Life, Liberty, Property #30: U.S., Russian government convergence, as America appears to have reached a new low in respect for individual rights and due process.
IN THIS ISSUE:
U.S., Russian Government Convergence
Retire the Phillips Curve!
Consumer Retreat Hits Retailers, Home Sales
Charting Debt Freedom
U.S., Russian Government Convergence
The United States appears to have reached a new low in respect for individual rights and due process. How long will it take before this …
… becomes this?
Russian President Vladimir Putin appears to have resorted to extralegal processes to silence a dissenter (and one who used to be a close associate of him). Reportedly, this is by no means the first time Putin has undertaken such measures.
The U.S. government and the state government of Georgia have employed unprecedented legal actions in an evident attempt to eliminate a declared presidential candidate and prominent dissenter against the managerial elite, which former president Donald Trump evocatively calls the “deep state.”
The differentiation between the two governments’ responses to these threats is a difference not in kind but only of degree.
That difference, moreover, appears to shrink with each passing day.
Trump acknowledged that phenomenon in his X interview with journalist Tucker Carlson last week, while staying positive in his expressed opinion of the American people and even of the Democrat Party (see the video, starting at the 7:00 mark).
Noting that the ongoing campaign against Trump since 2015 has intensified over the years and culminated in indictments that have only increased his popularity, Carlson suggested a concern the war against the former president would proceed to bloodshed:
CARLSON: … The next stage is violence. Are you worried that they’re going to try to kill you? Why wouldn’t they try to kill you? Honestly.
Trump refrained from explicitly saying yes, but he implied he agrees:
TRUMP: They are savage animals. They are people that are sick—really sick.
You have great people in the Democrat Party. You have great people that are Democrats. Most of the people in our country are fantastic. … But I’ve seen what they do. I’ve seen the lengths that they go to.
We have seen “the lengths that they go to” in Russia and other authoritarian countries around the world. As countless examples show, a government that will set aside the rule of law will do just about anything.
Do not think that it cannot happen here. During the election year of 2020, the U.S. government and many state governments went to astonishing lengths to imprison the nation’s population in their homes, terrorize people through rampant street violence, close churches, and illegally change voting procedures.
Since then, our government has been working hard at the imprisonment and torture of dissenters, weaponization of the legal system, the imposition of censorship, elimination of the fossil fuels on which the American people’s well-being depends, erasure of the nation’s southern border while sending tens of billions of dollars to Ukraine to restore that country’s boundary line with Russia (which was created by the Soviet Union), immense federal government spending increases, sexualization of children, unconstitutional expansions of federal welfare payments (such as food stamps), illegal transfers of student loan obligations to the taxpayers, and countless other extremely un-American activities.
The old saying is true: “A government big enough to give you everything you want is a government big enough to take away everything that you have.” What we are now learning—those who did not know it already—is that, when threatened, the U.S. government will not shrink from doing the latter.
Source: Tucker Carlson at X
Retire the Phillips Curve!
With the benchmark federal funds rate at a 22-year high, the Federal Reserve is contemplating leaving it where it is for now, instead of raising it even higher, says Fed Chair Jerome Powell.
“We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” The Wall Street Journal quotes Powell as saying last Thursday at the central bank’s annual symposium in Wyoming.
The supposed problem the Fed is worrying about is the stubborn refusal of the U.S. economy to contract. Inflation has slowed and is probably at or below the Fed’s target (depending on which measure you choose), yet “economic activity has shown surprising strength,” as the Journal story puts it.
Economic activity is supposed to be a good thing, right? Then, why this obsession with stopping it?
As I noted last week, the motive for the worry is that inflation affects many more people than unemployment. Thus, the Fed turns skittish whenever unemployment is low, because their belief in the Phillips Curve convinces them there is a direct tradeoff between unemployment and inflation: if unemployment is low, inflation will increase; and if inflation is low, unemployment will increase.
OK, so let’s test that proposition.
As the Journal reports, “Core prices, which exclude volatile food and energy categories, increased just 0.2% in both June and July, extending a broader slowdown in price pressures.”
Unemployment is now at 3.5 percent, the lowest since February 2020, right before the COVID lockdowns. So, both inflation and unemployment are low.
