Just before the bankruptcy of the Mt. Gox bitcoin digital-money (or virtual-currency) exchange, Japanese finance minister Taro Aso predicted the inevitable failure. “No one recognizes them as a real currency,” he told reporters. “I expected such a thing to collapse.”
I totally agree with Mr. Aso. For weeks and weeks I have been tweeting and broadcasting that bitcoin is not real money. It is not a reliable medium of exchange, nor is it a reliable store of value. It has no central-bank regulation, network operations, or even centralized issuance. And because of its wild price fluctuations, bitcoin can never be a reliable payment system.
Slowly but surely President Obama is unwinding, rolling back, and even cancelling his very own Obamacare. A couple of years ago he told Republicans not to mess with his plan. He said he’d veto any changes. But now, in substantial ways, he’s messing with his own plan.
By various counts, the president has made 25 to 30 key changes to the Affordable Care Act. They all violate the legislation passed in 2010. Many believe Obama’s executive actions are unlawful or unconstitutional. Whatever the case, at this rate, there may not be much if any Obamacare in the next couple of years.
Stock markets cheered Janet Yellen’s maiden congressional testimony this past week, as the new Fed chair emphasized the word “continuity” and offered no boat-rocking surprises. Continuity? I assume she means a steady diet of tapered bond purchases that will lead to the end of QE3 this autumn. In other words, investors seemed to think QE has run its course, probably overstayed its welcome, and that it’s time the Fed got out of the bond-buying business, since that policy isn’t doing much good and may be doing harm.
Ever the Keynesian who subscribes to the non-existent, long-term trade-off between employment and inflation, Ms. Yellen did express worries about long-term layoffs and the shrinking size of the labor-participation rate. She’s right about that. The labor situation is subpar.
The employment-to-population ratio is only 58.5 percent, way below its year-2000 peak of 65 percent. The participation rate is a low 62.8 percent, way below its modern average. The Joint Economic Committee estimates that jobs are 4.5 million below the employment trend line since 1960, and 7 million below Ronald Reagan’s recovery rate. And average monthly private-payroll increases are only 178,000 in Obama’s recovery. Compare that with the Reagan monthly rate of 330,000.
So Yellen is right to be worried about jobs. But she’s wrong to think the Fed can do much about this.
So let me get this right. Team Obama taxes millionaires who create jobs, while Obamacare creates incentives not to work at those jobs. No wonder recovery is so anemic. The policy here is to create fewer jobs and induce people to work less at those jobs. If my logic is correct, this runs counter to the most basic principles of our economy and our country.
I thought the American Idea (see Jack Kemp and Paul Ryan) had at least something to do with the virtues of work, family, and opportunity. But what I see from the Obama administration is policies that undermine these ideals.
There’s a new cynical perception among international investors that Brazil is becoming Argentina and Argentina is becoming Venezuela. But these investors are starting to boycott all the so-called emerging markets, since nearly all them are moving to the left, abandoning free-market principles, reverting to the bad old days of higher spending and taxing, inflating the money supply, accumulating large trade deficits, and letting their currencies go to hell in a hand basket.
In other words, the emerging-market investment paradigm, or the BRIC model, may be over.
Toward the end of last week, the U.S. stock market sold off nearly 500 points. Much of the blame has been placed on the collapse of the emerging-market currencies. Correct. The emerging-market tail was wagging the U.S. stock market dog.
Growth, growth, growth is the new mantra of the venerable Business Roundtable, whose member companies generate annual revenues of more than $7 trillion while employing 16 million workers. In past years, the BRT has put out lengthy pamphlets proposing intricate solutions for budgets, entitlements, the environment, regulations, health care, and more. But this year, the BRT has gone back to basic economic blocking and tackling by bluntly saying, “If we want to control the deficit, preserve key entitlement programs, educate our children, and offer upward economic mobility for everyone, we have to get our economy growing faster.”
Sounds like JFK. Or Ronald Reagan. Or Jack Kemp. A rising tide lifts all boats.
Fort Lee, N.J., mayor Mark Sokolich told me on last night’s Kudlow Report that New Jersey governor Chris Christie’s statement regarding the politically motivated closure incident at the George Washington Bridge lacks credibility. Here’s the video of my conversation with Sokolich, as well as a report on the interview by CNBC’s Ross LeClair.
Fort Lee Mayor: Holes in Christie’s Story
New Jersey Gov. Chris Christie says he was unaware of the decision to close lanes on the George Washington Bridge in September that gridlocked traffic in a town run by a Democratic mayor.
