Supply Side Reading 9-14-14

Once again, thanks to our friends at The Supply Side for keeping us updated with content we may miss over the course of days.

Weekend Wrap Up: Ralph Benko at Forbes.com writes Steve Forbes and Steve Lonegan are out to Fix The Dollar; Steve Lonegan says there is no free market as long as the Fed is destroying our money.

Politics and Government

From Politico, Howard Shatz writes to defeat ISIS, follow the money.

At Forbes.com, Stephen Moore says the fast food protests are a great plan to destroy teen jobs.

Monetary Reform

Ralph Benko at Forbes.com writes Steve Forbes and Steve Lonegan are out to Fix The Dollar.

From MarketWatch, Steve Lonegan says there is no free market as long as the Fed is destroying our money.

Dr. Larry Parks interviews FixTheDollar’s Steve Lonegan about the importance of high integrity money on his TV talk show.

The NY Sun endorses William McKinley over William Jennings Bryan.

At Fortune, Chris Matthews shows America’s great growth slowdown.

In the Fiscal Times, Jason Russell reviews Steve Forbes new book “Money.”

In the WSJ, David Malpass believes the Fed is looking like a sovereign wealth fund.

From MarketWatch, Greg Robb covers the only two words that will matter at the Fed next week.

The Big Squeeze

Bloomberg warns rising milk costs signal higher prices for pizza.

World

At National Interest, Christopher Whalen analyzes whether Japan’s economy is heading towards collapse.

Kemp: A Strong America Needs a Strong Dollar

By Jack Kemp

March 11, 2008 for Townhall.com

In the early 1970s, as I began serving in the U.S. Congress representing Buffalo, N.Y., I remember the disdain (and disgust) I felt as the Republican Party was torn apart by President Nixon’s Watergate follies, and I felt even worse by his wage and price controls, tax and tariff hikes, and the devaluation of our currency.

As the country divided over the Vietnam War, stagflation began to appear, first under Nixon, surging under President Ford and reaching its most dangerous heights under President Carter. It didn’t end until the early 1980s, when President Reagan began cutting tax rates on both labor and capital investment and as Paul Volker, chairman of the Federal Reserve Board, sharply tightened monetary policy. This was the right combination of fiscal, tax and monetary policies that ended the simultaneity of inflation and recession, what we now know as “stagflation.”

In those dark days of the 1970s, economic malaise, Watergate crimes and fierce debates over the Vietnam War, John Gardner of Common Cause wrote something in Newsweek I’ve never forgotten: “America is caught in a crossfire between the ‘uncritical lovers’ and the ‘unloving critics.'”

His description of crossfire between chauvinists who saw nothing wrong in America and the nihilists who wanted America to implode and be built into a new “socialist” model was the perfect metaphor for that decade. Actually, that’s a pretty apt description about some of the debates taking place today over the Iraq War and at a time we are beginning to see the incipient stages of a new round of stagflation.

John McCain versus Barack Obama or Hillary Clinton will square off in the presidential campaign, with McCain “the older and wiser” versus Obama, the “charismatic and younger,” or Clinton, “the experienced one.” (Not!)

It’s no secret I’m a strong John McCain guy, but not without respect for both Obama and Clinton. As Sen. McCain has pointed out, it will be a civil and respectful debate, but very, very spirited, as indeed it should be, with Obama and Clinton both on the far left.

With the dollar’s weakness pervasive and the economy slowing down to a near halt, with more and more evidence of too many Americans, particularly people of color, losing their homes and their nest eggs of wealth, I believe McCain will chart a political and economic course for our nation that will do far more than just offer “hope” or “change.” I believe he will pursue policies that will actually lead to strong economic growth while ending these early stages of dollar weakness and inflation.

Those on the left will ask in response, “Don’t you have to have higher interest rates to strengthen the dollar?” Absolutely not!

As David Malpass, chief global economist at Bear Stearns, points out, “The two aren’t tightly connected. Many countries with low interest rates have had strong currencies, including the German mark in the 1960s and the euro now. The dollar strengthened in the first years of the Reagan administration when he focused on it and put in good economic policies. We should do that again. The United States is a great country, and the dollar is normally a great currency.”

McCain, I firmly believe, will do that again.

As I wrote recently, moving our nation toward a flatter, fairer and simplified tax code that is both pro-growth and pro-family while strengthening the investment climate in our country will immediately strengthen the demand for the dollar here and around the globe. McCain knows we need a tax policy for the 21st century that both recognizes the need for a competitive economy in an increasingly flattening world while encouraging capital formation and job creation here at home. His ideas for cutting corporate tax rates from 35 percent to 25 percent, expensing all investment in machinery, equipment and technology, making permanent the 15 percent tax rate on capital gains, dividends and estates while eliminating the alternative minimum tax would give us the answer to the dangerous simultaneity of inflation and recession.

