Republican Chaos, Democrats in Charge

With Kevin McCarthy (R-CA) dropping out of the race to become Speaker of the House, the level of chaos in Congress has hit a new height. It’s hard to imagine what comes next in this intractable situation as nearly every option has become open – including the longshot possibility that a bi-partisan group of centrists might soon be in charge.

Will this open the floodgates and see something get done or will the gridlock become even more set in stone for the next year? Like the weather, everyone likes to complain about it but no one seems to do anything about it. But next year could be the year that Democrats actually do something and take control – of both the Senate and the House. This is actually possible if we seize the moment.

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Runnin’ on Empty

The Feds are about to run out of money.

No, we’re not talking about a government shutdown – that was avoided when yet another continuing resolution was passed to keep it operating through December. After that we have no idea what will happen. What we do know is that the Federal Highway Trust Fund is set to expire on October 29 unless a new bill is passed, which hasn’t been done yet.

Unlike the larger federal budget the attention this is getting is scant at best, so the possibility that it will be lost in the shuffle is pretty high. The implications are rather vast because federal funding is what keeps highway construction moving along. Without it, everything might grind to a halt as early as November.

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Bad Jobs Numbers

Last Friday the monthly Bureau of Labor Statistics (BLS) Employment Report came out, and it was lousy. Instead of an expected gain of 200k jobs it came in at 142k – a miss of 58k or 29%. The reaction in the financial press was swift and conclusive – there is no way the Fed can raise interest rates given this weakness. But there’s a bigger problem with the report than that.

It honestly can’t be believed.

It’s fashionable to say that the BLS cooks these reports to get the results they want and that no one should believe the government reports in general. That’s a general paranoid delusion that is utterly unreasonable all around. But the reports can’t be taken as pure gospel when they don’t come in exactly where they should be because there is no way they can possibly be as accurate as is demanded.

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Black Hole

Because of a death in the family, I have to run a repeat.  This is from 2012, when things looked a lot more bleak than they do now.  I’m running it without any updates because that 2012 perspective is interesting.  Things are better, but not a ton better.  Good enough?  Not yet, but will it be?

Imagine you are in a space ship hurtling toward a black hole.  You might try to turn the ship around and fire the engines full force.  The problem is that the blast from your engines only adds mass to the black hole, making its gravitational pull even harder.  What do you do?  Fire the engines harder to try to hit escape velocity?

That may sound like a silly analogy for our ecnonomy, and it is definitely far from complete.  But as the brilliant John Mauldin discusses in his “Thoughts From the Frontline”, the black hole of debt is posing some very unusual economic problems.  This “singularity” is, simply put, a place where the normal equations that describe the universe of economics no longer apply.  What can we do when everything we know no longer works?
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Reforming Reform

Tax reform is on the minds of many Republican candidates, and that’s a good thing. Donald Trump revealed a plan, suggesting he may be a serious candidate after all. This announcement came as his poll numbers were slipping, so we may have a hint what voters think about actual policies. Jeb Bush released his plan earlier this month with the distinction of being called “weird”.

The point is that we are talking about taxes and serious tax reform, which is good. No one should expect one plan to suddenly spring forward and cut through the elaborate mess we have. Then again, once the knife is out, you could carve a better tax code out of a banana. But what really is needed? What is “simplification” or “reform”? Let’s start at the beginning.

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Exit Boehner, Enter …. ?

When Pope Francis came to visit Congress, everyone knew something big was going to happen. Causing Speaker Boehner (R-OH) to have an epiphany and resign was not on anyone’s list.

But, there you have it – a Pope that works strange miracles.

To say that in the aftermath all Hell will break loose depends on whether your definition of Hell is complete inaction (it probably should be). By that standard Congress has been deep in the fire for a long time so we can’t blame Boehner for seeking a cool escape once he was touched by His Holiness. But is there a way out for the rest of us?

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Good News! It’s Good News.

Before we can call the economy “good”, we have to be in a situation where good news is taken as unvarnished good news. And that seems to have finally happened.

Janet Yellen outlined in great detail exactly why interest rates not only have to start rising by the end of the year, but why they have to go up to around 2% before the Fed is done. The market responded positively, getting another shot of good news this morning. Has the monkey of cheap money finally been scraped off their backs?

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