Tag Archives: economics

Cheap Electricity and Food

My Comments: Over the next 25 years, the US will resume it’s role as THE major global economic influence. You can argue it will happen as a result of bringing coal mining jobs back to Appalachia or because there will be a wall built along our Mexican border, one built by Mexico with help from China to keep Americans out, but it will happen.

Right now we’re the only industrialized nation on the planet with a food surplus. I’m reminded again of comments by Thomas P. M. Barnett several years ago. He said our ability to grow food and export our surplus would position us as the dominant nation on the planet. Wars will be fought not over energy but over food.

With projected advances in solar technology suggesting a 30% or more net increase in efficiency, tribal pressures to promote coal, oil, and perhaps even natural gas will diminish. Let’s hope so. BTW, that’s my dad on the tractor in 1933 in Vermont.

by Joseph Hincks / December 15, 2016

Solar power is becoming the world’s cheapest form of new electricity generation, data from Bloomberg New Energy Finance (BNEF) suggests.

According to Bloomberg’s analysis, the cost of solar power in China, India, Brazil and 55 other emerging market economies has dropped to about one third of its price in 2010. This means solar now pips wind as the cheapest form of renewable energy—but is also outperforming coal and gas.

In a note to clients this week, BNEF chairman Michael Liebreich said that solar power had entered “the era of undercutting” fossil fuels.

Bloomberg reports that 2016 has seen remarkable falls in the price of electricity from solar sources, citing a $64 per megawatt-hour contract in India at the tart of the year, and a $29.10 per megawatt-hour deal struck in Chile in August—about 50% the price of electricity produced from coal.

Ethan Zindler, head of U.S. policy analysis at BNEF, attributed much of the downward pressure to China’s massive deployment of solar, and the assistance it had provided to other countries financing their own solar projects.

“Solar investment has gone from nothing—literally nothing—like five years ago to quite a lot,” Zindler said.

When the numbers come in at the end of 2016 the generating capacity of newly installed solar photovoltaics is expected to exceed that of wind for the first time: at 70 gigawatts and 59 gigawatts respectively, according to BNEF projections.

What’s Killing The Long-Term Care Insurance Industry?

My Comments: This was written almost five years ago. During these years, every reader today is almost five years older and while the world has changed dramatically, the demographics are still with us.

Among the existential risks we all face is what is known as a Long-Term Care, or LTC event. Before we all die, about 70% of us are going to be directly affected. At some point, family and friends can no longer adequately care for someone, and an outside caregiver enters the picture.

It’s not a cheap solution. But I’ve yet to find anyone who says just drop me in the woods somewhere and leave me to the critters. It doesn’t happen that way. My solution of choice is one that requires assets be re-positioned to gain leverage, and provide an escape clause if an LTC event never happens. This article will help you better understand the context in which the solution of choice becomes the answer.

by Howard Gleckman | August 29, 2012

The long-term care insurance industry is in big trouble. Consumers aren’t buying. Carriers are dropping out of the market. And those that are staying are raising premiums, cutting discounts, and eliminating products–all of which are discouraging even more consumers from buying.

What’s gone wrong? The industry has two fundamental problems. A long-standing one–buyers are dropping coverage less often than the industry predicted. And a more serious new one–historically low interest rates are sucking the profit out of the business.

As a result, just about every LTC insurance company has raised premiums in recent years for both old policies and new ones. And now many have begun trimming their product lines and eliminating or reducing discounts.

For instance, Genworth, which dominates the LTC market, announced on Aug. 1 that it plans to raise premiums on pre-2003 policies by 50 percent over the next five years, and on newer policies by 25 percent over the period. It will tighten underwriting for new products, requiring, for the first time, blood tests for applicants. It will also stop selling lifetime benefit policies, reduce spousal discounts from 40 percent to 20 percent, end preferred health discounts, and stop selling products that allow consumers to pay premiums up-front rather than over their lifetimes.

Another big player, Transamerica, has announced similar cut-backs.