The current economic situation disproves the Phillips Curve, on top of plentiful evidence from the past, as Cato Institute Senior Fellow Alan Reynolds notes in an article on Cato at Liberty:
A paper on “Managing Disinflation” was recently presented at Chicago Booth by former Fed Governor Frederic Mishkin, and four distinguished co‐authors. “There is no post‐1950 precedent for a sizable central‐bank induced disinflation,” they concluded, “that does not entail substantial economic sacrifice [unemployment] or recession.” That was, of course, cheerleading for the familiar “Phillips Curve” theory, which claims low unemployment causes high inflation by raising wages, so high inflation can only be reduced by higher unemployment.
Reynolds follows that immediately with this chart:
The Phillips Curve, Reynolds notes, “is the reason Fed Chair Powell keeps fretting about ‘tight labor markets’ as the reason the FOMC can never stop pushing short‐term interest rates above long‐term rates until another ‘hard landing’ pushes the unemployment rate above 4.5 percent.”
We should retire the Phillips Curve, and if the Fed governors insist on using it as a premise for their interest rate decisions, we should retire them, too.
Consumer Retreat Hits Retailers, Home Sales
Multiple companies dealing in consumer products reported bad news last week, and housing sales continue to decline.
Economy retailer Dollar Tree is in trouble. ZeroHedge reports:
Dollar Tree Inc.’s shares got whacked in the premarket trading hours in New York after second-quarter earnings slid from a year ago. Margins deteriorated in the quarter on rising “shrink,” or inventory loss due to shoplifting or employee theft. Also, guidance missed the average analyst estimates.
The discount store chain recorded a net income of $200.4 million and diluted EPS was $0.91 for the quarter, beating the average analyst estimate tracked by Bloomberg by several cents. However, this was down from $359.9 million, or $1.61 a share, in the quarter one year ago.
Dollar Tree CFO Jeff Davis cited problems with “sales mix and elevated shrink.” The latter refers to the losses the company is suffering because state and local governments across the country encourage retail theft by not punishing thieves.
The Macy’s department store chain is suffering losses as consumers tighten their grips on their pocketbooks. Retail Dive reports:
Macy’s on Tuesday said its Q2 net sales fell 8.4% year over year to $5.1 billion, with brick-and-mortar sales down 8% and online sales down 10%. The department store swung to a $22 million loss from $275 million in net income a year ago.…
The credit card crunch I wrote about in LLP issue 28 is decreasing consumer buying, the story notes:
In a fraught economic environment that has undermined discretionary spending all year, credit card delinquencies took a bite out of Macy’s results in the second quarter. “Other revenue,” which includes credit card revenues, was down by $84 million to $150 million and was just 2.9% of net sales, down from 4.2% last year, according to the company’s press release.
That could deteriorate further as student loan payments resume, executives warned in a conference call with analysts.
“This is about credit card balances. This is about student loans, which we know is going to come into focus in the next month or two, auto loans, mortgages,” said Adrian Mitchell, who is Macy’s chief financial officer and chief operating officer. “So we just believe that the customer is coming under pressure because these are new realities that they have to continue to deal with as we get through the back half of this year and move into next year.”
Profits of the Kohl’s department store chain fell by 60 percent in the second quarter. Retail Dive reports:
Kohl’s on Wednesday said Q2 net sales fell 4.8% year over year to $3.7 billion, with comps down 5%. Other revenue, mostly the retailer’s store credit card, fell 3.1% to $217 million. … Net income plunged nearly 60% to $58 million, according to a company press release.
Fitness bike company Peloton’s stock value declined as the company reported expectations of continuing large revenue losses:
Peloton Interactive shares plunged 23% Wednesday to record lows after the company reported another decline in paying subscribers and said the costs of an equipment recall was denting its profit.
The fitness-equipment company cautioned that it expected to have negative cash flow in each of the next two quarters as it keeps fighting high inventory levels, and another sequential drop in subscribers.
Shares dropped to $5.41 in Wednesday trading, the lowest closing price since the company went public in 2019. The stock has declined roughly 50% in the past 12 months and more than 95% from its pandemic-fueled high in early 2021.