The governor, who is contemplating a run for the Republican presidential nomination, made the statement after the release Wednesday of communications that provide more evidence that his office planned the closures, apparently because Fort Lee’s mayor did not endorse Christie’s re-election bid.
Fort Lee Mayor Mark Sokolich told CNBC’s Larry Kudlow that Christie’s statement issued after the release of the emails lacks credibility.
“There’s definitely, I think, some holes in that statement,” Sokolich said. “The governor had convened a meeting with his top staff not too long ago, and promptly after the meeting proclaimed that no one on his staff knew about it.”
Sokolich added that he was personally making phone calls after the traffic jam in an attempt to get answers from the Port Authority as to when and why the closures were planned.
“I think we’re documented 20 calls during that four-day period, I can assure you it was a lot more than that,” Sokolich said. “You may rest assured that the excuse that ‘Yeah I missed your call, sorry about that’ isn’t plausible.”
Despite his anger, Sokolich does not want the governor to apologize to him. He says the apology is better directed at the people who were impacted by the traffic jam.
“If calls are going to be made, call the families that waited two to three times longer for an ambulance to arrive while their loved one was clutching their chest because of chest pains,” Sokolich said. “Call the thousands of parents that couldn’t get their kids to school on time on the first day of school and the three or four days thereafter.”
In his statement Wednesday, Christie said: “What I’ve seen today for the first time is unacceptable. I am outraged and deeply saddened to learn that not only was I misled by a member of my staff, but this completely inappropriate and unsanctioned conduct was made without my knowledge.”
Ultimately, Sokolich says his job is to protect the people of Fort Lee, not to speculate about Christie.
“I’m not rooting for him to have known about it,” he said. “My job is to worry about Fort Lee.”
There was way too much giddiness in the media about the first day of legal pot selling in Colorado. Instead of all the happy talk, I think it’s time for some sober discussion and a strong dose of education about the addiction risks of smoking marijuana — particularly among young people. It may start out as a party, but it often ends up as something much, much worse.
With the grace of God, I’ve been clean and sober for over 18 years — a recovery experience that still has me going to a lot of 12-step meetings. And I hear time and again from young people coming into the rooms to get sober how pot smoking led to harder drugs such as cocaine and heroin. Now, this is anecdotal, and I am not an expert. And I will say that many people can control alcohol or pot or other drugs. But I am not one of them. And I am not alone.
So Fed chairman Ben Bernanke finally pulled the taper trigger this week. And it was the right thing to do.
Stocks soared. And even with some backing-and-forthing, gold, commodity indexes, and the dollar were basically stable. In other words, financial markets approved — especially stocks, where investors believe Bernanke is telling them the economy is strong enough to weather a pullback in Fed bond buying. Actually, if the Fed shaves $10 billion in bond purchases at each of its next seven meetings, QE3 will end in October 2014 — or perhaps sooner if the economy holds up.
In truth, this bond-buying business has outlived its usefulness. The Fed’s balance sheet under QE3 (and earlier QEs) ballooned to $4 trillion, with about $2.3 trillion in excess reserves. The best that can be said of all this Fed activism is that the central bank supplied — even over-supplied — enough liquidity to meet the voracious demand for money by banks, consumer households, and others who are still deleveraging and remembering the financial crash in 2008. The worst that can be said is that the Fed dug itself into a hole that will be hard to exit in the years ahead.
Did Paul Ryan’s budget deal save the Republican party from itself? I think it did.
Everyone acknowledges that Ryan-Murray is not a great deal. But the fact is, its passage will avoid a government shutdown. That’s crucial.
If the GOP wants to retake the Senate and hold the House in 2014, the key issues must be the catastrophic pitfalls of Obamacare and better economic growth. A shutdown would be a distraction. It would take the heat off Obama and Obamacare, and all the Democrats who falsely promised that if you like your insurance and doctor, you can keep them.
Either President Obama needs a new speech writer, or he needs a new set of economic policies. Actually, he needs both.
Can anyone think of a more boring, banal, irrelevant, or stale speech than the one he gave this Thursday in Washington D.C.? The speech was allegedly on the economy, but more likely it was to divert attention from the Obamacare catastrophe. Whatever the motive, his idea that the defining challenge of our time is to reduce income inequality is completely wrong. In truth, the defining challenge is to restore more rapid economic growth, create substantially more jobs, and significantly reduce unemployment.
