Category Archives: Economy

Socialism Failures

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Socialism fails because it goes against fundamental human nature and economic incentives. It relies on centralized control of the means of production, leading to mismanagement and economic collapse.

Young Americans are increasingly embracing socialism, driven largely by concerns about economic inequality, perceived failures of capitalism, and a desire for more social justice and economic fairness.

Recent surveys show a significant portion of younger Americans view socialism positively, with polls indicating that around 60-70% of adults under 30 hold favorable views of socialism, and many even favor democratic socialist political candidates.

This trend seems rooted in frustrations with economic challenges they face, such as student debt, unaffordable housing, and stagnant wages, which they often attribute to a rigged economic system benefiting the privileged and well-connected through cronyism, rather than free markets and merit.

Many young people see socialism less as a call for full government control like traditional socialism, and more as a way to promote equality, social justice, and “democratic” reforms in the economy.

Yet, efforts to create a socialist society have always fail, as these systems frequently evolved into authoritarian or totalitarian states (e.g., North Korea) with restricted freedoms and tragic consequences, including mass starvation, political purges, and mass migrations.

Socialism involves government ownership and central planning of the means of production, which lead to inefficiencies, lack of incentives, and resource shortages.

As an economic system, socialism fails because it goes against fundamental human nature and economic incentives.

Socialist governments rely on centralized control rather than market mechanisms, leading to mismanagement and economic collapse. Examples include the Soviet Union’s economic stagnation and eventual collapse, Mao’s disastrous Great Leap Forward and Cultural Revolution in China causing millions of deaths, and the North Korea and Cuba failed economic systems.

In short, socialism leads to severely underperforming economies, loss of individual freedom, political oppression, and often disastrous humanitarian outcomes.

Thus, while the idea of socialism may hold theoretical appeal for economic equality, its worst historical implementations have resulted in tyranny, poverty, starvation, and widespread human misery.

In summary, socialism fails due to its economic inefficiencies, tendency towards authoritarian governance, and the inability to fulfill its promises of equality and improved living standards for all. These outcomes have been repeatedly observed across different continents and historical periods, making socialism historically a failed system in practice despite its ideological aspirations.

Extraordinary Fiscal Spending a Threat to Economy

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Jamie Dimon, Chairman and CEO of JP Morgan Chase, says “government fiscal spending has been “so extraordinary” in the past five years he’s bracing for an economy of high inflation and unemployment.”

Dimon expressed concern that unchecked government spending could lead to stagflation – a dreaded combination of high inflation, high unemployment, and low growth1.

Dimon’s perspective is rooted in the massive fiscal and monetary stimulus that has occurred over the last five years. He questions whether this unprecedented level of intervention will eventually result in stagflation. He also believes that inflation may be stickier than many people assume, given the lingering effects of fiscal and monetary stimulus in the system.

In summary, Dimon’s cautionary stance underscores the need for prudent fiscal policies and a careful balance between economic stimulus and potential consequences.

Source:  https://fortune.com/2024/05/29/jamie-dimon-stagflation-fiscal-monetary-stimulus-government-spending-american-economy/

U.S. Economy Showing Signs of Slowing

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The U.S. economy continues to lose momentum, writes the Wall Street Journal. It finally seems that the cumulative impact of years of inflation is finally catching up with U.S. consumers and eroding their savings cushion—something that companies selling discretionary goods from Starbucks to Kohl’s are saying in their public quarterly financial reports.

In short, signs of an U.S. economic slowdown are becoming hard to ignore.

Labor market are a lagging indicator, meaning they show up later than other signs when an economic shift occurs. The early signals are already here.

U.S. Money Supply Drives Inflation

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“Inflation is always and everywhere a monetary phenomenon.” – Milton Friedman

Economist Steve Hanke view has been that the volatile and non-transitory inflation of recent years is chiefly due to changes (a significant increase) in the US money supply, not other factors such as supply-chain disruptions and swings in energy and metal prices.

Hanke, a former economic advisor to Ronald Reagan, served as the president of Toronto Trust Argentina when it was the world’s best-performing market mutual fund in 1995.

“As Milton Friedman taught us long ago, inflation is always and everywhere a monetary phenomenon,” Hanke said. “That’s why our forecast, based off the quantity theory of money, has been so accurate.”

