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Blog with Dr. G

Why Media Economic Reports Can Be Misleading

Coronavirus update March 16

3/17/2020

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March 12th, 2020

3/12/2020

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February 20th, 2020

2/20/2020

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Data through February 20th continue to show the virus being contained in most areas.  The only place the virus is accelerating is in South Korea, where the numbers are accelerating due to an inflected person attending an event with 1, 000 people.   The following charts show recent trends: 
200220covid-19.pdf
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CORVID-19 (coronavirus update)

2/17/2020

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​There continues to be good and bad news surrounding COVID-19.  The bad news concerns how contagious it is and how difficult it can be to recover from it.  There are currently over 71,449 cases worldwide.  Most of these, 70,553, are in China. 
There are 881 cases outside of China.  More than half of these, 454, are on the cruise ship in Japan where 12% of those on board are infected.  The high numbers in China and from the cruise ship indicate how contagious the virus is. 
There have been 15 cases in the US.  So far only 3 are listed as having recovered.  The US will get 14 more cases of Americans who are being transported back home from the cruise ship.
The good news is there have been only 5 deaths outside of China from the virus.  Also, aside from the increase in cases from the cruise ship, the number of new cases in China and outside China has continued to increase at a progressively slower rate.  We are not seeing the accelerating growth in infections outside of China that some have been predicting. 
In spite of some encouraging trends in containing the virus in developed countries, potential problems still exist.  The highly infectious nature of the disease as well as the difficulty in recovering from it would be catastrophic if the virus took hold in some of the poorer countries of the world.  Click this reference for charts. 
200217virusupdate.pdf
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Book Review for Lifespan: Why We Age-& Why We Don't Have To

1/30/2020

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Every now and then there is a book that provides major insights to the future.  Lifespan by David A. Sinclair is that book. 
David Sinclair is Professor of Genetics and Director of the center for biology and aging at Harvard Medical School.  His book discusses how genetic research is creating the potential to change the way we live.  I believe these discoveries will be a monumental factor reverberating through the future of medicine.  They will greatly affect every person and every business in the world.
Sinclair is one of those deep thinkers with an intense curiosity.  His interest focuses on basic, fundamental questions.  Questions such as “What is life?” and “Why do we age?”  Fortunately, he not only raises key questions, he answers them.
One of Sinclair’s great insights is to consider aging a disease, instead of something that is inevitable.  If aging is a disease, we should be looking for a cure.  Sinclair not only looks for a cure, he believes he has found it. 
His book examines current popular views on how we can live longer, healthier lives.  Views regarding diet, exercise, meditation, etc.  Sinclair explains how each of these popular views impact us at the cellular level.  He then uses the results from this research to either reinforce or reject these current views.
The game-changer comes when Sinclair describes the pathbreaking work his lab has done.  It involves not only extending lifespans, but ensuring the continuation of youthful vitality and health.  His lab has succeeded in making young mice old and old mice young. 
The mega-game-changer is Sinclair’s claim that the basic genetic work is done.  We now understand why we age and how to stop and even reverse it.  Armed with this knowledge some have decided not to wait 5 to 10 years for the results of formal human studies that are now underway.  With hints that we are able to restore youth and vitality at the cellular level, Sinclair and his associates have used their genetic knowledge on themselves and their relatives.  Preliminary results appear to confirm their optimism of a major breakthrough in controlling the aging process in humans.
Sinclair cautions there is much we still have to learn about the aging process.  However, with the basic work done, and with the vast amount of research now underway, we are on the cusp of a monumental change with respect to aging.  It’s a change with implications and challenges most of us can only imagine.
I urge everyone to get a copy of Lifespan and to begin thinking about how we, our love ones and our businesses could soon be facing a very different future than the one we now imagine.

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Coronavirus Impact

1/29/2020

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​There is both good and bad news regarding the coronavirus.  The good news is it is not as dangerous as the SARs virus.  The death toll with SARs was 6.6% of those infected.  With coronavirus the death rate so far is 2.2%.  Those in the US and other countries appear to be recovering.  In China, those dying are primarily older people with compromised immune systems.
The bad news is the incubation period for coronavirus could be as long as 14 days.  Apparently, infected individuals can transmit the disease to others for up to 2 weeks without showing symptoms.  It is highly contagious.  A bus driver in Japan who carried persons from Wuhan contacted the virus as did others who had never visited China.  The virus has already infected more people, over 6,000 at latest count, compared to 5,327 total cases of SARs.  It would not be surprising to see the final toll of infections reach ten times the current amount with deaths amounting to 1,500.
The implications of what we know so far suggests the main threat is to those in China and its immediate vicinity.  As a result, it will take a serious one-time toll on the Chinese economy and businesses that rely on China. 
The impact on the US is likely to be similar to what happened when Trump imposed tariffs.  This means businesses will quickly work readjusting their supply chains from China to other sources.  With what we know at this time, I expect the real growth rate in the US will slow by less than ½% this spring from what it would have been.  This should still allow for a growth rate close to 2½% in the months immediately ahead.   
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Will the Fed Create a Recession in 2020?