The greatest central banker in my professional lifetime was Paul Volcker. His signal achievement was bringing down the inflation rate from roughly 15 percent to about 3 percent more than three decades ago. The simplest way to look at the economic evils of runaway prices is to think of inflation as a tax hike — on consumers, savers, investors, corporate profits, capital gains, and so on. One humongous tax hike. And it was the myriad tax-hike effects of high inflation that wrecked the American economy in the 1970s.
But Volcker turned that around, and he did so using a rules-based approach to slaying price hikes. He was an old fashioned central banker who still believed the dollar should be as good as gold. And he carefully watched market-based signals like gold, commodities, and the exchange value of the dollar to let him know if he was going down the right road.
I reflect on this as Janet Yellen gets ready to take over at the Federal Reserve.
Following is the video and transcript of my Tuesday night interview with Wisconsin governor Scott Walker. In addition to discussing Walker’s new book, Unintimidated, and his heroic stand against the unions in Wisconsin, we talk Obamacare, Obama’s polls, and prospects for the 2016 presidential race:
LARRY KUDLOW: We’re honored to be joined now by Wisconsin governor Scott Walker. He’s out with a new book, Unintimidated: A Governor’s Story and a Nation’s Challenge. I wanna talk about everything and– and including your heroic stand against the unions in Wisconsin. But let me just start. The polls are crashing and Obama is caught in essentially his third falsehood on this subject. What’s your take on this?
GOV. SCOTT WALKER: Well, I think that’s part of the problem of you have someone who didn’t have executive experience and they let p– the political shop in the White House run everything. Political shops, as you know– you and I know in White House, is Republican/Democrat alike have major impact on policy but they’re not the sole force of policy here.
And I think that’s part of the problem is, they made a promise that nobody could actually deliver on– not just in terms of a website but on the overall policy of ObamaCare, which is an abysmal failure. And you and I’ve talked about it on this show. It’s not only a fail for ObamaCare, it is continuing to be– a wet blanket on the recovery and the nation’s economy.
LARRY KUDLOW: Right. It’s anti-growth. But it just– it just– it sort of blows my mind, okay? This guy’s a lawyer. I– I’ve never had any personal criticism to him. I don’t deal in that currency. But my point is, he’s a well-trained lawyer who taught law. He’s making these assertions which are blatantly false, we fi– does he not think in the age of information and– and Facebook and tweeters and electronic– this is gonna come out?
GOV. SCOTT WALKER: Oh, it’s shocking. I mean, to me, the fact–
LARRY KUDLOW: And I think people– and — I think people are just as angry at his falsehoods–
GOV. SCOTT WALKER: Uh-huh.
LARRY KUDLOW: –as they are at the breakdown of ObamaCare. I really do.
GOV. SCOTT WALKER: Oh, and I think it– it only gets worse as day b– by day goes by and more and more of these promises, we find out, you know, were not only not right– it’d be one thing if they were wrong and you were told they’re wrong– and you actually believe that people believed that. But the more we find out that– that that were– business– or as you said, firm after firm actually telling the White House and the Administration this wasn’t gonna work, it– it’s either one of those things where they’re not listening to the facts or they’re not being informed. In either case, it’s rather troubling.
There’s no question that the catastrophic debut of Obamacare — including the website breakdown and the millions of pink-slip cancellations — will be a great card for Republicans to play on the way to the 2014 midterm elections. No question.
The president lied about his lies about keeping your health plans and doctors. And when he did finally apologize, he didn’t really say he was sorry. It’s also possible that we’ll see 10 million more insurance cancellations, leading to much higher premiums, bigger deductibilities, and more cutoffs between patients and their doctors. And employer-based cancellations will compound this disaster, with the whole process stretching across most of next year. It will be a killer for the Obama Democrats.
But while my conservative-pundit colleagues are out thrashing Obamacare, I want to raise a critical point: Don’t forget economic growth.
May I ask this question? Why is it that Americans don’t have the freedom to choose their own health insurance? I just don’t get it. Why must the liberal nanny state make decisions for us? We can make them ourselves, thank you very much. It’s like choosing a car, buying a home, or investing in a stock. We can handle it.
So why must the government tell me and everyone else what we can and cannot buy?
Charles Krauthammer and the Wall Street Journal’s Dan Henninger noted in excellent recent columns that this whole Obamacare business represents the greatest-ever expansion of the liberal entitlement-state dream. But I don’t want that dream. And you shouldn’t either.
