Sadly, all true. The point made by Tankus is particularly relevant. This deferral to short term traders (who by the way are most definitely not long term investors) as if they knew something is particularly gaulling. Most have less than zero appreciation for the importance of the rule of law and good governance. The widespread hostility to good securities regulation and corporate law (for instance, Delware chancellry and Tesla) and embrace of cyrpto nonsens alone makes it abundantely clear than most investors have no understanding for the fundamental importance of good rules, made carefully, properly enforced. Fools with money are still fools, and the mere fact that someone runs money does nothing to prove that they are not a fool (and often does prove that they are shallow and emotionally challenged). Markets did not crash in Turkey or Hungary in 3 months. But in 3 -10 years, the corrosive impact of bad governance rots everything.
In a comment on one of the posts in this newsletter a couple of months ago I mused about what sort of cultural revolution we were convulsed by (or "convulsed in" if these violent spasms were induced by some sort of internal failure).
But whatever the source of these spasms, the condition has become a totalizing one as the Administration demolishes our cultural, legal and now our apex economic institutions, and attempts to comprehensively remake American society’s moral, aesthetic, historical, and administrative foundations so that every act of production reflects the regime’s worldview.
And what is this worldview? To reaffirm a monolithic vision of American greatness. That means a suppression of any and all means that existed (a) to promote and celebrate diversity, (b) increase our awareness of our checkered history, and (c) encourage critical thinking in all facets of our educational system which, despite its shortcomings, has served us very well.
The nouns "cancellations", "defunding", "restrictions", "takeovers", "purges", "bans", have become part of our everyday conversation. There was some of this when the dominant liberal ideology reigned but it was never on this scale and never imposed with such speed and brutality.
But what makes this project a totalizing one is that its ambition is not merely to quash dissent but to reshape the total symbolic and moral order so that alternative ways of thinking cannot easily regenerate. And in its ambition to both destroy and remake it seems far more radical than the silencing and censorship that was experienced in Francoist Spain or Pinochet's Chile, and closer to the total cultural overhaul we saw in Mao's Cultural Revolution and the Russian Revolution in its late Bolshevik period when all pluralism was abandoned under Stalin's Socialist Realism dictates.
And, then, of course we have Nazi Germany. This might be premature but the parallel with that period and that place is not just the extirpation of “degenerate” ideas, but also to generate a new, self-reinforcing culture aligned with a singular vision. We do not yet have anything like Hitler's racially pure Volksgemeinschaft (and maybe we never will ) but we are moving closer to that regime's Gleichschaltung (coordination) — where every cultural production from literature to film to the sciences needed to be brought into ideological alignment. And how much longer before we get to state intervention in the economy, never in ownership of the means of production, but where businesses become state-controlled managers (Betriebsführer), implementing directives on production, pricing, and distribution received from government agencies?
I will make this an even more depressing commentary. I won't go into detail of my background but I am 76 years old, an independent from day 1 (I believe I am a very well-informed, rigorously analytic voter over these decades) and have a PhD in comparative economics/politics. I spent most of my career working in the financial industry in New York City at fairly high levels and have hands-on experience and up-close observations on Trump. To put it simply, there isn't a debt he hasn't abrogated ever. People focus on all the bankruptcies, but many other transactions involved "cram-downs" where investors, companies, employees, contractors/subcontractors would receive pennies on the dollar and he would walk away unscathed. Then, of course, there are the hundreds, if not thousands, of contracts he simply walked away from and would say "sue me", and thus the thousands of lawsuits he has been involved in for decades.
So, people are focused on fed independence (obviously a very important issue) but it goes deeper than that in my estimation; if you look deeper than the clear issue of the demand for lower interest rates by the regime (not just Trump), it has to be seen in the context of the Mar-a-Lago Accord authored primarily by Stephen Miran and supported by Scott Bessent among others. (Guess who Trump started with vis-a-vis the Fed, Stephen Miran, before he even got to the firing of Cook and the subjugation of other members who before were interest rate hawks and now are doves because they want to be nominated in Powell's place). People have pooh-poohed me when I would mention that a key to making everything work in terms of a total restructuring of the global financial system was the forcing of US Treasury bond holders to exchange their bonds for zero-coupon, 100-year bonds. Now, Bessent is promoting a dramatic slashing of interest rates, saying that "all of the models" support that move (which is far from the truth). In addition, he and Navarro (another economic genius of the firmament) are the authors of the alleged reciprocal tariff debacle we are witnessing (particularly since there is nothing reciprocal about them; they are simply blackmail and coercion based on bullying.)