Finally, some household names are simply dropping LTC insurance entirely. In February, Unum stopped selling group policies (a product once thought to be the industry savior). In March, Prudential stopped selling individual coverage and on Aug. 1, it abandoned the group market as well.

For years, carriers underestimated how many consumers would let their insurance drop before they went to claim. The companies assumed that as premiums increased and buyers’ disposable income shrank, a certain percentage would drop coverage. The phenomenon, known as the lapse rate, increased returns to insurers and allowed them to keep premiums under control.

But as it turned out, lapse rates have consistently been much lower than the companies figured (typically about 1 percent, compared to 5 percent for other insurance products). That squeezed their profits and forced them to raise rates which, in turn, made insurance less attractive to new potential buyers.

In recent years, the industry has adjusted its estimate for those drop-outs, and newer policies–with higher premiums– are more profitable than older ones. But carriers have had much more trouble adjusting to the newer problem: How to survive in a nearly zero interest rate environment.

To oversimplify a bit, insurance companies earn revenue by collecting premiums and then investing that income. Because long-term care insurance companies typically do not pay claims for many years, they hold premium income for a long time and, thus, investment income is a very important part of their business model.

Those investments are limited by state insurance regulators to ultra-safe bonds. But ten-year Treasury bonds are returning just 1.6 percent. Five-year notes are paying a paltry 0.7 percent. That is far lower than overall inflation and significantly lower than the annual increase in long-term care costs, which is roughly 5 percent.

The math is brutal: No insurance company can pay claims and make a profit when its costs are rising by 5 percent but its investment returns are in the neighborhood of 1 percent.

Keep in mind that long-term care insurers are almost all subsidiaries of much larger life insurance companies. And their parent firms, anxious to manage risk in what was already a very risky business, are not at all troubled by the decline in LTC sales. In fact, slashing sales may be exactly what they have in mind.

Until a few years ago, carriers that stopped selling LTC insurance would sell their existing policies to other firms. But, today, in a reflection of the state of the industry, there are no buyers. In most cases, the large carriers will continue to cover their current customers, though policy-holders should not be surprised to see ongoing rate increases.

Overall, though, the decline of the private LTC market is a huge problem, especially since it is coming just as Washington is seeking ways to reduce Medicaid, the most important payer of long-term care costs. It is yet one more reason why it will be critical to find a workable solution to the problem of long-term care financing.

Donald Trump’s Big Problem

My Comments: To my Trump supporting friends, this is not a rant against our president. Governments work, or don’t work, on vastly different rule sets than does private enterprise. Government is a public enterprise and the outcomes by their very nature will be markedly different. His skills as a businessman don’t necessarily translate effectively to the public world he now inhabits.

The words written by Matthew Yglasias below are the observations of someone well versed in the mechanisms by which decisions are made at the highest levels of government. These decisions almost always appear somewhere in the 24 hour news cycle, and which, to a greater or lesser degree, affect ALL of us regardless of our age or status.

by Matthew Yglesias on April 17, 2017

Donald Trump doesn’t know what he’s talking about. This became clear when he said he realized dealing with North Korea was “not so easy” after 10 minutes with the Chinese president.

Dealing with complicated problems is an occupational hazard faced by outsiders in all fields — and there’s never been a president who is more of an outsider to the realm of public policy. Consequently, a lot of his assertions about critical matters of public concern are based on … nothing at all. As president, he is fitfully coming into contact with concrete policy choices, actual information, and well-informed people. And it’s making a difference.

That’s the dynamic behind many of this spring’s jarring policy reversals on backing out of NATO, Chinese currency manipulation, and relations with Russia.

And to the extent that Trump is replacing ignorance with information and bad policy with good policy, it deserves to be celebrated rather than mocked. But the wild swings themselves are disturbing and have consequences. And Trump’s actual habits around issuing ignorant pronouncements and failing to obtain sound information don’t appear to have changed. Most fundamentally of all, Trump’s laziness and ignorance leave him easily manipulated.