Here’s what else I don’t want: As a 60-something, relatively healthy person, I don’t want lactation and maternity services, abortion services, speech therapy, mammograms, fertility treatments, or Viagra. I don’t want it. So why should I have to tear up my existing health-care plan, and then buy a plan with far more expensive premiums and deductibilities and with services I don’t need or want?
Why? Because Team Obama says I have to. And that’s not much of a reason. It’s not freedom.
House Budget Committee chairman Paul Ryan says Obamacare’s glitches are here to stay. In an exclusive interview set to air on tonight’s Kudlow Report, Ryan said the problems with the Affordable Care Act extend far beyond website malfunctions.
“It’s more than the website,” Ryan said. “It’s because this law itself is built from an architecture, a foundation, that’s just not workable.”
Ryan said he sat through several House Committee Oversight meetings in which the administration failed to answer fundamental questions on the rollout of the Affordable Care Act. “The point is, they said, ‘Everything is fine, the law is going to be okay. We are ready to roll it out. We won’t have any problems.’” But House Republicans knew better, Ryan said.
“People should know that we tried to prevent this from happening in the first place by fighting a law we did not intend,” Ryan said, referring to the Republican-led House’s 46 attempts to repeal the law. “Then we tried giving people relief from the law by delaying it until 2013. That was rejected and now we are living with this law.”
Frustrated with the Senate’s rejection of attempts to defund and delay the law, Ryan shifted to the GOP’s most plausible tactic to end the Affordable Care Act: winning elections.
“We owe the American people an alternative,” Ryan said. “We want to win elections by saying this is not working for you and there are better ways in keeping with the country’s principles that puts you in charge of your heath-care future.”
Ryan dismissed criticism that the Republican party is in a “civil war” following failed attempts to delay Obamacare as part of the government shutdown and debt-ceiling negotiations. “We’ve had disagreements with each other on tactics,” he said. “These aren’t principles. I don’t know a Republican that doesn’t support comprehensive reforms to replace Obamacare with patient-centered health care.”
The Wisconsin congressman said the GOP will have a chance to showcase its common principles in budget negotiations set to begin Wednesday. He rejected hopes for a “grand bargain” deal, which he said would include pro-growth tax reform, a balanced budget, and entitlement reform.
“I don’t think we’ll get a grand bargain, and we’re not talking about getting a grand bargain,” he said. “Because then, one party will require that the other compromise their core principles, and we won’t get anything done.”
The GOP’s key bargaining chip, Ryan said, is the sequestration, the automatic spending cuts Democrats are seeking to repeal. “If we can’t get anything better than the sequester, then we’ll keep the sequester,” Ryan said. “That’s our base case to begin with.”
Ryan insisted that increased tax revenue was out of the question, calling Keynesian stimulus programs “sugar-high economics.” He said, “We’re not in this business to raise taxes. We’ll take the spending cuts we have and work with those.”
Instead, he said he was willing to negotiate on the “smarter” cuts to replace sequestration. “If we get a down payment on this debt and deficit in exchange for short-term relief, we’ll take it,” he said. “But it has to be on net a positive, meaning we will take the spending cuts right now.”
Ryan said substituting entitlement reform in place of broad spending cuts under sequestration would enable long-term growth in the U.S. economy. “If smart entitlement reforms could replace this crude across-the-board sequester, it would do a couple things,” Ryan said. “It would show the world that America is getting ahead of its problems. We’re not just going to be victims of circumstances. We’re not just going to fall into a debt crisis like Europe, but we’re going to get out of it.”
Entitlement should be at the top of the budget agenda, Ryan said.
“The question is not if we deal with entitlements,” Ryan said. “The question is if we are going to do it before the debt crisis or after the debt crisis. We would like to do it before so that we can shape events in this country instead of having events shape us.”
The congressman said that, ultimately, his job is to find common ground in budget negotiations among Republicans and Democrats. “I would argue that in this very difficult time that we are in, wouldn’t it be nice to show that this American divided government can at least govern?”
One huge political question surrounds the catastrophic launch of Obamacare: Will the administration double-talk, cancelled insurance contracts for millions, terminated doctor-patient relationships, sticker shock from higher premiums and deductibility, and damage to job hiring and economic growth get the GOP off the shutdown hook for the 2014 midterm elections?
That is the question. Donald Rumsfeld would call it a known unknown. And right now nobody knows the answer.