9/17/2019

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Is the “apolitical” Fed determined to get of rid of President Trump by creating a recession in 2020?
 
As a long-time critic of the Federal Reserve and its policies, I have consistently resisted conspiracy theories.  I have viewed Fed members as honorable people intent on doing their best to promote a stable monetary policy.  I am no longer certain this is true.
 
Former Fed Vice-Chair William Dudley removed the veil of innocence with his recent comments urging Fed members to undermine Trump’s reelection.  Dudley claims that “Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives.”
 
He defends his message by claiming Trump’s tariffs are the major threat.  Dudley is wrong.  Trump’s tax cuts and deregulation have overwhelmed any damage from his tariffs.  The real threat to the economy and Trump’s reelection is an errant Fed policy.
 
Can the Fed actually create a recession and destroy Trump’s reelection?  Yes.
 
Here’s how. The economy needs money to function.  If the economy fails to get enough money business activity slows or even declines.  One of the most effective ways for the Fed to limit the amount money is to sell securities.  Selling securities or “quantitative tightening” is the opposite of buying securities or “quantitative easing.”  When the Fed buys securities, the Fed adds money to the economy, and when sells securities it subtracts money.
 
When the Fed sells securities it threatens the economy.  It happened before. In 2008 the Fed mysteriously changed its policy and decided to sell securities prior to the upcoming Presidential election.  Despite accurately warning about serious problems with the economy, the Fed nonetheless sold 39% of its entire portfolio of securities (at the time $300 billion) leading up to the worst financial collapse since the 1930s.
 
The Great Recession of 2008-09 made it virtually impossible for a Republican to be elected president. As a result, an unknown Senator Barrack Obama, with no track record, defeated John McCain, a well-known war hero with a track record.
 
Why did the Fed depart from orthodoxy in 2007-08?  Could this departure have represented a deliberate attempt to cripple the economy and affect the 2008 fall election? Or was the change in operations simply a foolish, innocent, ill-timed experiment that contributed to the financial collapse and the defeat of a Republican Presidential candidate?  
 
Prior to William Dudley’s recent statements I accepted the Fed’s explanation the policy change came at the behest of a Fed economist.  Which economist might have been instrumental in urging a change in the Fed’s operating procedure at this particular time and why?
 
In 2007, the most powerful economist at the Fed was none other than William Dudley.
 
Dudley received his economic training at the University of California, Berkley.  He was Chief Economist for Goldman Sachs when the Fed hired him in 2007 to oversee the department in charge of buying and selling government securities.  Dudley was hired by Timothy Geithner, President of the New York Fed, who would soon be named Treasury Secretary under President Obama.  As soon as Geithner became Treasury Secretary, Dudley replaced him as President of the New York Fed and Vice-Chairman of the Fed.
 
We may never know why the Fed abruptly changed its normal operating procedures prior to the financial crisis and the election of 2008.  We do know that the economy was in the midst of a financial crisis in 2008, a crisis that no doubt played a role in the outcome of the election.  We also know that in 2008 the Fed failed in the primary reason it was created—to maintain liquidity and avoid a financial collapse.  And we know the election of President Obama played a major role in advancing the careers of both Geithner and Dudley.
 
We now also know that one of the chief architects of its policy change, William Dudley, believes the Fed should do everything it can to prevent a Republican from remaining in the White House.
 
Fast forward to 2019.  The Fed has been aggressively selling securities for the past year and a half.  They sold almost $400 billion in the year ending in the fourth quarter 2018.  In December, when financial markets signaled the need to reduce interest rates, the Fed actually increased interest rates and reaffirmed plans for additional rate increases.  Only after a collapse in stock prices did the Fed agree to halt its planned increases in interest rates.  However, in spite of claiming its policy had turned neutral, the Fed sold over $300 billion in securities from the fourth quarter of last year until the end of July.
 
The Fed says it will no longer sell securities and indicates it will cut interest rates.  These statements provide scant comfort for the economy.  Traditionally, the Fed would buy securities to lower interest rates.  Due to still another policy change the Fed can now lower interest rates without putting additional money into the economy.  Hence, current Fed policy enables the Fed to “pretend” to ease monetary policy by lowering interest rates while failing to place more money into the economy.
 
