Thursday, August 9, 2018

Dershowitz responds. Culture Conflict. College Campus anti-Semitism Abounds.

Irreverent humor

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 Another Rant. (See 1 below.)
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Alan Dershowitz responded to my last memo: "You confuse radicals with liberals. I’m a proud liberal who supports none of the abuses you cite. "

My response: "you are an old fashioned liberal, one with values and traditions.  I believe there is a new crowd who profess to be liberal but are really radical.  One day you must come visit in Savannah and we will show you our historic city and have some interesting conversations. Stay well and thanks for responding and perusing my memos.  Me"
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Two cultures clash and are incompatible (See 2 below.)
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It is easy for me to say it is time for Israel to destroy Hamas sitting in the comfort of my home in a gated community but there comes a time when one can only take so much and then the iron fist must strike.(See 3 below.)
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 Will Mueller's "witch hunt" blow up in his face because it has always been based on a spurious effort.  (See 4 below.)
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I refuse to stay silent. (See 5 below.)
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Dick
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1) 
I had breakfast with a friend of mine who advises and deals one on one with the top business, government and financial leaders around the world.  Here are some of his observations: There will be a trade deal with EU and NAFTA, but it will appear to be more than it really is.  Overall it will not make a huge difference either way. The  US auto companies do not really want a deal on autos because all of their profit comes from light trucks, and those now have a 25% tariff which keeps out European trucks. The US auto companies are happy this way. They do not really care about regular cars. NAFTA will get resolved, but again, it will not change the world. As to China, they will continue to resist, and the EU is so angry at Trump, they will not cooperate with him on China, even though it would be to their advantage. China is making a big effort to woo the EU to counter Trump. The EU will pacify Trump on the margins, but it will not make a real difference other than he will be able to say he won. At some point, Xi and Trump will both have to find a face saving solution, and will resolve things, but it may take a while.  Navarro is considered part of the problem as he is just a guy who was at the right place at the right time, and got adopted by Trump. He is not well respected. As to China long term, they will have very serious problems given their command economy run by one person, and the other demographic and over leverage problems they have. It will not work. They cannot just keep borrowing to cover the inefficiencies in the state run enterprises and to finance growth. When things will blow up there is impossible to forecast, but it will happen eventually. The Chinese economy as it now cannot be sustained long term. There are 400 million old people, and no way to really care for them anymore since the kids moved to the cities and left the old people in rural areas. China also has other real serious issues.

TPP would have been a good thing since it kept out China. Hilary was really in favor, but she and the Dems came out against it because of union pressure during the election. Trump was influenced by Navarro. Trump might revert to TPP at some point. The real problem is Japan, not China, if measured on a value added to making products basis. Japan produces products then ships them to China for final assembly and shipment to the US. So it appears that it is Chinese exports,  but  is really Japanese value added content.  So if you count value added content, vs end product assembled, the real deficit with China is around $70 billion, and the services surplus to the US into China is around $50 billion, so the true value add measured deficit is not much.  Abe has been playing a quiet game and letting China take the hit.  The IP issue is still the big problem. The US is the major source of tech in the world, possibly followed by Israel, but they are much smaller. The EU has no real tech industry similar to Silicon Valley, which is why they fine and attack US tech companies. China is just starting to have one, so they steal all they can from us to try to catch up. US tech rules the world and provides the US a major advantage. Services are also a major US source of trade income, partially offsetting the products deficit.