Some of the things he’s “learned” since taking office aren’t true, like when Paul Ryan convinced him Republicans had to do health care reform before tax reform. And as his equal-opportunity openness to both new information and new “information” become clearer to all interested parties, the race will be on to manipulate the president and incite further chaos in American public policy.

Trump didn’t realize being president is complicated

Trump’s basic worldview, as articulated on the campaign trail, was that all the major dilemmas of American public policy had easy solutions. The reason the problems had not been solved already was that America’s political leaders were too stupid, too corrupt, or too “politically correct” to solve them.

This is a reasonably widespread view of things among the mass public, but as Trump has been discovering since taking office, it’s not true.
• Trump pronounced in February that “nobody knew health care could be this complicated” until he sat down to look at legislative options.
• Earlier this week, he explained that he’d changed his mind about North Korea after speaking to Chinese President Xi Jinping because “after listening for 10 minutes, I realized it’s not so easy.”
• Having talked it over with his economic and foreign policy advisers, Trump has realized that China stopped manipulating its currency some time ago, and that slapping the country with an official currency manipulator designation would impair cooperation on other issues, like the aforementioned North Korea.

Trump’s reversal on Russia and Syria doesn’t yet have a pithy quote attached, but it’s a fundamentally similar issue. During the campaign, Trump again and again called for the United States to take a tougher line on Iran and a softer line on Russia. From a broad, hazy, distant view of the world heavily colored by ethnic nationalism and Islamophobia, this combination of ideas makes sense.
But the real world is, well, complicated. Trump’s desire to cozy up to the Gulf states and confront Iran led very quickly to conflict with Moscow — which anyone could have explained to candidate Trump had he cared to ask.

Trump decided the Export-Import Bank is good after talking it over with the CEO of Boeing, and a handful of high-level meetings have convinced him that NATO is worthwhile after all.

Trump still hasn’t learned how to learn

A lot of this is change for the better, but the fact that it keeps happening suggests Trump has not really internalized the key lesson.

Peter Baker of the New York Times reports that “only after he publicly accused Mr. Obama of having wiretapped his telephones last year did [Trump] ask aides how the system of obtaining eavesdropping warrants from a special foreign intelligence court worked.”

One particularly chilling example of Trump’s casualness about information gathering is that Michael Crowley and Josh Dawsey report he was asking aides for information about why Assad would use banned chemical weapons only after American Tomahawk missiles had destroyed Syrian military targets. The shocking truth is that it’s probably Trump’s own rhetoric about Syria in particular and chemical weapons in general that led Assad to think there would be no consequences for violating his 2013 agreement.

A clearer and better-organized policy process could potentially have avoided the gas attack, the subsequent perceived need for a US military response, and the inevitable worsening of relations with Russia that resulted from it.

The other turnabouts are also a little alarming. Like Trump, I am not deeply versed in East Asian security issues and long had a fuzzy impression that China could make North Korea do basically whatever it wanted. Then I went on a journalists’ tour of China, organized by the Chinese government, during which Chinese officials argued fairly persuasively that this is wrong. But I didn’t just take their word for it. Having had my thinking challenged, I went and checked to see if credible Western experts agreed — and indeed they do.

After all, one problem with simply changing your mind after talking to a well-informed person is that lots of well-informed people are nonetheless wrong or pushing a partial agenda. In my experience, business lobbyists on both sides of the Export-Import Bank issue are deeply informed — better informed than I am, for sure — and make somewhat persuasive arguments. Trump tends to resolve this kind of situation by simply agreeing with the last person he talked to.

Trump is “learning” things that aren’t true

The fundamental problem here is that what Trump “learns” is sometimes actually bad information.

Baker also reported that before becoming president, Trump “had never heard of the congressional procedures that forced him to push for health care changes before overhauling the tax code.”

One reason Trump had never heard of these procedures is that he was not familiar with congressional procedure. But another reason Trump didn’t realize that procedural rules in Congress forced him to push for health care changed before overhauling the tax code is that this isn’t true.