Dick’s Sporting Goods failed to meet earnings expectations for the quarter. Front Office Sports reports:
Dick’s Sporting Goods missed Wall Street’s earnings expectations for the first time in three years, dropping its stock nearly 25% to around $111 as of Tuesday afternoon.
The company reported $2.82 per share in adjusted profit for its second fiscal quarter, compared with expectations of $3.81 per share. Sales rose 3.6% to $3.224 billion—slightly below the $3.238 billion expected.
As with Dollar Tree, Dick’s is suffering the effects of local governments’ soft-on-crime policies, the Journal story reports:
Shoplifting and employee theft were blamed in part for the poor results.
“Organized retail crime and theft in general is an increasingly serious issue impacting many retailers,” Dick’s CEO Lauren Hobart said on the company’s earnings call. Dick’s chief financial officer Navdeep Gupta added that organized retail crime was “significantly higher” than the company anticipated.
Another sporting goods retailer, Foot Locker, fell short of expectations and suffered a big loss in stock value. ZeroHedge reports:
Foot Locker slashed its adjusted earnings per share guidance for the full year, which missed the average analyst estimate. The company paused its dividend to “ensure that we have the flexibility to continue to fund our strategic investments appropriately,” CEO Mary Dillon wrote in a press release. …
The dismal earnings report caused shares to crash in premarket trading, down nearly 29%.
Here, too, retail theft and the slowdown in consumer spending—“consumer softness”—are eating into profits, the story notes:
[Foot Locker] also noted promotions and retail thefts, otherwise known as “shrink,” weighed on profits:
Gross margin declined by 460 basis points as compared with the prior-year period, driven by an increase in promotional activity, which included higher markdowns, as well as occupancy deleverage and higher shrink.
What’s important to note is that about half (47%) of the retailer’s customer base is in the lower income bracket and might serve as more evidence that the weakest households continue to pull back on spending.
Meanwhile, wireless services provider T-Mobile is laying off a significant part of its workforce as costs rise and cable companies compete with the firm’s 5-G rollout while the company absorbs the costs of its $1.35 billion purchase of nascent competitor Mint Mobile. The Wall Street Journal reports:
“Right now, our company is at a pivotal crossroads,” said Chief Executive Mike Sievert. “What it takes to attract and retain customers is materially more expensive than it was just a few quarters ago.”
The same story notes other companies in the industry are struggling as well:
AT&T last month expanded a cost-cutting target by another $2 billion over the next three years. Earlier this year, Chief Executive John Stankey said consumers and businesses are tightening their belts, including by delaying phone upgrades.
Of course, with interest rates so high, housing prices near record highs, and consumers mired in record-high credit card debt, lagging home sales in July extended “one of the deepest housing slumps in recent memory,” as The Wall Street Journal phrased it.
While retailers and other industries grapple with declines in consumer spending, President Joe Biden is enjoying “a run of positive economic news” for which he and Bidenomics can take credit, The New York Times argues:
As Mr. Biden gears up for his re-election campaign, perhaps what is most encouraging to him is that consumer confidence is rising to levels not seen since the early months of his tenure in the White House, before inflation surged. Measures by the University of Michigan and the Conference Board suggest consumers have grown happier with the current state of the economy and more hopeful about the year ahead.
You can believe those two polls and The New York Times, or you can believe what is happening all around you. That’s your consumer choice.
Charting Debt Freedom
Our national fiscal problem is enormous, but there’s an easy fix that we can implement any time we want, the newsletter notes:
A return to Reagan-Trump style prosperity will solve what is ailing us. We reprint a chart we recently used, showing that with 3% growth, our debt-to-GDP ratio begins to fall rapidly.
The way to do this is very simple: cut federal taxes, spending, and regulation. Then, keep them down, and cut them some more.
It is odd and unfortunate, the newsletter notes, that the candidates for the 2024 Republican presidential nomination, other than Donald Trump, largely keep harping on a message of gloom and doom: “Since growth is the answer, why aren’t Republicans talking about it?”
As President Ronald Reagan said in his first Inaugural Address, “In this present crisis, government is not the solution to our problem; government is the problem.” That is just as true now as it was then, and the need for Reagan’s trust in the abilities of free Americans to embrace personal responsibility and achieve prosperity is at least as great as it was during the Carter presidency.
Source: Unleash Prosperity Hotline