So, let us look at Bessent more closely. He is a failed hedge fund manager. He raised his first, $1B fund in 2000 and had to close it down in 2005 because of poor performance. In 2011, he went to Soros Fund Management as investment manager and has some good years (undoubtedly because Soros had ultimate control) and then thought he had the experience to set up a new, $2B fund in 2015 called Key Square Group. He had a great first year, increasing funds to $5.1 B. Sounds good but think about the frothy times in 2017! Between 2017 to 2023, the fund declined to $577M (!) by 2023. It was a pretty bad husbanding of resources. Also remember what hedge funds do: take high-risk trading bets, including in Treasury markets. So, here we are. Does anyone really think this is going to end well? If short-term interest rates are dramatically lowered, long rates will go up. How much? Who knows given the market's current complacency about what is going on.
However, it could be a highly likely scenario that to get long rates down (which is the necessary goal of all of this maneuvering to reduce the dramatically increasing interest costs on Treasury debt), the only alternative becomes a "cram-down" of US Treasury debt, a default by any other name. It sounds dire, and it is. Am I that out to lunch here that it may end up being the outcome of all that is going on given how this group of individuals are handling the tariff "negotiations"? It's not just transactional. It's a black swan event beyond imagining. And I for one can imagine it is where we are heading.
Sorry this is so long. I had to get it off of my chest!!!
The irony is that the mishandling of the economy may be the thing that brings this regime down; not DEI cleansing, ICE overreactions or the Gaza problem.
The second to last 'graph is the punchline. Alas, the whole quote from Politico is spot on.
We've long expected the 'street to be the canary in the coal mine (it sure as shit was in 2008) but now they are beyond complacent, and the traders are riding the waves snacking on the easy gains that the volatility is making possible.
That is going to stop soon, as Trump isn't getting more rational (the opposite is what is happening), and then the very bad times will begin.
Great summary of a scary turn of events. People should really keep in mind Erdogan and Trump are two peas in a pod, both combine arrogance and incompetence in shockingly high levels and unfortunately for Turkey, erdogan crashed the economy. How is this guy in power? And if trump does similar inflationary monetary policy he will have a similar avoidable economic disaster. Nobody should have any confidence in him! The only good part is the republicans will no longer be able to win votes on the economy… ever!
A couple of thoughts. First, AMD and Nvidia both compete with Intel and are therefore in deep trouble. This would be a good time to sell any stock you might have in them. Because there's now a strong incentive for the Federal Government to go after them.
Second, all the comparisons between the developing authoritarian situation in the US and that in China, Turkey, or other authoritarianisms is the number of guns in private hands in the US. If the economy really goes south that's going to be a big issue.
Lots of USG intervention in industry going on, which is a bad look indeed. However I'm curious about your take on the Intel equity announcement.
Historically the USG has taken equity stakes at times of economic crisis (2009 - auto industry, TARP/banks); wartime and great power rivalry (USG running factories in shipbuilding, steel, rubber, etc in WWII; Lockheed bailout in Cold War). More recently the USG intervened in the US Steel sale, declaring this a strategic asset. So we know the USG (not just Trump) does this sort of thing all the time.
In your view, a) is this just bad policy, then and now;
b) is it good policy sometimes, but should be saved for wartime/crises (and in your view Intel is not at risk of failing - or not a strategic asset);
Or perhaps is the Intel move a semi-defensible policy --ie debatable and smart folks may disagree -- but the policy comes along with so many concerning policies - ie shakedown for export fees (Nvidia/AMC), undermining central bank independence, corruption, and all the rest - that we lump the Intel policy with the long list of administration policies we are worried about..?
I would like to read a bit more about the patents. Until 1980, patents from government funded research were entirely owned by the government. I have heard a lot of criticism about the 1980 changes to that over the years, especially re big Pharma, as examples of big business using tax dollars for personal gain. The 1980 law still allows the government to assume control of the patents under certain circumstances, and that loophole seems to be what they’re doing.
