Sharansky
By Money Politic$
I had the great honor to interview Natan Sharansky on K & Co. Tuesday night. As some one who believes in the transforming power of freedom-- both economic freedom at home and democratization abroad-- his book has become something of a political bible for me. The fact that Pres. Bush and Condi Rice have read the book and adopted many of its principles for US foreign policy is a great comfort.
Perhaps the most significant point raised by Sharansky in the interview was in response to my question on whether N. Korea could ever become a democracy. Sharansky reminded that dictatorships are much weaker internally than outsiders believe. Spending all their time holding a gun to the head of everyone, totalitarians grow more and more fatigued.
This is the only positive thought I have heard on the subject of N.Korean nuke saber rattling. Frankly, I don't trust China to really help out. Nor do I have any real confidence in Kofi Annan's corrupt UN. I certainly hope that the US missile defense sysytem is straightened out quickly. Reagan was mocked for Star Wars, but even land and sea-based missile systems are capable of defending us against the whackos running that Godless place.
Maestro
By Money Politic$
A generally upbeat report from Greenspan on economic growth and inflation But his "conundrum" comment on bonds was misleading bordering on sophomoric. The main reason bond yields are low worldwide is diminishing inflation fears. In the US we are witnessing a "monetary paradox" whereby a rising fed funds rate and slowing monetary base growth have reduced inflation expectations and pulled down long-term rates.His statement that "increasing short-term rates are normally accompanied by a rise in longer-term yields" is just plain wrong.
Otherwise, based on this flawed logic, we'd never have inverted yield curves. But we do have them when Fed policy turns deflationary as it did with a veangence in 2000, leading to the stock market collapse and recession.Reference to "the simple mathematics of the yield curve" is utterly vacuous. Gold prices are gradually weakening in the spot market and especially among gold stocks. The dollar is bottoming as fewer new greenbacks are being created.
Another reason for low bond yields is the "easy capital" created by reduced tax rates on capgains and dividends, along with excess capacity in the tech sector. Lowered capital cost is prompting a shift of investment from tech to basic materials, industrials and transportation, the real leaders of the economy.
The bottom line is that higher bond rates signal rising long-term inflation expectations while today's lower rates signal lower inflation fears. Ironically, it is precisely the maestro's timely rate snugging that has brought down bond yields and flattened the curve. However, if the funds rate moves up to 3.5% as indicated by futures markets, and bonds stay around 4%, it will be a sure sign that the Fed should stop tightening by the end of the summer.
Thankfully Greenspan supported Bush's Social Security reform idea with personal savings accounts. And he forcefully acknowledged the system's looming financial problem.
Most disappointing are press reports that Bush may be willing to accept increases in the payroll tax cap. This is a potential job killer that also weakens the link between work effort and retirement reward. |