Since becoming president, Trump has several times referred vaguely to complicated statutory requirements that forced him to prioritize Obamacare repeal. His explanations of this are invariably fuzzy because in fact there is no statutory requirement for him to do health care reform before he works on tax reform.

Instead, this “health care before tax reform” idea was simply Paul Ryan’s legislative strategy. Ryan wants to pass a tax reform plan with a party-line vote, which means he needs to use the budget reconciliation process to avoid a Senate filibuster.

You can’t write a reconciliation bill that increases the deficit over the long term. So Ryan’s plan is to repeal the Affordable Care Act — which, among other things, would sharply reduce taxes on the rich, but would avoid increasing the deficit since the cuts will be offset by spending less on insurance for the poor and middle class. Then, having locked that tax cut into place, Republicans could move on to a revenue-neutral tax reform using the lower revenue number as the baseline.

Ryan has his reasons for wanting to do it this way, and those reasons to involve procedural arcana. But nothing is being forced on anyone here. It’s simply a choice he made and then apparently tricked the president into endorsing.

Things are going to keep getting harder

Trump is currently dealing with extremely difficult issues for the simple reason that he is the president of the United States and the issues the president deals with are generally complicated and difficult. But in all honesty, he hasn’t yet handled any truly hard cases.

Even something as tough as a North Korean nuclear test or a Syrian chemical weapon strike is, fundamentally, a ripe issue that the professionals in government have had a long time to chew over. What inevitably happens over the course of an administration is that some genuinely unpredictable crises emerge. There could be an infectious disease outbreak, or revolution in the capital of a friendly autocracy, or a recession, or a bank failure, or a terrorist attack.

Unforeseen crises truly put a leader and his team to the test, drastically altering the policy space and creating opportunities to push new agendas.

Sometimes, as with the Obama administration’s response to the Ebola outbreak of 2014, a crisis can be successfully resolved by persevering with an approach that is met with initial criticism on Capitol Hill and cable news. Other times, a crisis can be an opportunity for people with strong opinions and poor judgment to push the country into a reckless misadventure, as with the Bush administration’s invasion of Iraq.

Based on what we know of Trump’s decision-making, it’s difficult to imagine him doing the former and very easy to imagine him doing the latter.

Will Trumponomics Actually Work?

My Comments: No need to freak out here; it’s not written in a strange language. This is a short, understandable comment that appeared in a fundamentally sound forum about business and economics.

Unless we are happy being in debt to someone else, our primary effort is to spend less than we actually earn, since taxes also have to be paid. Some of what we earn is spent on food, shelter, transportation and health. Think of that as foundational capital. The rest is discretionary capital and we either save it (invest) or spend it. What we do individually is an example of micro-economics at work. What we do collectively as a nation is called macro-economics.

Tim Worstall, Contributor to Forbes / Apr 2, 2017

An interesting and useful observation here. It’s not really possible to cut taxes, increase public investment and also shrink the trade deficit. Not without at the same time massively increasing the savings rate within the US. Thus, without massively increasing the savings rate it’s not really going to be possible to increase that spending upon infrastructure, cut taxes and also cut the trade deficit.

Desmond Lachman explains this:
A basic truism of macroeconomics is that a country’s trade balance is determined by the difference between the rate at which it saves and the rate at which it invests. Should a country’s investment rate exceed its saving rate, the country will necessarily have a trade deficit.

Conversely, if it saves more than it invests it will necessarily have a trade surplus. This implies that there are only two ways that a country can improve its trade balance. It either has to increase its savings rate or it has to reduce its investment rate.

When we start talking about basic truisms we mean that there’s no way to avoid this little conundrum. To reduce that trade deficit we must either increase the savings rate or reduce investment – there is no other way.

By proposing large unfunded tax cuts and substantial increases in infrastructure and defense spending at a time that the country is close to full employment, Mr. Trump is pushing for policies that would significantly widen the US budget deficit and reduce US public savings.

That decline in savings in turn would inevitably lead to an increase in the US trade deficit irrespective of what might be done to clamp down on trade abuses by our trade partners.