These pro-growth initiatives by candidate McCain will force Sens. Obama and Clinton and their political advisers to say, “Oh no, we can’t cut tax rates, we need higher taxes – but only on the rich.” But soaking-the-rich rhetoric and policies to redistribute wealth will weaken the U.S. investment climate, further weaken the dollar and, in the end, exacerbate stagflation.

McCain’s thesis of noninflationary growth will have the winning edge against Obama and Clinton’s “antithesis.” I truly believe this, among the other issues, like free trade, immigration reform, national security and a strong foreign policy, accompanied by McCain’s pledge of strong appointments to the Supreme Court like Roberts and Alito, will give Republicans the opportunity to both win the White House and gain seats in the U.S. Congress.

Kemp: A letter from Seoul

By Jack Kemp

March 28, 2001 for Townhall.com

The world economy is caught in a vice between the jaws of monetary deflation and fiscal austerity, the result of extraordinarily tight monetary policy and high tax rates. According to Bear Stearns Chief International Economist David Malpass, the global economy is likely to contract by about half a percent in nominal terms this year.

I spent last week in Seoul, South Korea, meeting with President Kim Dae Jung, members of the National Assembly, and leaders of both the ruling party and the opposition party. It is painfully obvious that the Korean economy is contracting.

Japan is flat on its back and likely to contract by double digits this year. The stocks on the Nikkei stock exchange recently hit a 16-year low. Exports are down and output is shrinking in developing economies such as the Philippines.

And the problems aren’t confined to Asia. Production is slowing throughout Europe, and the European Union economy will likely grow little, if at all, after accounting for the oil-swollen price deflator. The economic outlook in South America is precarious as its second-largest economy, Argentina, deteriorates rapidly and fears of a currency crisis loom. Economic growth in the United States is flat, thanks to Alan Greenspan and the anti-tax cutting Democrats.

If the grip of monetary deflation and fiscal austerity isn’t loosened soon, we may find ourselves in the first global crisis of the 21st century. If so, it will be a crisis created entirely by central bankers at the U.S. Federal Reserve Board and the Bank of Japan, by bureaucrats at international financial institutions like the IMF and the World Bank, and by national governments preoccupied with deficits and debt and afraid or unable to cut tax rates.

The malefactors will insist that raising tax rates or keeping them high to reduce deficits and retire public debt is necessary to lower interest rates and increase saving and spur economic growth, although in reality these policies destroy incentives, destroy jobs and slow economic growth. They will protest that they had to raise interest rates and starve the world of liquidity in order to combat speculative bubbles and prevent too many people at work and too much investment from overheating the economies of the world. They speak of inventory and investment overhangs, but what do they expect when their policies undercut production? Monetary deflation and fiscal austerity create a self-fulfilling prophecy of economic pain and misery.

Deflation ultimately grinds away at the entire economy until all wages and prices adjust downward. Government revenues decline, along with falling profits, fewer capital gains, and the declining fortunes of workers who lose their jobs or must take wage cuts. Politicians and IMF bureaucrats then rush forward and insist that tax rates be raised or kept high to reduce deficits, preserve surpluses and retire debt.

The evidence of deflation is evident in the price of gold, which in dollar terms has fallen from $290 an ounce to $260 since the Fed undertook its latest effort to squeeze liquidity out of the economy. In Japan, the yen price of gold was more than cut in half over the past decade, falling from to an ounce before recovering slightly to Recently the Bank of Japan announced it was giving up on targeting interest rates, which have been driven practically to zero without restarting the economy, and will now target bank reserves, seeking to increase the supply of yen by 25 percent in an effort to reflate the Japanese economy. The price of gold in Japan didn’t rise on the central bank’s announcement, which is a pretty clear market indication that deflation expectations will be hard to dislodge.

The yen did weaken significantly against the dollar after the BOJ announcement and will continue to do so, in spite of Japanese protestations to the contrary, if the new policy succeeds in raising the yen price of gold and the Fed does not loosen U.S. monetary policy. If the Fed persists in deflationary monetary policy in the face of rising Japanese liquidity and a declining yen, it may either force Japan to abandon a successful policy to stop the yen from sliding or if not touch off widespread competitive devaluations as countries, especially those nations whose currencies are tied to the dollar, seek to protect their competitive position vis-a-vis their trading partners.

Behind the gloom and doom, however, there is a ray of hope. Now is the opportune time for the United States and Japan to come to an accord in creating an international monetary standard that will allow both countries to halt the deflation without setting off competitive currency devaluations around the world. If both countries would agree in concert to revalue their currencies relative to the price of a basket of price-sensitive commodities using gold as a benchmark, we may not only escape the jaws of “deflausterity” but also put in place a new global monetary standard to prevent this kind of situation from arising again in the future.

It’s ironic that everyone seems to agree on the need for global high-tech standards to ensure smooth commercial operations across national borders. It’s time to create an international monetary standard to prevent the jaws of deflation and austerity from crushing the economies of the world.