“Inflation is taxation without representation.” ~ Milton Friedman

The veteran economist Hanke and a colleague, John Greenwood, predicted in July 2021 that the headline Consumer Price Index would rise as quickly as 9% on an annualized basis; it peaked at 9.1% a year later. They later forecast the inflation measure would fall to between 2% and 5% by December last year, and it ended the year at 3.4%.

“Money [supply] is the economy’s fuel,” Hanke and Greenwood warned the US economy was “running on fumes” and “on schedule to tank” given its money supply had contracted since March 2022, after growing by a historic 27% in part due to fiscal stimulus measures during the COVID-19 pandemic.

References:

  1. https://markets.businessinsider.com/news/stocks/steve-hanke-stocks-economy-outlook-recession-inflation-forecast-fed-money-2024-1

U.S. Gross National Debt

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U.S. Gross National Debt exceeds $34 trillion.  

The federal government’s gross national debt has surpassed $34 trillion, a record high that foreshadows the coming political and economic challenges to improve America’s financial balance sheet in the coming years and decades.

The U.S. Gross National Debt is on an unsustainable path of growth, interest costs are exploding, and the Social Security and Medicare trust funds are approaching insolvency.

Source:  Committee for a Responsible Federal Budget

America Needs a National Business Plan

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“We need a business plan that should include being the most efficient. We’re not at war with ourselves, we’re at war with China and Russia. Their governments are subsidizing everything,” says John Hope Bryant, founder of the non-profit Operation HOPE, Inc. “We’re shooting at each other when we should be better together.”

Many think that we should have gridlock in Washington and “…should have a divided government, what we have is a divided people,” states Bryant.

Political free agents

When solving problems is the goal, and not simply picking winners and losers, talking with folks that you may not have a natural affinity to or agreement with almost always makes more sense than not.

Frankly, Bryant just want people to learn to think for themselves, to further realize that they are in the driver’s seat in their respective lives, to expect more from themselves, and to demand more from those who call themselves their leaders and representatives; whether it be in community, national or in the world of politics.

Blacks should all be political free agents from time to time, making both Democrats and Republicans “work” for our vote. We should all remember that FedEx made the U.S. Postal Service a better 2-Day mail service carrier, almost over night.

Now, when Bryant say things like this, people often wonder whether he is a Republican for some reason. Well, the answer is no. But respectfully, he has problems with both my Republican and Democratic friends, so no one should get a pass here. African Americans need results in their community these days, and that is why I am down with what I call the “Get It Done Party.” I just want folks to “get it done.”

I remember when in 2002, Operation HOPE became the only non-profit organization to host two U.S. Presidents in one week; former President Clinton in Harlem (arguably our “first Black President” – smile), who co-taught a Banking on our Future financial literacy course with me, launching our Harlem Partnership together, and thereafter President George W. Bush in South Central Los Angeles, on the 10th anniversary of the revitalization of community following the 1992 Rodney King Riots.

Now, no one in the political establishment said a word about President Clinton and HOPE and me. But when we brought President Bush to South Los Angeles and to First A.M.E. Church, led at that time by my spiritual father Reverend Dr. Cecil “Chip” Murray, our co-host for the event, you would thought the world had come to an end.  I was derided by some at the time for hosting the President, mildly threatened with reprisals, and my “real black man” credentials were no doubt called into question — but we persisted, and we moved forward. And everything worked out just fine. And when I am asked why we hosted the President of the United States, my response is simple and immediate — because he’s the PRESIDENT, that’s why.

References:

  1. https://johnhopebryant.com/2006/10/the_politics_of.html

Chinese Economy Circling the Drain

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“What I’m trying to remind everyone is you don’t make anything investing in a totalitarian [Communist Chinese] government over a long period of time. ~ Kyle Bass, founder and chief investment officer of Hayman Capital Management

In recent months, a plethora of downbeat economic data and news have come out of Communist China.

Trouble is growing particularly in China’s real estate sector and financial markets. Massive property developers like Evergrande and Country Garden Holdings have teetered on the brink of default. Beijing has in recent months tried to stabilize the property and banking sectors and shore up support for the country’s stock market and renminbi.

Amid the constant flow of negative economic data emanating from China, government officials announced this summer that they would no longer publish certain economic statistic, such as youth employment, which is has soared in recent years.

“In the long run, you’ve got the Chinese economy circling the drain and you have the real estate market falling apart,” said Kyle Bass, founder and chief investment officer of Hayman Capital Management. “Every single private developer is in some stage of bankruptcy today. And you’ve got about $190 billion worth of offshore bonds, dollar bonds, in some sense of default.”