That essential premise of Trumponomics, that we’re going to invest, and cut taxes, while also reducing the trade deficit, just isn’t going to work, is it? Because how are we going to increase the savings rate?

Russia has a grand plan to undermine the West’s democracies — and it’s working

My Comments: Several months have passed since this was written but the message is as real today as it was then, perhaps even more so.

I’m almost willing to give 45 and his cronies a pass since I don’t think it was, or is, their intent to subvert our system of democracy. But they sure as hell allowed themselves to get enmeshed is a mess that today is playing out to Russia’s advantage, and not ours.

I’m convinced that until just recently, the prize that 45 had his eyes on from the beginning was financial benefits for himself and those around him. Then, when it got closer to the election, his inexperience and inability to apply a critical focus on the confounding variables associated with winning the White House allowed Russian to control the narrative.

As all this plays out, it creates a real opportunity for us as a nation to take a hard look at where we are in the world and decide where we want to be going forward. Yes, we have to first look out for ourselves, because first we have to feel secure about who we are as a nation. That means culturally, in terms of our values as people, and militarily, in terms of can we protect ourselves from forces outside our borders.

Clearly, we have some work to do to limit the damage being done to us by forces in Russia.

Alex Lockie on October 30, 2016

Not since the Cold War have tensions between Russia and the West reached the terrifying heights we’ve seen in recent months.

Russia now challenges the West in virtually every arena possible, with cyberattacks, nuclear posturing, military invasions of Western-leaning countries, and the intimidation of US allies and neutral states.

According to Dr. Jeffrey Lewis, the founding publisher of Arms Control Wonk and an avid Kremlin-watcher, Russia’s resurgence owes mainly to one thing: paranoia.

“We’ve seen the failure of democratic institutions in Russia. It’s not the open and free society that we had hoped for at the end of the Cold War, and with that failure comes an insecurity on the part of Moscow’s leaders,” Lewis said of Russia’s retreat back toward dictatorship after the fall of the Soviet Union.

Democracy provides countries like the US with a stable, established path for power changing hands. In the US, politicians serve at the pleasure of the people, who have legal and political means to replace their leadership without revolting.

But in Russia, where rampant inequality exists between powerful, connected oligarchs and regular Russian citizens, Lewis said, the rulers are “terrified that they’re going to be toppled from power, which they don’t hold democratically or temporarily — they fear a coup.”

Lewis said the wisdom from George F. Kennan’s 1946 “Telegram from Moscow” still holds. Kennan argued that the Soviet Union saw itself in a “capitalist encirclement” and could not peacefully coexist with the capitalist, or Western, world.

“At bottom of Kremlin’s neurotic view of world affairs is traditional and instinctive Russian sense of insecurity,” Kennan argued. “Russian rulers have invariably sensed that their rule was relatively archaic in form, fragile and artificial in its psychological foundation, unable to stand comparison or contact with political systems of Western countries.”

Lewis contends that these conditions persist and that “the way they deal with that insecurity is bullying and threatening their neighbors.”

Russia has committed to “build their security on the insecurity of their neighbors,” Lewis said. And creating instability is as easy as casting doubt, while creating stability requires accountability and transparency, which the Russian state need not bother with as it increasingly takes control of the country’s media.

“Interference with Ukraine and Baltics is part of that” will to destabilize Russia’s neighbors, Lewis said. Moscow’s push for chaos in the West can be seen, he said, in its “desperate effort to shore up Syria” as well as in its hacks on the US election system.

“It’s important to them to tear us down to prove that we’re just as bad and corrupt as they are,” Lewis said.

Unfortunately for the US, much of Russia’s campaign to discredit Western institutions works. Republican presidential nominee Donald Trump often touts information exposed by WikiLeaks, an organization with ties to Russia, and has attacked the legitimacy of US democracy and threatened to ignore the results of the election.

Russian President Vladimir Putin’s favorability numbers, which he keeps artificially high in his country by controlling the media and oppressing dissenters, have also improved dramatically among US Republicans this election cycle.

