as the United States was able to persuade other SWIFT members to give Iran the boot.

Russia has a number of alternatives, albeit slower in today’s world of digital communications including telex, phone, and email. Russia also has the Structured Financial Messaging Solution, a communications system similar to SWIFT but used inside the country.

But what about cross-border payments? SWIFT connected Russian banks to 11,000 other financial institutions in 200 countries. SFMS is not comparable. But suppose Russia was amenable to pricing and selling its oil in yuan versus rubles? That would facilitate the use of a neighbors cross-border payments system–CIPS.

CIPS, the Cross Border Interbank Payments System, facilitates international payments for the People’s Republic of China. Twenty three Russian banks are already connected to the network, connecting these banks with between 1,189 and 1,253 financial institutions in over 100 countries.

And I should mention that the world’s second largest country, India, is also exploring a cross border financial communications network where Russia could be incentivized to circumvent SWIFT by importing more India goods.

Politically, an aggressive move to implement these alternatives to SWIFT could serve to weaken President Biden’s weaponized finance option. If Russia is able to sell oil priced in yuan and China is able to persuade more countries to use yuan for payment of exports, Mr Biden may have to convince his “coalition of the willing” to put boots on the ground to end Mr Putin’s “war of choice.” Mr Biden would also be the president who governed during the dollar’s fall from reserve currency grace.

Alton Drew

01.03.2022

When analyzing fiscal impact on exchange rates, traders should focus on government expenditure data not narrative …

Posted by on in Democrats, Joe Biden, Republicans

Political analysis should follow this chain of events. First, there is the world view or philosophy of state leadership. The party or strong man in charge imposes his or her world view on his society. She takes the next step and creates a narrative, writes a story that is consumed by parts of society. There will be conflicting narratives promoted by factions, and via the political system, a winner will be determined. With political power in hand, the victorious faction will draft the policy or action plan that activates the narrative. And finally, to make sure that there is no confusion as to what is the prevailing narrative, it is codified in law for all to read or hear.

The Democratic and Republican parties have been vocal about their world views on inflation. The Republicans argue that Mr Biden’s spending under his American Rescue Plan is leading to high rates of inflation. The Republicans energize their argument by citing the last Consumer Price Index print which came in at 7% year-over-year for December 2021. This was up from the November 2021 print of 6.8%.

The Democrats rebut by arguing that spending under the American Rescue Plan will provide income supports that eventually lead to normal employment levels. Rather than increase consumer prices, the American Rescue Plan, along with the Build Back Better legislation sitting in the Senate, will ease long term prices. Americans have been facing high consumer prices in part due to clogged supply chains and Democrats have been arguing since last spring that this government investment will expand capacity and produce lower prices.

Traders should cut through the political banter and look at the data. Data from the U.S. Bureau of Economic Analysis shows that as a percentage of gross domestic product, federal government spending has held around 7% between 31 March 2021 and 31 December 2021. Actual dollar spending has declined during this period. First quarter 2021 spending was approximately $1,375.2 billion. Federal spending declined in the second quarter 2021 to $1,356.7 billion and fell further in the third quarter 2021 to $1,339.1 billion. During this period, the MarketWatch dollar index signaled dollar strength with the dollar going from 93.23 on 31March 2021 to 95.97 on 31 December 2021.

Along with the dollar strengthening over this period came inflation. Data for the U.S. Bureau of Labor Statistics shows that the Consumer Price Index went from 2.6% in March 2021 to 7.0% in December. Mr Biden could deflect Republican attacks by implying that inflationary pressures are a reflection of the growing money supply spurred on by asset purchases made by the central bank since March 2020. That would leave a few in Washington scratching their heads since the man who led the $120 billion a month purchase of Treasury and agency mortgage-backed securities, Jerome Powell, was nominated by Mr Biden for a second four-year term. In addition, Democratic leadership in the U.S. House and U.S. Senate have been singing Mr Powell’s praises for his interventionist policies.

Granted, the increase in M1 money supply has gone from $18,669.2 billion in March 2021 to $19,874.8 billion in November 2021 (latest figure available) making Mr Powell’s actions an easy target for the “too much money chasing too few goods” argument, but Mr Biden and in particular the progressives in the Congress will need Mr Powell’s cooperation to fund their Build Back Better agenda. The Fed is the Treasury’s underwriter and Progressives can ill afford politics that upset its banker.

The irony is that Mr Biden has showed no penchant to artfully deflect criticism from Republicans to the Fed for his handling of inflation. However, for the trader that is neither here or there. The question should be whether proposed fiscal policy will have an impact on the direction of foreign exchange rates and if so, in what direction.

Alton Drew

20.01.2022

For consultation on how this political or legal event impacts your foreign exchange trade, request an appointment at altondrew@gmail.com.

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Biden announces three nominations to the Federal Reserve

Posted by on in Federal Reserve, Joe Biden

Today, President Biden announced the nomination of Sarah Bloom Raskin to serve as Vice Chair for Supervision of the Board of Governors of the Federal Reserve System and the nomination of Lisa Cook and Philip Jefferson to serve on the Board of Governors of the Federal Reserve System.

Our economy has made enormous progress over the past year, with 6.4 million jobs created and unemployment falling to 3.9% –– four years faster than projected. At the same time, our economy is facing the challenge of price increases that are squeezing families’ budgets.

The Federal Reserve plays a vital role in our economy. The President is confident that the Federal Reserve will act to achieve their dual goals of maximum sustainable employment and price stability and make sure that price increases do not become entrenched over a long term with the independence that they need.