Setting aside who is doing it, is this actually necessarily bad? The precedent will live past this president. Blind squirrel occasionally finds a nut, stopped clock twice a day, etc. Why should big, monopolistic companies control taxpayer funded research?
Wow what an amazing account of Trump Derangement Syndrome. I will refute only 5 of your baseless claims but it could be many more 1) tariffs- there has been no increase in inflation and and instead the government has received 150 Billion ( 80% increase over last year) and a projection of 10 Billion over the next 10 years 2) funding for research and development passed by Congress this year is 200 Billion,an increase of 7.5% over last year. Why shouldnt the government recieive some of the patent revenue since they provide most of the funding? 3) Under the big better bill, in the first 6 months, the budget deficit is 25% less than last year 4) Can you explain ( other than your opinion) that less crime leads to suppression of the service sector? 5) The 9 billion was already going to Intel (thanks to Biden) the government now has a stake in the company so when they go broke ( It's a terrible company) maybe the government can receive some of its investment back instead of 0
Dan, come on that Lisa Cook was a totally unqualified affirmative action appointment to the Fed. Her only qualification was that she was a negro with a graduate degree. See Dr. Carter’s summation of her academic credentials in the article below. (You will have to scroll down to it as it in the link below as it was published August 23 it’s titled The Fed)
Re: And the damage will be felt far beyond the Fed. This will mark the destruction of professionalism and independent thinking throughout the federal government.
The system prior to tDrummpf had that problem. When the office of a senator requests a study of the color of the sky, you ask Blue or Yellow? Been there done that.
When you accept the Soverign's Gelt you dance to his music. Funny that so many organizations thought they could call the tune. They are getting painfull lesson.
Sadly, all true. The point made by Tankus is particularly relevant. This deferral to short term traders (who by the way are most definitely not long term investors) as if they knew something is particularly gaulling. Most have less than zero appreciation for the importance of the rule of law and good governance. The widespread hostility to good securities regulation and corporate law (for instance, Delware chancellry and Tesla) and embrace of cyrpto nonsens alone makes it abundantely clear than most investors have no understanding for the fundamental importance of good rules, made carefully, properly enforced. Fools with money are still fools, and the mere fact that someone runs money does nothing to prove that they are not a fool (and often does prove that they are shallow and emotionally challenged). Markets did not crash in Turkey or Hungary in 3 months. But in 3 -10 years, the corrosive impact of bad governance rots everything.
In a comment on one of the posts in this newsletter a couple of months ago I mused about what sort of cultural revolution we were convulsed by (or "convulsed in" if these violent spasms were induced by some sort of internal failure).
But whatever the source of these spasms, the condition has become a totalizing one as the Administration demolishes our cultural, legal and now our apex economic institutions, and attempts to comprehensively remake American society’s moral, aesthetic, historical, and administrative foundations so that every act of production reflects the regime’s worldview.
And what is this worldview? To reaffirm a monolithic vision of American greatness. That means a suppression of any and all means that existed (a) to promote and celebrate diversity, (b) increase our awareness of our checkered history, and (c) encourage critical thinking in all facets of our educational system which, despite its shortcomings, has served us very well.
The nouns "cancellations", "defunding", "restrictions", "takeovers", "purges", "bans", have become part of our everyday conversation. There was some of this when the dominant liberal ideology reigned but it was never on this scale and never imposed with such speed and brutality.
But what makes this project a totalizing one is that its ambition is not merely to quash dissent but to reshape the total symbolic and moral order so that alternative ways of thinking cannot easily regenerate. And in its ambition to both destroy and remake it seems far more radical than the silencing and censorship that was experienced in Francoist Spain or Pinochet's Chile, and closer to the total cultural overhaul we saw in Mao's Cultural Revolution and the Russian Revolution in its late Bolshevik period when all pluralism was abandoned under Stalin's Socialist Realism dictates.
And, then, of course we have Nazi Germany. This might be premature but the parallel with that period and that place is not just the extirpation of “degenerate” ideas, but also to generate a new, self-reinforcing culture aligned with a singular vision. We do not yet have anything like Hitler's racially pure Volksgemeinschaft (and maybe we never will ) but we are moving closer to that regime's Gleichschaltung (coordination) — where every cultural production from literature to film to the sciences needed to be brought into ideological alignment. And how much longer before we get to state intervention in the economy, never in ownership of the means of production, but where businesses become state-controlled managers (Betriebsführer), implementing directives on production, pricing, and distribution received from government agencies?