William Dudley left the Fed last year.  He no doubt personally had to approve most of those who now hold key positions at the Fed.  Dudley’s claim that Trump’s reelection is “a threat to the US, and global economy, and to the Fed’s independence” shows the type of animosity towards the President that can lead policymakers to do everything in their power to prevent Trump’s reelection.
 
The Federal Reserve is the only government agency with the power to create a major downturn in the economy.  The Fed did it before and can do it again.
 
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Book Review: China's Vision of Victory by Jonathan Ward

9/11/2019

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Book Review of China’s Vision of Victory, by Jonathan D, T. Ward.
By Robert Genetski

​China’s Vision of Victory examines China and its role in shaping the global economy in the decades ahead. 
Those interested in understanding China and its policies should read this book.  It’s well-written and filled with documentation and references that provide excellent resources for demystifying myths about the world’s Middle Kingdom.
The author shows how and why China is an existential threat to the US and the rest of the world.  Given China’s focus on technology and the means it uses to achieve its goals, China’s challenge is akin to that posed by Nazi Germany.  If successful, China’s suppression of freedom and independence would spread to all nations.  Freedom would cease to exist.
Jonathan Ward is a leading expert on China.  His insights are the result, not only of academic studies, but of years bicycling and riding motor cycles throughout the rural areas of China.  His knowledge of the Chinese people, their history, language and their leaders provides a unique perspective for understanding China’s role in shaping the world.
Ward states that “the rise of China will be the central story of our lifetimes.”  He provides extensive documentation to show China’s ambition is not simply to compete with the US and other countries.  Rather, China’s vision is to dominate and subjugate the US and the rest of the world.  It’s a vision deeply ingrained in China’s history, one the government inculcates into its citizens.
With references to Chinese writings and speeches Ward shows how every facet of China’s moves—economic, diplomatic, geographic and military—are working to achieve a ”position of supremacy of all nations.”  While the vision has always existed, China’s leaders believe they are now within a decade of achieving the tipping point necessary to control the rest of the world.
While China presents itself as a peaceful nation, its history with Tibet, Xinjiang, Korea, India and Vietnam show a pattern of violence toward its neighbors.  Even more disturbing, Ward shows how China’s leaders not only glorified war when the country was weak and poor, but continues to do so as something necessary to fulfill its destiny.  China’s massive buildup in its military capabilities is fully consistent with its overall vision.
China’s Belt and Road initiative is the latest plan to achieve global domination.  The plan organizes the full power of China’s government and companies toward achieving dominance in key areas by 2025.  There areas include the following: next generation IT, high-end digital control machine tools and robots, aerospace and aeronautical equipment, oceanographic engineering equipment and high-tech shipping, advanced rail transportation equipment, energy efficient and new energy autos, electric power equipment, agricultural machinery equipment, new materials and bio-pharmaceuticals and medical equipment.
To achieve mastery in these areas, China will continue with its highly successful approach to success—forced joint-ventures, technology transfer, cyber-espionage, and conditional market access given to foreign firms to enter China’s giant market.  Ward explains,
Chinese firms, especially those known as “national champions,” are given priority over foreign firms inside the Chinese market, while benefiting from unconventional methods such as state-supported technology transfers, financing and espionage.  …  What happens after “incubation” in China’s giant domestic market is that these firms go out into the world—while continuing to receive the support of the Chinese state.   When American and other global companies compete with their Chinese competitors, they are competing not only with these companies, but also with the Chinese state.
…
China’s economy is still state-led. …  The Party retains control over most industries and many companies…. The Party decides which industries matter and invests massive resources.  In essence, international corporations are in competition with a 12 trillion dollar authoritarian super-architect with global geopolitical objectives.
 
Ward documents numerous examples of China’s use of its economic power to threaten nations, foreign companies and even states.  The strategy has been successfully used to pick on one victim after another and have it conform to China’s political positions or lose access to its extensive markets.
 
China’s leaders and Ward agree that the next decade will decide whether China achieves the tipping point.  Beyond this point China’s economic and military power would allow it to dominate and subjugate the world.  To prevent such a development, Ward suggests the rest of the world’s nations should wake up to the threat posed by China.  With the United States taking the lead, the joint forces of major countries of the world would have sufficient economic power to counter the threat of world domination by an evil, murderous, totalitarian nation.
 