The US economy will continue to be strong, but now that we are running out of workers to hire, companies are hiring unskilled and unreliable people who show up for work regularly, or not. This means productivity suffers, costs increase as a result. Price increases follow as we get to 3.4% unemployment later this year or early next year. That is, or may be past full employment and cannot be sustained. Eventually productivity suffers, costs increase, inflation rises, and then rates rise.  Some layoffs begin,  capital  investment slows, and confidence in the future declines, and then  a slowdown begins as companies get more cautious. There is a growing move to add technology to offset the productivity decline and shortage of workers. Unclear if this will be sufficient. Wage inflation and slower productivity has already started on a small scale. However we are talking that inflation may go to 2.5% , or a bit higher, which is not a crisis. The whole key is how high does the Fed raise rates and how  fast. Will they stop, or slow raises timely not to shut off the economic growth. They have never gotten it right, so we will have to see what happens. Otherwise, there is no reason that the economic growth will not go on for at least two more years, but the actions of the Fed and the deficit matter. Also, do the Republicans hold the House. Objective observers think there is some chance they could, barely. Ignore the polls. Bullard, a highly respected economist and Fed board member, says there is no reason the GDP growth has to stop just because it has lasted a long time. Australia has 25 years of growth. Not the same as the US, but just because it is 9 years of growth now, that is no reason that there will be a slowdown or recession anytime soon if the Fed is careful.  Barring black swans, or the Dems getting control of Congress, or a surprise from Mueller, the US GDP should grow 3.7%-4% Q3, and keep going for  a full year 3%+ growth. All good for the stock market. If it is another 4% growth in Q3 just before the election, and is unemployment is around 3.5%, the Republicans probably win. It is all about turnout.

Amazon and other online sellers do lower inflation by around .5% or maybe a little less. Now that Amazon is moving into many other areas, like drugs, home mortgages, and other things, there will be a lid to some degree on how fast prices rise. The expansion of Wal Mart has had a similar impact over the past 20 years. Amazon does create a competitive ceiling on some prices, and that is good for the economy. Healthcare is where transparency is needed, and that will happen at some point to help keep a kid on medical inflation.  

The following are not his comments:
There is a growing lack of liquidity in the world as central banks, especially the Fed, begin to stop buying bonds, sopping up liquidity. QE was designed to flood the world with capital in liquid form in the hope that all that money would be used by investors to buy up distressed and other assets, and reverse the crash.  It seems to have worked, although some argue that it was not necessary, and the cycle would have worked anyway. My view is it worked in that it forced rates to a historic low across the world, provided liquidity to otherwise constrained capital markets, and made buying distressed assets and investing in the stock market a real winner. Rates were so low it was almost like getting free equity, and so why not buy distressed assets with someone else’s money. Major wealth was created, which created new funds for new ventures, refinancing took place, loans were restructured and economies recovered.  However, as we have seen, the real boost has been deregulation and tax reform in the US, not QE. QE stabilized the crash, and set a base for growth that has been triggered by deregulation and tax reduction. In any event, now that QE is closing out, there is no constant ready buyer for bonds in massive amounts, and so liquidity is shrinking. It is not a crisis, but it will have some as yet unclear impacts on bond markets, and possibly financing for emerging market countries, or others unable to find buyers  for their bonds at reasonable prices. The Fed is being very careful and transparent about its unwind program, and they monitor it constantly, so if it appears the liquidity issue is becoming a real problem they can stop anytime. Just be aware, but not to worry yet. It could be more of a problem when the EU and Japan start to also unwind their QE.

More of an issue is the high US dollar, and the problems emerging market countries are having funding their economies. Many issued US dollar based bonds in the past, and now the high dollar means they have no way to repay these bonds with the current disparity in currencies since their lower currency is not sufficient to cover the US dollar value of the bonds. The high dollar however helps them export to the US since their exports are now lower priced in US dollars. This also helps the US contain inflation as the economy booms and it keeps import prices lower. The high US dollar also means that even with tariffs, and the lower valued Yuan, Chinese imports are not as expensive as they may have been had the dollar not risen and the yuan not depreciated. That increased spread eats up a portion of the higher prices created by tariffs. Tariffs are charged on the dollar value of an import, so if the import is priced less due to the higher dollar, and lower yuan, then the amount of the tariff as a percentage of that price is lower to the consumer. So a widget that is priced by a Chinese company at 100 yuan and the yuan equals one dollar, now it is still priced at 100 yuan but in dollars it is maybe only $.90. So with tariffs at 25% it would have cost $1.25 if 100 yuan were equal to $1.00, but now costs $1.13 with the yuan at $.90. It is hard to predict how this will all play out. Maybe a bunch of Chinese companies will move production to Bangladesh, Vietnam, or Africa where they already have factories to take advantage of lower labor costs.