I will make this an even more depressing commentary. I won't go into detail of my background but I am 76 years old, an independent from day 1 (I believe I am a very well-informed, rigorously analytic voter over these decades) and have a PhD in comparative economics/politics. I spent most of my career working in the financial industry in New York City at fairly high levels and have hands-on experience and up-close observations on Trump. To put it simply, there isn't a debt he hasn't abrogated ever. People focus on all the bankruptcies, but many other transactions involved "cram-downs" where investors, companies, employees, contractors/subcontractors would receive pennies on the dollar and he would walk away unscathed. Then, of course, there are the hundreds, if not thousands, of contracts he simply walked away from and would say "sue me", and thus the thousands of lawsuits he has been involved in for decades.
So, people are focused on fed independence (obviously a very important issue) but it goes deeper than that in my estimation; if you look deeper than the clear issue of the demand for lower interest rates by the regime (not just Trump), it has to be seen in the context of the Mar-a-Lago Accord authored primarily by Stephen Miran and supported by Scott Bessent among others. (Guess who Trump started with vis-a-vis the Fed, Stephen Miran, before he even got to the firing of Cook and the subjugation of other members who before were interest rate hawks and now are doves because they want to be nominated in Powell's place). People have pooh-poohed me when I would mention that a key to making everything work in terms of a total restructuring of the global financial system was the forcing of US Treasury bond holders to exchange their bonds for zero-coupon, 100-year bonds. Now, Bessent is promoting a dramatic slashing of interest rates, saying that "all of the models" support that move (which is far from the truth). In addition, he and Navarro (another economic genius of the firmament) are the authors of the alleged reciprocal tariff debacle we are witnessing (particularly since there is nothing reciprocal about them; they are simply blackmail and coercion based on bullying.)
So, let us look at Bessent more closely. He is a failed hedge fund manager. He raised his first, $1B fund in 2000 and had to close it down in 2005 because of poor performance. In 2011, he went to Soros Fund Management as investment manager and has some good years (undoubtedly because Soros had ultimate control) and then thought he had the experience to set up a new, $2B fund in 2015 called Key Square Group. He had a great first year, increasing funds to $5.1 B. Sounds good but think about the frothy times in 2017! Between 2017 to 2023, the fund declined to $577M (!) by 2023. It was a pretty bad husbanding of resources. Also remember what hedge funds do: take high-risk trading bets, including in Treasury markets. So, here we are. Does anyone really think this is going to end well? If short-term interest rates are dramatically lowered, long rates will go up. How much? Who knows given the market's current complacency about what is going on.
However, it could be a highly likely scenario that to get long rates down (which is the necessary goal of all of this maneuvering to reduce the dramatically increasing interest costs on Treasury debt), the only alternative becomes a "cram-down" of US Treasury debt, a default by any other name. It sounds dire, and it is. Am I that out to lunch here that it may end up being the outcome of all that is going on given how this group of individuals are handling the tariff "negotiations"? It's not just transactional. It's a black swan event beyond imagining. And I for one can imagine it is where we are heading.
Sorry this is so long. I had to get it off of my chest!!!
The irony is that the mishandling of the economy may be the thing that brings this regime down; not DEI cleansing, ICE overreactions or the Gaza problem.
Alas, that is the American way. Wish it wasn't the case, but <shrugs hands>
The second to last 'graph is the punchline. Alas, the whole quote from Politico is spot on.
We've long expected the 'street to be the canary in the coal mine (it sure as shit was in 2008) but now they are beyond complacent, and the traders are riding the waves snacking on the easy gains that the volatility is making possible.
That is going to stop soon, as Trump isn't getting more rational (the opposite is what is happening), and then the very bad times will begin.
Great summary of a scary turn of events. People should really keep in mind Erdogan and Trump are two peas in a pod, both combine arrogance and incompetence in shockingly high levels and unfortunately for Turkey, erdogan crashed the economy. How is this guy in power? And if trump does similar inflationary monetary policy he will have a similar avoidable economic disaster. Nobody should have any confidence in him! The only good part is the republicans will no longer be able to win votes on the economy… ever!