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Book Review of Joseph E. Stiglitz’s People, Power and Profits By Robert Genetski

6/19/2019

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​Joseph Stiglitz’s new book People, Power and Profits provides an updated manifesto for the progressive-socialist agenda.  His manifesto is a call to solve our nation’s problems by relying more on government and, therefore, less on individual economic freedom.   Specifically, this agenda calls for higher tax rates on the rich and businesses, rapid increases in federal spending, government control over markets and a massive increase in government regulations.
What Stiglitz fails to do is provide his readers with any historical context of how this agenda has worked.  Progressive-socialist policies are not new.  Over the past century the US experimented with these policies on five separate occasions: 1913-1920, 1929-1940, 1965-81, 1988-95 and 2004-15.  Unfortunately, these years were among the worst years in our economic history.  There was no increase in the value of the average worker take-home pay over this entire 52-year period.  Since 1900 all of our economic progress occurred when policymakers avoided Stiglitz’s recommendations.
Not only have Stiglitz’s policy recommendations failed in the US, they have failed whenever and wherever they have been implemented.  To one extent or another progressive-socialist policies are the norm throughout much of the world.  The US is the only major country that has rejected such an agenda and embraced individual economic freedom for most of its history.  This is why Americans enjoy living standards higher than 99.9% of those in the rest of the world.  
As with other so-called progressive economists, Stiglitz is preoccupied with equality.  This preoccupation leads him to praise policies enacted during the Great Depression of the 1930s.  Stiglitz isn’t the only progressive economist to extol the merits of the Great Depression.  Thomas Piketty, who wrote Capital in the Twenty-First Century, does so as well.  Their admiration for the worst economic debacle in US history relates to what has become their prime economic objective—income equality.  They apparently believe America is better off when incomes are more equal, even if it takes a collapse in the economy to achieve such an objective.
Research from the Fraser Institute shows income inequality is fairly stable whether countries are rich or poor.  The main difference is the poor are much better off in rich countries than in poor countries.  This is why so many people in poor countries want to come to America.
The main weakness of Stiglitz book is its dearth of meaningful data.  Without such data, the author is able to make outlandish, general statements about US history without presenting a scintilla of evidence.  Had the author seriously examined the history of US economic policies and their consequences, he would have concluded that the only time the US lost its way was whenever the country followed his agenda. 
In addition to dealing with economics, Stiglitz touches on climate science by repeating the progressive mantra “…excessive emissions of greenhouse gases present an existential threat to the planet....“  As with his economic statements, he fails to provide any evidence for such an existential threat.  As for economics, the historical evidence is clear—the real existential threat to prosperity is the progressive-socialist agenda.  
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The US-China Trade Kerfuffle

5/8/2019

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​In spite of the latest kerfuffle, the odds still favor an agreement on trade.  Even without an agreement, the recovery will continue and stocks will recover.
The main problem the US has in dealing with China is the country’s reputation as an unreliable partner.  China has a well-earned reputation for not abiding by its agreements. 
When it was admitted into the WTO it agreed to open its country to foreign financial institutions and to respect intellectual property rights.  China also agreed to respect international boundaries in the South China Seas.  China has consistently violated such agreements.
The Trump Administration has insisted upon certain guarantees that any agreements should have triggers that go into effect in return for violations.    Among these triggers, Trump has demanded that current tariffs on China continue and should only be removed as China complies with its agreements.
Trade negotiators for both the US and China had indicated they had reached agreement on 90% of their issues.  Then last week US negotiators received a revised agreement changing some of what had been agreed upon.  One major change involved China refusing to change its own laws to comply the agreement.  China would still agree to do certain things, but would not change its laws to make such changes legal in China.
Backing away from an agreement already reached reflects a lack of sincerity and trust.  Since these were already the main issues the US faced with China, Trump was forced to call their hand.  Either China was serious in complying with whatever the two countries agreed to or there would be no agreement.
The ball is now in China’s court.  China has to decide whether extending the current 10% tariff on China’s exports is an acceptable temporary penalty for assuring their compliance.  The alternative is an additional 15% tariff and a further disruption to trade. 
As he has all along, Trump is playing a dangerous game.  Tariffs are disruptive to both countries.  I had assumed the current dislocations from tariffs would slow real growth to the 3% area.  If Trump follows through and raises tariffs on China to 25%, growth in the US is likely to move closer to 2½%.  The disruption to China’s economy would be even greater as more production moves from China to other countries.
Avoiding tariffs is clearly in the best interests of both countries.  The main problem is President Xi Jinping.  He cannot be seen as caving in to US demands.  Any trade agreement between the two countries will have to be designed to allow Xi to save face.  Trump has negotiated enough deals to know that if the US fails to allow such a concession, the disruption from tariffs will continue. 
In a worst case scenario, another round of higher tariffs would be enough to slow the US recovery.  But it won’t be enough to stop it.  With the S&P 500 10% below its fundamental stocks remain a strong buy.
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