Perspective
Many in the US have come to think that America has lost its way…that the future is of decline, not growth… that things are getting worse, not better…that the “good old days” are in the past and never to return.
One who had convinced herself of that was Peggy Noonan, the famous writer and Wall Street Journal columnist. She learned a lesson this week that I have tried to convey for many years to all who would listen. Her column on Saturday September 2 ended with the truth.
“We are a great nation. We forget. But what happened in Texas reminded us. It said: My beloved America you’re not a mirage, you’re still here.”
Some of us forget. Others know the truth. We have many faults but no nation or people have ever been greater. And, the best is yet to come…with many ups and downs but ever closer to that “Shining City on a Hill”.
We will prevail over the KKK and Antifa…over Kim Jong-un and China…over Mother Nature’s fury…because prevail is what we do.
In Brief
- N Korea’s test of an H-bomb as well as ballistic missiles has created an international crisis. For 25 years this crisis has been brewing but a real solution was always kicked down the road with diplomatic nonsense. It is not likely to be allowed to fester much longer this time by either the US or China.
- Hurricane Harvey pummeled the Gulf coast of Texas causing tens of billions of dollars of damage. The flooding continues devastating the Houston area and much of east Texas and parts of Louisiana. Expect quick action by the Trump administration and Congress on funding for relief and rebuilding efforts. Relief efforts by the state, local and the federal governments will go on for years. Private and faith based groups will also be essential to getting devastated families and communities back on their feet.
- As is often true real-world events like Hurricane Harvey and the N Korean H-bomb test change the political scene and narrative almost overnight. As you slip into fall take note of how much the political dialogue, news and reality has changed from just a few weeks ago.
- Not only has the US policy of “strategic patience” practiced by the last 3 administrations been a failure but so too has China’s policy toward N Korea. China now faces the real threat of a trade embargo by the US if it continues to trade with and support the Kim regime.
In-Depth
Forecasts
… I see no cause to modify my political forecasts this week.
Current POLITICAL Forecasts
- The chance the Rs will lose at least a few seats in the 2018 House elections is 80 to 90 percent.
- The chance the Rs will lose their 241-194 House majority in 2018 is 10 to 20 percent.
- The chance the Ds lose two or more of their 48 Senate seats in ’18 is 85 to 90 percent.
- The chance that Donald Trump will be the 202o R nominee is 90 to 95 percent.
- The chance that Trump will win a 2nd term is 80 to 85 percent.
Media
Facts versus Fiction
On the front page of Saturday’s Wall Street Journal, in a story about rebuilding Houston, was the phrase…”as areas become more flood prone and damaging storms increase in frequency…”. One half of that statement is true and the other half quite incorrect.
Human activity often does make flooding more frequent. Lots of concrete and blacktop and fewer marsh lands indeed do make flooding of surrounding areas much worse.
But, more extreme weather…NOT HAPPENING.
Many, including folks who should know better, think that climate change/global warming is causing more extreme weather. It’s not.
Climate change is underway. In fact, it is an indisputable that global climate change is always underway. From the moment our planet was formed billions of years ago its climate has been ever-changing.
Hurricane Harvey’s intensity and damage was not caused by human generated climate change. The flooding and damage were made worse by all the concrete and the decision of 6 million people to live in area prone to floods, but the intensity of the storm was not human caused.
Harvey was a weather event, not a climate change event.
Here are the facts from the US government:
- Tornados are NOT more frequent. To quote a 2015 study from the US National Oceanic and Atmospheric Administration [NOAA]…” The…charts… indicate there has been little trend in the frequency of the stronger tornados over the past 55 years”.
- Another NOAA study shows the historical record on hurricanes hitting the US since 1850. The average is 18 per decade with the range per decade being but 12 [in the 1970s] to 25 [in the 1880s]. So far in the 2010s we have had 8, including Harvey. We’re below average so far this decade, but that could change for the worse. No one knows.
The point is that extreme weather is not getting worse. The good news is that fewer people are dying because we are getting earlier and more accurate warnings of approaching hurricanes and tornados. But, the monetary costs, especially from hurricanes, are rapidly rising as we build more and more in coastal areas.
Don’t forget the Tuchfarber 30 Day test—when you get upset about something in the news ask if it is likely to be IMPORTANT IN 30 days or so. Only seldom will it be so and you can usually ignore it.
Global politics
N Korea crisis coming to a head
Kim Jong-un’s N Korean regime claims to have detonated a hydrogen bomb a few days ago. An H-bomb is a nuclear device so powerful it takes an atomic bomb to set it off.
Ironically, Kim may have detonated and destroyed his family’s and regime’s decades old strategy in the process. For 25 years the US and UN have engaged in a strategy of “strategic patience” with N Korea. The policy of the Bill Clinton, George W Bush and Barack Obama presidencies has been an abject failure. Kim decided to press his luck and appears to have gone too far this time.