Lewis says Russia has funded several far-right nationalist organizations in Europe, like that of France’s Marine Le Pen. The rise of nationalistic, law-and-order seeking authoritarians on the far right, a well-documented phenomenon in Europe, seems to favor autocratic regimes like Putin’s.

In countries like Turkey and Hungary, powerful leaders with nationalist rhetoric erode the democracies that brought them to power. Those leaders then increasingly turn to Putin as an ally who won’t fault them for attacking the press or other democratic institutions.

Lewis said Russian leadership wanted Americans to think, “The people who run the US are just as bad as the people who run Russia,” adding that he found such tactics “infuriating.”

While examples of corruption and abuse can certainly be found in Western, democratic governments, regular citizens and a free press can freely speak out when they disagree with the rich and powerful. This brings accountability to the government.

Putin, on the other hand, doesn’t want free speech, dissent, or rule by consensus; he wants order to provide the security his authoritarian government so sorely lacks.

“Russians just want a free hand to bully their neighbors,” Lewis said. “There is no level of Russian power that will make Putin feel secure. There is nothing we can do that can make them happy.”

“If we gave them the Baltics, they’d ask for Finland and Poland,” Lewis said.

But the US has very few options to deal with this menace. The US allows free speech, and Russian propaganda and talking points will no doubt continue to find their way into Western society. Within Russia, Lewis said: “Putin is consolidating power, and he’s paranoid. There’s not much you can do. You can’t fix it for the Russians — they have to fix it themselves.”

Make America Dumb Again!

My Comments: Mexico doubles down on pivot away from U.S.

45 wants a trade war with any and everyone he can think of. Not sure if he really does, but that’s the message being heard around the world as coming from the White House. As I showed last week, he’s already conceded global economic supremacy to China and effectively encouraged Mexico to work more closely with countries other than the US.

Mexico has used the opportunity to build it’s economy with help from somewhere else. Talk about unintended consequences in our efforts to build a wall.

by Patrick Gillespie @CNNMoney / April 3, 2017

Mexican officials kick off talks with their counterparts in the European Union on Monday to update their own free trade agreement initially signed in 2000.

Both sides had expressed a desire for a new agreement for years, but only announced “accelerated” trade talks shortly after Trump took office.
“It’s a shared desire to proceed as quickly as possible with this negotiation,” Andrew Standley, the European Union’s ambassador to Mexico, told CNNMoney in February in Mexico City.

That’s not all. Mexican officials head to Argentina later this week for the World Economic Forum’s Latin America summit where they will likely reiterate their interest in buying more goods — particularly corn and soy — from Brazil and Argentina instead of the United States.

Last week, Mexico’s deputy economic minister, Juan Carlos Baker, told the Financial Times that Mexico is already in talks with the two South American giants to strengthen trade ties.

“There is a lot of potential for a win-win situation,” Martin Redrado, Argentina’s former central bank president and director of Fundacion Capital, a non-profit research institute, told CNNMoney. “Mexico has always been welcome in Latin America.”

Mexico is not feeling so welcome in North America. Trump has threatened to use tariffs against Mexican imports and to withdraw from NAFTA, the trilateral free trade agreement that also includes Canada. (However, the Trump administration recently signaled it may not seek a wholesale rewrite).

Mexico is one of the biggest buyers of American corn and soy. Corn is a staple food to the Mexican diet, found in everywhere from taco stands to fine dining restaurants.

It’s a fortuitous time for Mexico to look south and east. Argentina and Brazil, two of the world’s most closed economies to trade, have leaders trying to shed protectionist policies for free trade.

Argentine President Mauricio Macri eliminated tariffs last year on agricultural exports put in place by the country’s previous populist regime. Argentina just ended a recession, yet is growing slowly.

In Brazil, President Michel Temer is seeking just about any measure to help boost the nation’s economy, which is suffering through record high unemployment and its longest recession in history.

Europe is also eager to find more willing trade partners after talks on an ambitious trade deal with the U.S. — the Transatlantic Trade and Investment Partnership (TTIP) — stalled well before Trump won office.