Judging from the speech Obama gave following the deal to end the government shutdown, Republicans better get wise to the president’s next fiscal gambit when the three-month stop-gap budget and debt measures come due. As was the case with his hard-line defense of Obamacare, the president likely will be inflexible on ending sequestration budget caps, pushing for massive tax hikes, and permitting only the most inconsequential entitlement reforms.
Obama is interested in busting the GOP in 2014. He’s not interested in true budget restraint or other economic-growth measures.
Never before has an American president threatened and risked the U.S. economy and financial markets the way Barack Obama has in recent days. For his own narrow political ends, Obama and his minions have actually accused the Republican party of deliberately provoking a Treasury debt default because they don’t agree with the Obama position on the continuing budget resolution and the debt ceiling.
“As reckless as a government shutdown is . . . an economic shutdown that results from default would be dramatically worse,” Obama said on Thursday. Clearly targeting Republicans, he said a default would be “the height of irresponsibility.”
Then, on the same day, Obama’s Treasury Department released a brutal statement that said a default would prove catastrophic, causing credit markets to freeze and leading to “a financial crisis and recession that could echo the events of 2008 or worse.”
So who exactly in the Republican ranks is calling for a Treasury debt default? Who? The GOP disagrees with Obama on the budget and health care, but no Republicans have ever said they favor defaulting on the nation’s debt.
I interviewed Senate Minority Leader Mitch McConnell on Wednesday night’s Kudlow Report. When I asked him about that day’s shutdown meeting at the White House, McConnell described it as “unproductive.” Here’s a report on the interview by CNBC desk producer Elizabeth Schulze, and the video, too:
Washington is still far from resolving its differences over the fight to reopen the U.S. government.
That’s according to Senate Minority Leader Mitch McConnell in an interview on CNBC’s “The Kudlow Report” following a meeting at the White House Wednesday night.
“It was cordial but unproductive,” McConnell said. “The President continues to maintain privately the position that he has had publicly, which is he doesn’t want to negotiate about the continuing resolution to operate the government or over raising the debt ceiling.”
After a two-hour meeting with President Obama, House Speaker John Boehner, House Minority Leader Nancy Pelosi, and Senate Majority Leader Harry Reid, Sen. McConnell offered no timeline for Congress to pass legislation to end the government shutdown.
“Obama can’t get his way exactly the way he likes it,” McConnell said. “The American people expect us to come together and figure out how to solve this problem and sooner or later, we’re going to do that.”
“The shutdown will end,” he added. “Nobody is in favor of a government shutdown, but these are important principles that we are fighting for, for the American people. We obviously want to continue the operation of the government, but we want to keep it within constraints with the Budget Control Act.”
McConnell insisted on maintaining spending levels under the Budget Control Act, the 2011 law which created sequestration. Tax increases to reopen the government, he said, are off the table.
“We don’t want to walk away from the spending reductions we have already promised the American people for the next two years,” he said. “Ninety-nine percent of the Bush tax cuts are now permanent law. We don’t want to walk away from the permanent tax relief that we achieved New Year’s Eve. “
McConnell shifted the debate to the debt ceiling, saying “America is not going to default on its debts.”
Treasury Secretary Jack Lew has said that the government’s flexibility to continue to fund itself without additional debt will end around Oct. 17.
“Our view is it’s time to talk to eliminate the government shutdown, to find out what conditions need to be attached to raise the debt ceiling so the full faith and credit of the United States continues to be honored,” McConnell said. “But we also need to do something about this enormous debt that has been accumulated during the Obama years.”
In response to President Obama’s insistence on a “clean” budget proposal in an interview on CNBC earlier Wednesday, McConnell said the President’s position is “unacceptable.”
“The President’s position so far is that he wants it clean no matter what,” McConnell said. “I think that’s an unacceptable position for Senate and House Republicans. It should be an unacceptable position for the American people.”
McConnell said the President fails to recognize that the American people elected a divided government under the assumption that both parties would negotiate.
“There will have to be a compromise no matter what the President says today because his party doesn’t control the entire government,” he said. “The American people have frequently elected a divided government. When they do that, they don’t expect us to do nothing, to not talk to each other.”
Senate Democrats, McConnell said, are reinforcing the stalemate in their refusal to negotiate with House Republicans.
“The House has sent over a number of different proposals, including the last one to go to conference and have a discussion about this,” he said. “Senate Democrats voted that down, too. Who’s being unreasonable here?”