Further, “I just think you don’t want to invest,” he said. “I think you want to invest in markets where there’s a rule of law, and where you have real leadership, and you actually have ways to earn returns that are positive for your portfolio.”

References:

  1. https://markets.businessinsider.com/news/stocks/china-economy-investors-markets-capital-bass-workers-real-estae-property-2023-9

US Credit Rating Cut by Fitch Ratings

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The US had its credit rating cut one step to AA+ from the top ranking of AAA by Fitch Ratings, echoing a move made more than a decade ago by ratings agency – S&P in 2011.

The credit agency saying that it reflects “expected fiscal deterioration,” a “high and growing” government debt burden, and an “erosion of governance” in face of repeated debt-limit standoffs and other ills have cast doubt on the United States’ ability to meet all its payment obligations.

A lower credit rating could make borrowers less likely to lend money to the federal government on favorable terms, potentially raising costs for U.S. taxpayers.

Federal Fiscal Deficit vs. National Debt

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Democrats spend money when they don’t raise taxes; and, Republicans cut taxes when they don’t decrease spending. Tax and spending reforms are needed desperately.

“The government has basically three gigantic programs and it’s the US military, Social Security, and Medicare,” Marc Goldwein, a senior policy director at Committee for a Responsible Federal Budget (CRFB) said. As Nobel-Prize-winning economist Paul Krugman once wrote, the US government is “best thought of as a giant insurance company with an army,” and increasing interest payments.

If the government wants to get serious about its fiscal spending and reducing the national debt, all government spending would have to be reduced by 27% to get budgets balanced in the next decade — and, if tax increases, defense spending, Social Security, and Medicare are all off the table, 78% of federal spending would have to be cut, according to CRFB.

The federal deficit vs. Debt — they’re two separate concepts.

  • The deficit is the difference between the money that the government makes and the money it spends during a fiscal year. If the government spends more than it collects in revenues, then it’s running a deficit.
  • The federal debt is the running total of the accumulated deficits.

The combination of spending increases, tax cutsc, and increasing interest expenses on the debt inflates deficits. While the rise in spending tends to be bi-partisan, tax cuts tend to be enacted by Republicans.

Reference:

  1. https://news.yahoo.com/want-balance-budget-without-raising-100000676.html
  2. https://www.politifact.com/factchecks/2019/jul/29/tweets/republican-presidents-democrats-contribute-deficit/

Alphabet Announces Layoffs

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Google’s parent Alphabet announced it intends to eliminate 12,000 jobs, about six percent (6%) of its workforce. From a macro perspective, layoffs that began in 2022 are accelerating across technology companies. 

In an email sent to staff, Google’s parent Alphabet Chief Executive Officer Sundar Pichai wrote that, “Over the past two years we’ve seen periods of dramatic growth,” reports Bloomberg.  “To match and fuel that growth, we hired for a different economic reality than the one we face today.”

Moreover, Pichai said that he was “deeply sorry” to workers that will be let go and that it was a “difficult decision to set us up for the future.” The layoffs will be felt globally and across the entire company, and Pichai said he takes “full responsibility for the decisions that led us here.”

“Taking full responsibility without consequence seems like an empty platitude.” ~ Layed-off Google employee

With the layoffs, Google joins a host of other giant technology companies like Amazon, Microsoft and Facebook that have announced layoffs and drastically scaled back operations amid a faltering global economy and soaring inflation, reports Bloomberg.

Despite Google’s strong ad and cloud-computing divisions, the company saw a 27 percent drop in profit last quarter compared to the year before, and Pichai said Alphabet would need to reduce expenses and hiring, reports Engadget.

As Google announced the companywide layoff, many employees had been bracing for a potential layoff and have been questioning executive leadership about the criteria for layoffs which surprised some employees, who woke up to find their access to company properties cut off, reports CNBC. Some of the laid-off employees had been long-tenured or recently promoted, raising questions about the criteria used to decide which positions were cut.

References:

  1. https://www.bloomberg.com/news/articles/2023-01-20/google-cutting-12-000-jobs-in-6-slash-to-global-workforce
  2. https://www.engadget.com/google-parent-alphabet-is-laying-off-12000-employees-105523115.html
  3. https://www.cnbc.com/2023/01/21/google-employees-scramble-for-answers-after-layoffs-hit-long-tenured.html