The challenges, experts say, is for Mexico to find areas where it complements — instead of competes with — its partners. As a major auto manufacturer, it may risk competing in Europe against auto giants like Daimler (DDAIF)’s Mercedes and BMW (BMWYY). And Argentina and Brazil are also auto production hubs.

But Volkswagen has its largest plant outside of Europe in Mexico, and BMW is slated to open a new facility in Mexico in 2019. For now, the relationship appears to benefit both sides.

However, most Mexican auto workers make parts — not the final car — so the key will be deciding which parts Mexico manufactures and which others produce to make all sides happy. Experts say the same complementary strategy has to be applied to agriculture to prevent lost jobs.

Still, Mexico has already had free trade success with the European Union. Between 2005 and 2015, annual trade flows between the two doubled to $56 billion. Europe has represented 40% of total foreign investment in Mexico since 2000, according to EU officials and data.

China Can’t Carry Global Economy if U.S. Stumbles

My Comments: Last Thursday and Friday I re-posted two articles about the US and China. This is related to those two.

We as a nation have about $20T (that’s TRILLION) of debt. Sooner or later, we have to pay it back, and #45 has promised huge infrastructure and defense spending increases. Either we grow our way out of it (creating more debt to get started), cut a piece out of everything we now spend money on, or change our tax structure. My opinion is it’s going to have to be all three.

Donald Trump has expressed an interest in tax reform. At least I think he has; I’m not sure anymore what he has in mind, if anything. But if the repeal of ObamaCare is any indication, that effort, as much as anything, gave tax cuts to those who are already rich. Trickle down economics has been shown to not work and is a false mantra. If he thought health care was complicated, he hasn’t seen anything yet when he starts to tackle tax reform.

So how do we keep everything on track if the US economy stumbles? A growing middle class following World War II gave rise to our strength as a global economic power. But that middle class is disappearing and with it will go our role as a financial power on the global scale. It’s the middle class that buys stuff like houses and cars and all the goodies America is famous for. Nothing I’ve seen or heard from the Trump camp is directed towards revitalizing America’s middle class.

By Nathaniel Taplin on March 31, 2017

Suddenly it’s a world upside down–investors are deserting U.S. growth plays as skepticism about Donald Trump’s agenda rises, while overcapacity-ridden China and aging Japan are looking unexpectedly strong.

Better growth in the world’s second- and third-largest economies, which both posted surprisingly good manufacturing numbers Friday, is great news for Asia and commodity exporters.

It won’t do much to help major developed economies, however, if growth in America and Europe falters along with Mr. Trump’s pro-business agenda.
Better growth in China does contribute in one key way to the so-called Trump trade: It boosts global inflation through higher commodity prices. The close correlation between global commodities and Chinese real-estate investment shows the bulk of the big bounce in prices since early 2016 is due to the cyclical recovery in China, rather than the rhetoric around plans for increased U.S. infrastructure spending.

That means that a big part of the uptick in global inflation numbers –which central banks from Europe to the U.S. have worriedly noted has mostly been driven by fuel prices rather than rising wages–is about China as well.

Unfortunately that is the wrong sort of inflation: Rising commodity prices in consumer countries such as the U.S. and nations in Europe erodes purchasing power and ultimately means lower growth. Strong growth in Chinese construction, meanwhile, is an enormous help for Australian iron-ore exporters and copper miners in Chile, but it doesn’t do much for the U.S. or Europe–the likes of heavy equipment maker Caterpillar(CAT) aside.

Faster growth in China and Japan will doubtlessly help certain firms and sectors on the margins–but these are still highly protected economies, unlike the U.S. and European powerhouses such as Germany and the U.K.

The primary effect of better growth in China’s “old” economy is still higher commodity-price driven inflation –reflation indeed, but not of the happy variety. With Mr. Trump’s agenda under assault and political uncertainty in Europe still rising, the West needs to look to itself to keep growth ratcheting higher.