Despite manufacturing declining all during the Obama years, and the pundits like Sommers and Krugman saying the US was no longer a place for manufacturing, now manufacturing jobs are growing very strongly again, and industrial is one of the strongest commercial real estate markets. . With tax reform and deregulation, the US is again a place to make things efficiently and with quality. In fact, if there were still qualified workers to hire, the manufacturing hiring would be even higher. U6 is down to 7.5%, which means there are still some people who could work, but are still not taking jobs. The record low is 6.9%. We may get there as companies are hiring anyone who can possibly be trained to do anything.  

What most people, especially the media, and the left, do not understand about the US negotiations on N Korea, is Trump is setting it up so that nobody can say he did not give it all he has to avoid military action, should that eventually be required. In fact, the left and media complain he is being too easy. He has left the wide open opportunity for Kim to come ahead, but if Kim keeps insisting the US give him something to get him to do some little step, that is not happening beyond temporary suspension of the military training in August. At some point Kim needs to realize, Trump and Pompeo are not Obama and Kerry and he is not getting concessions like Iran did, nor like his father did. Until then, not much will happen.
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2)  Why Arab-Islamic Culture And Democracy Are Incompatible
ISIS-American FlagThere are fundamental and insuperable contradictions between democracy and Arab-Islamic culture, among which are the following:
1. Whereas democracy is based on the primacy of the individual, Arab-Islamic culture is based on the primacy of the group – be it the village or the extended family. The individual Arab or Muslim has no identity outside the group; it is to the group that he owes his loyalty. This is one reason why internecine conflict has been endemic among Arabs throughout their history.
2. Democracy is based on consent, pluralism, and persuasion. Differences are resolved by discussion and mutual concessions, and agreements are usually abiding. In contrast, Islamic culture is based on the primacy of coercion. Agreements between rival factions do not really terminate animosities, which is why such agreements are so short-lived.
3. Freedom is one of the two cardinal principles of democracy. This is not the case of Arab-Islamic culture, which is strictly authoritarian and whose media are government-controlled. The radical separation of religion and politics found in democracy is foreign to Islamic regimes.
4. Unlike democracy, whose other cardinal principle is equality, Arab-Islamic culture is strictly hierarchical. Top-down leadership is a fundamental principle of Islamic theology.
5. Democracy is generally regarded as a process – the “rules of the game” – by which various individuals pursue their private interests and have diverse “lifestyles.” In contrast, Arab-Islamic culture binds everyone to the substantive values prescribed in the Koran.
6. Whereas democratic societies are preoccupied with the present, Arab-Islamic culture exists under the aspect of eternity colored by events of the past and dreams of the future.
7. Unlike democracy, which is steeped in secularism, Arab-Islamic culture is rooted in religion. The radical separation of religion and politics found in democracy is foreign to Islamic regimes.
8. The peaceful tendencies and publicity found in democracy stand in striking contrast to the militancy and dissimulation characteristic of Islam. On this point, consider the assessment of the late Professor Yehoshafat Harkabi, once head of Israeli Military Intelligence.
Prof. Harkabi refers to Islam as a “combatant,” “expansionist” and “authoritarian” creed. He admits that “the idea of jihad is fundamental in Islam,” in consequence of which “hatred,” “hostility” and “conflict” are endemic to Arab culture.
Moreover, he quotes the liberated Arab sociologist Dr. Sonia Hamady, who writes: “The Arabs usually look for external causes of their frustrations; they prefer to put the blame on some scapegoats [like Israel or America, the ‘Great Satan’].” Furthermore, “Lying,” she says, “is a widespread habit among Arabs, and they have a low idea of truth.”
Viewed in this light, democracy in the Arab-Muslim world is more fondly to be wished for than expected.
Prof. Paul Eidelberg (Ph.D. University of Chicago), former officer U.S. Air Force, is the founder and president of the Israel-America Renaissance Institute (I-ARI), www.i-ari.org, with offices in Jerusalem and Philadelphia. He has written several books on American and on Jewish Statesmanship. His magnum opus The Judeo-Scientific Foundations of American Exceptionalism: Today’s Choice for the “Almost Chosen People” is in process of publication. Prof. Eidelberg lives in Jerusalem.
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