Friday, January 29, 2016, was anticipated to be a big day from the very beginning. That’s the day investors would get a first look at Gross Domestic Product (GDP) figures for the 4th quarter of 2015; they were to be released at 8.30am.
In anticipation of the GDP release stocks were sensing bad news. All major market indicators were down another 1% through the first four days of trading. But a funny thing happened on the way to Friday morning. While America slept the Bank of Japan made a surprise cut in interest rates – forcing them into negative territory (something they said they wouldn’t do).
Negative interest rates work in reverse of normal interest rates. Normal interest rates pay depositors for keeping their money in banks. Negative interest rates charge depositors for keeping their money in banks.
The Bank of Japan now joins the European Union, Sweden, Denmark, and Switzerland, in their effort to charge institutional banks for deposits kept at their central banks. Negative interest rates are a central banking effort to coerce banks into lending – this, of course, in hopes of spurring economic activity and growth, and boosting inflation (prices rise in environments with increasing demand).
Two things are certain: Negative interest rates are a sign of major economic weakness and extremely poor Market conditions; and, central banks are utterly incapable of compelling economic activity in depressed operating environments.
To think central planning is a cure to economic woes is a socialist concept – and that’s the problem with today’s markets.
Bernie Sanders is giving Hillary Clinton all she can handle in the Democrat nomination process for president. Sanders is a self-described “democratic socialist.” Many people don’t know what that label means, and in truth, it really doesn’t matter. Sanders is a communist.
How do I know?
First, if a politician calls himself a socialist then he is a communist because all politicians lie.
Second, Sanders is a proponent of a 90% federal income tax on the rich. According to Obama’s definition, “rich” is defined as anyone earning over $250,000 per year. If a rich person pays 90% federal income tax, and pays 7% state income tax (as where I live) and a 4% local tax (as where I live) then a rich person is not free, they are dependent on the state.
That's not socialism, Bernie. It’s communism.
But semantics aside, both are rooted in a big government, central planning ideal. Such a stance purports that only government can solve market problems, fulfill needs, and deliver performance.
That is where the trouble lies.
On Friday of last week U.S. Gross Domestic Product, the broadest measure of economic activity, was reported to be an abysmal .7% in 2015’s holiday fourth quarter. That's terrible, and consistent with the awful trend that has been a persistent theme in Obama’s, and every other, big government economy.
Yet the stock market surged on Friday, advancing 400 points, or 2.5% on the day. Stocks had been down 1% in the prior four days sensing that bad news was coming -- but good news for Wall Street arrived unexpectedly from the Far East. Japan was going to print more money, buy more junk bonds, and force interest rates into negative territory.
Only corrupt markets would applaud those developments.
If zero percent interest rates could not produce anything better than a 1% growth rate then why should anyone expect a -.25% interest rate to be any better?
Easy money is a drug that Wall Street is addicted to. It only helps big banks and institutional investors; and has little to no effect on economies.
Banks won’t lend and businesses and consumers won’t borrow at significant levels until Market conditions change. More big government policies, including monetary games like quantitative easing and negative interest rates, can’t and won’t do it.—And Wall Street knows it. But they don’t care, because they’re the ones that benefit from easy money policies.
See the problem here? Big governments implement policies that benefit large institutions, not individuals.
Investors invest to make money that they can keep.
The solutions to the ills that face world economies today are not quasi-socialist or communist policies. Instead, the solutions reside in free market principles – incentivize success and independence, not dependence through central planning.
Small government policies benefit individuals and individual investors – the main drivers of economic vitality.
To correct economic woes world governments need to throw out all the bogus regulations that are paralyzing free enterprise, terminate all big government programs that strip away individual freedom and foster dependence, empower the individual by drastically reducing income taxes for persons and enterprise, and dramatically reduce central government debt and deficit. These policies will work, as they always do, and would return the economy to a pro-growth position.
But no, we never hear such tried-and-true solutions offered by world leaders or would-be leaders in any Party – not even from Republicans – and it is so aggravating.
The problem in America today is that the Democrat Party is communist and the Republican Party is socialist. Both Parties are big government control freaks. How else could Republicans sound so stupid so often of the time while on the de facto winning side of the argument – free-markets, free-enterprise, and maximum individual Liberty?
And that’s why Trump has so much velocity in today’s political arena. People are pissed off at the establishment and want someone to tear it apart every which way – and many believe Trump is just the person to do it. To hell with the Parties, his supporters’ feel, Trump is for the people.
One more thing...no market can reach its full potential unless it is safe and secure. The only way to do that is to defeat radical Islam. This, too, can be done – but it must be approached with clarity and determination, from a position that can win.
Some on the left believe the greatest recruiting tool of radical Islam is calling the movement exactly what it is; others believe it could be stern policies such as the immigration stance put forth by Donald Trump. But neither is true.
The greatest recruiting tool Islamic Fascists have today is battlefield victory.
ISIS must suffer crushing, consecutive, and persistent defeats on the battlefield or nothing said will ever change their momentum.
The reason international terrorism looks to be winning the war on words and philosophy against the West is the same reason Bernie Sanders has so much mojo in America. Their opposition cannot clearly articulate the advantageous message of Liberty – because they don’t believe in it.
Again, Democrat, Republican, or establishment leaders in the European Union or Asia, are all advocates of big government, central planning, and social engineering edicts dictated by the ruling class.
Such a political position puts people in a quandary of picking which government to be ruled, or oppressed, by. Radical Islam portrays their governing position as strict Moslem doctrine. Much of the West puts forth a secular governing posture, a position many Moslems view as sinful.
In an attempt to oversimplify the very complex root of conflict over there, consider that Sunni’s believe that their leaders can be elected by a consensus of their community and Shiite’s believe leadership must be direct descendants of Muhammad. In other words, they will never agree to live peacefully under the other’s diktat. Knowing this, and witnessing the experiences of the last ten years, its’ clear that the West needs to adjust its position.
For instance, once the initial military engagement ended in Iraq the people of that country were forced by the U.S. to construct a new unity government and constitution. But the factions there didn’t want to unite, and that was the beginning of the insurgent turmoil there. Both sides, Sunni and Shiite, will always feel oppressed while living under the other’s rule. The sooner the West places this well-known fact into its equation the better off the world will be.
The issue over there is complex to say the least, and no solution would be easy and without bloodshed. But that’s not the point here. The point is to position the West in a better situation than it currently is – a place where it could possibly succeed instead of being doomed to a certain failure. After all, it is that failure that has allowed ISIS to gain such momentum.
To put it another way, the West automatically creates two enemies and a power vacuum when it forces two factions (Sunni and Shiite) to unite when they don’t want to. It’s damn near impossible to succeed in such a position.
Instead the West should be positioning their stance as pro-freedom – that the people living in places like Syria and Iraq are free to choose how they live, worship, and work – territory-by-territory. The outcome will include Sunni areas, Shiite areas, and Kurdish areas, no doubt. And the map may change – but it should be the people living in those places that make those decisions.
How else can SUNNI’s be engaged to take up arms against ISIS (a Sunni group) unless those SUNNI’s know they are fighting for a piece of their land where they define its operating culture without external influence?
The West should empower and support those SUNNI’s in their fight for their right to territorial freedom. Then maybe, just maybe, success wouldn’t be so elusive.
Every major war ever fought has been over land and ideology, and freedom has won every one of them.
And no economy has ever failed because it was too free.
It’s a scary world when freedom is the lost message.
This explains why markets are so corrupt, chaotic, and ass-backwards; and it also explains why stock markets go positive when economic news is negative.