A couple of thoughts. First, AMD and Nvidia both compete with Intel and are therefore in deep trouble. This would be a good time to sell any stock you might have in them. Because there's now a strong incentive for the Federal Government to go after them.
Second, all the comparisons between the developing authoritarian situation in the US and that in China, Turkey, or other authoritarianisms is the number of guns in private hands in the US. If the economy really goes south that's going to be a big issue.
Lots of USG intervention in industry going on, which is a bad look indeed. However I'm curious about your take on the Intel equity announcement.
Historically the USG has taken equity stakes at times of economic crisis (2009 - auto industry, TARP/banks); wartime and great power rivalry (USG running factories in shipbuilding, steel, rubber, etc in WWII; Lockheed bailout in Cold War). More recently the USG intervened in the US Steel sale, declaring this a strategic asset. So we know the USG (not just Trump) does this sort of thing all the time.
In your view, a) is this just bad policy, then and now;
b) is it good policy sometimes, but should be saved for wartime/crises (and in your view Intel is not at risk of failing - or not a strategic asset);
Or perhaps is the Intel move a semi-defensible policy --ie debatable and smart folks may disagree -- but the policy comes along with so many concerning policies - ie shakedown for export fees (Nvidia/AMC), undermining central bank independence, corruption, and all the rest - that we lump the Intel policy with the long list of administration policies we are worried about..?
We're already in that world "in which no one will be able to trust the reliability of U.S. economic data."
I would like to read a bit more about the patents. Until 1980, patents from government funded research were entirely owned by the government. I have heard a lot of criticism about the 1980 changes to that over the years, especially re big Pharma, as examples of big business using tax dollars for personal gain. The 1980 law still allows the government to assume control of the patents under certain circumstances, and that loophole seems to be what they’re doing.
Setting aside who is doing it, is this actually necessarily bad? The precedent will live past this president. Blind squirrel occasionally finds a nut, stopped clock twice a day, etc. Why should big, monopolistic companies control taxpayer funded research?
I can't wait to respond to this article in 6 months with proof that almost all or maybe all of your predictions were wrong
Wow what an amazing account of Trump Derangement Syndrome. I will refute only 5 of your baseless claims but it could be many more 1) tariffs- there has been no increase in inflation and and instead the government has received 150 Billion ( 80% increase over last year) and a projection of 10 Billion over the next 10 years 2) funding for research and development passed by Congress this year is 200 Billion,an increase of 7.5% over last year. Why shouldnt the government recieive some of the patent revenue since they provide most of the funding? 3) Under the big better bill, in the first 6 months, the budget deficit is 25% less than last year 4) Can you explain ( other than your opinion) that less crime leads to suppression of the service sector? 5) The 9 billion was already going to Intel (thanks to Biden) the government now has a stake in the company so when they go broke ( It's a terrible company) maybe the government can receive some of its investment back instead of 0
Dan, come on that Lisa Cook was a totally unqualified affirmative action appointment to the Fed. Her only qualification was that she was a negro with a graduate degree. See Dr. Carter’s summation of her academic credentials in the article below. (You will have to scroll down to it as it in the link below as it was published August 23 it’s titled The Fed)
https://jeffreycarter.substack.com/
Have some Delong on Cook:
https://braddelong.substack.com/p/chaos-moneys-trying-to-fire-fed-governor?utm_source=post-email-title&publication_id=47874&post_id=171971600&utm_campaign=email-post-title&isFreemail=false&r=1nzbtr&triedRedirect=true&utm_medium=email
https://braddelong.substack.com/p/a-note-on-the-unusual-procedures?utm_source=post-email-title&publication_id=47874&post_id=172024231&utm_campaign=email-post-title&isFreemail=false&r=1nzbtr&triedRedirect=true&utm_medium=email
Re: And the damage will be felt far beyond the Fed. This will mark the destruction of professionalism and independent thinking throughout the federal government.
The system prior to tDrummpf had that problem. When the office of a senator requests a study of the color of the sky, you ask Blue or Yellow? Been there done that.
When you accept the Soverign's Gelt you dance to his music. Funny that so many organizations thought they could call the tune. They are getting painfull lesson.
Well we don't know what will happen. All we know is the Democrats won't like it : )
Thank you Prof. I learned lots of important stuff, including the word “equifinality”