Along with Jerome Powell – who the President has nominated for a second term as Chair of the Board of Governors of the Federal Reserve System – and Dr. Lael Brainard – who was nominated to serve as Vice Chair of the Board of Governors of the Federal Reserve System – President Biden has now nominated a group of five people to serve on the Board of Governors who have the experience, judgment and talent necessary to lead the Federal Reserve at this important moment in our economic recovery.

The Senate has confirmed three of these nominees who have previously served on the Board of Governors – Powell, Brainard, and Raskin. Jefferson started his career as an economist for the Federal Reserve, and both he and Cook have consulted frequently with a number of Federal Reserve Regional Banks. They will bring long overdue diversity to the leadership of the Federal Reserve, including the first Black woman in history to serve on the Board and the fourth Black man to serve on the Board. If all five are confirmed, the Board will be majority women. When we have leaders in the Federal government that reflect the diversity of our country, it results in better outcomes for all Americans. That is especially true in our economy where too many groups historically have been left behind, or left out altogether.

Statement from President Biden

“We are at a moment of historic economic progress alongside unique economic challenges as we work to drive our recovery forward. This is a moment that calls for sound, independent leadership from the Board of Governors at the Federal Reserve. That is why I am proud to nominate Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson, who will bring a breadth of knowledge, experience and expertise to the Board of Governors. Raskin is among the most qualified nominees ever for the position of Vice Chair for Supervision, while Jefferson and Cook are talented economists with decades of experience working on a broad range of economic issues. Together with Chair Powell and Dr. Brainard, who I renominated last month, this group will bring much needed expertise, judgement and leadership to the Federal Reserve while at the same time bringing a diversity of thought and perspective never seen before on the Board of Governors. They will continue the important work of steering us on a path to a strong, sustainable recovery, while making sure that price increases do not become entrenched over the long term. I have full confidence in the strong leadership of this group of nominees, and that they have the experience, judgement, and integrity to lead the Federal Reserve and to help build our economy back better for working families.”

Sarah Bloom Raskin for Vice Chair for Supervision
Sarah Bloom Raskin has served both as the Deputy Secretary of the U.S. Department of the Treasury and as a Governor of the Federal Reserve Board. At Treasury, she oversaw the Treasury Department and its various agencies and departments, pursuing innovative solutions to enhance American’s shared prosperity, the resilience of our country’s critical financial infrastructure, particularly as it related to climate risk and cybersecurity, and the defense of consumer safeguards in the financial marketplace. As a Governor of the Federal Reserve Board, she helped conduct the nation’s monetary policy and promote financial stability. She also served as the Commissioner of Financial Regulation for the State of Maryland, where she and her agency were responsible for regulating Maryland’s financial institutions, including all state-chartered depository institutions, banks, credit unions, mortgage lenders, mortgage servicers, and trust companies, among others. She currently is the Colin W. Brown Distinguished Professor of the Practice of Law at the Duke University School of Law as well as the board of trustees of Amherst College. She received her B.A. in economics from Amherst College (Phi Beta Kappa; magna cum laude), and her J.D. from Harvard Law School.

Lisa Cook for Governor
Lisa D. Cook is a Professor of Economics and International Relations at Michigan State University. She was the first Marshall Scholar from Spelman College and received a second B.A. in Philosophy, Politics, and Economics from Oxford University. She earned a Ph.D. in economics from the University of California, Berkeley with fields in macroeconomics and international economics. She was an adjunct professor at Harvard University’s Kennedy School of Government, Deputy Director for Africa Research at the Center for International Development at Harvard University, and a National Fellow at Stanford University. Among her current research interests are economic growth and development, innovation, financial institutions and markets, and economic history. Dr. Cook is a Research Associate at the National Bureau of Economic Research and is the author of a number of published articles, book chapters, and working papers. She is also on the Board of Editors of the Journal of Economic Literature. She also served at the White House Council of Economic Advisers under President Obama and also had visiting appointments at the National Bureau of Economic Research, the University of Michigan, and the Federal Reserve Banks of New York, Chicago, Minneapolis, and Philadelphia. She serves on the Advisory Boards of the Federal Reserve Bank of Chicago (Academic Advisory Council).

Philip Jefferson for Governor
Philip N. Jefferson is Vice President for Academic Affairs and Dean of Faculty and the Paul B. Freeland Professor of Economics at Davidson College. He serves on the Vassar College Board of Trustees, the Board of Advisors of the Opportunity and Inclusive Growth Institute at the Federal Reserve Bank of Minneapolis and is a past president of the National Economic Association. He is a Faculty Affiliate of the Institute for Research on Poverty at the University of Wisconsin-Madison. His research has appeared in several journals and has been funded by grants from the National Science Foundation. Dr. Jefferson previously served as chair of the Economics department at Swarthmore College, where he was the Centennial Professor of Economics. He was an economist at the Board of Governors of the Federal Reserve System. He held visiting appointments at the Federal Reserve Bank of New York, the University of California at Berkeley, and the Board of Governors of the Federal Reserve System. He served as a director of the Eastern Economic Association and as a member of the governing council of the Inter-university Consortium for Political and Social Research at the University of Michigan. Philip served on the Swarthmore Borough Council, Delaware County, Pennsylvania. He holds a BA in economics from Vassar College and a PhD and a MA in economics from the University of Virginia.

Source: The White House

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