Even N Korea’s only effective ally and its protector, China, has vigorously condemned all of Kim’s recent nuclear and ballistic missile tests. Such tests force China into a corner…accept the risk of a major war on their border…accept a trade-war with the US… or severely rein in Kim, perhaps even forcing him from power. The last choice also contains great risks for China. China’s policies toward N Korea have also been a failure.
Further UN attempts at extreme sanctions will probably be next. Watch if China or Russia veto them. N Korea has forced this crisis to a denouement and the Trump administration has jettisoned strategic patience as the failure it was.
No one knows what comes next…
2018 politics
What to Watch as 2018 approaches.
Both of our major political parties are a bit adrift and searching for a politically “winning” direction.
The Democrats have a raging civil war for control between the progressive wing and the more traditional labor/working class wing.
The civil war will play out in leadership battles but also in primary battles starting early next year. It will be reminiscent of the Republican’s internal battles between the Tea Party movement and the mainstream Republicans a few years ago.
The Republicans are trying to figure out Trump and how to deal with the good aspects of his leadership as well as with his sometimes-tone-deaf outbursts. They are also trying to figure out ways to get essential legislation passed.
There are two key demographic groups to watch as we move toward the 2018 Congressional elections.
The first is the white working class. That group was the historic core of the Democratic party. The Ds lost most of that vote gradually over the last 4 elections, culminating in Trump’s victory last year.
If the Ds cannot get a major chunk of that vote back their near-term political prospects are quite poor.
The other group to watch is upscale female voters. They have been moving to the Democrats and away from the Rs for a decade or more.
Trump’s negative tone and style sped up the process in 2016.
But, they are offended by violence and extremism. Watch them as violence or extremism from any quarter rears its ugly head.
Trump and the White House
What a difference a few weeks make.
A truism is that…” a week is forever in politics”. You never know when domestic or international events will unexpectedly change things dramatically. Recall 9/11/2001 or the Pearl Harbor attack or Hurricane Katrina, and now Hurricane Harvey and a hydrogen bomb in N Korea.
Just a couple weeks ago the main political narratives were:
- Trump is a tone-deaf fool.
- Republicans in Congress can’t pass anything.
- Republicans are doomed in 2018.
None of those things was the full story, but all had a kernel of truth that the media and the naysayers hammered every day.
So, we move into September and the end of summer and domestic and world events have insured the narrative will change in meaningful ways.
Harvey has brought out at least 4 major narratives:
- Americans are a brave, good, caring people.
- When Republican and Democratic local officials, governors and presidents work together things get done.
- The federal government was there for the people in Texas and Louisiana and will continue to be there as it should be.
- President Trump led, was there, cares and is demanding quick Congressional action on relief funding and other essential actions.
Kim Jong-un’s H-bomb and ballistic missiles have created a huge international crisis that cannot be ignored or kicked down the road any longer as it has been for the previous 25 years.
China and the UN [because of Chinese and Russian vetoes] have chosen not to lead in the past because N Korea’s antics created political advantage for them.
But, the game is up and either China leads or the US leads. Both want all N Korean nuclear weapons and capabilities off the Korean peninsula. But, getting them out of N Korea and keeping them out of S Korea as well as Japan will take decisive action now, especially by the Chinese.
President Xi…the ball is in your court. It goes to President Trump if you fail.
“Hold the Line” Mattis
I’m sure many have wondered why President Trump defers so much to Defense Secretary, retired Marine Corp General James Mattis. It is simple. He is probably one of the best leaders and people the country has ever seen. Do yourself a favor and google “Hold the Line Mattis” and find the YouTube video of his impromptu speech to US military folks overseas.
You’ll be glad you did it and will understand the military and US better.
China’s Politics and Economy
China’s politics and economy are so important to the global economy and the general situation around the globe I am adding a regular section on it to the newsletter. The section will periodically include detailed articles on specific things but will also list each week evidence that suggest an economic soft landing for China—a controlled slowdown to “normal” economic growth levels—or a hard-landing—a more rapid, extended and dangerous bursting of China’s asset bubbles.
I WILL ADD AND DELETE ITEMS TO THIS SECTION AS RELEVANCE DICTATES. “NEW” ANALYSES WILL BE SO LABELLED AND REVISED SECTIONS WILL BE LABELLED “CHANGED”.
New or Major Evidence for Soft Landing
- The WSJ reports that Chinese regulators removed emergency measures they put on the Chinese stock exchanges in support of equities following crashes in 2015 and 2016. This is a sign of confidence and stability.
- The political leadership, including President Xi, and the financial regulators have promised to rein in excessive speculation and credit growth. [We’ve been promised that for many years and the debt has continued to sky.]
New or Major Evidence for Hard Landing
- NEW—If the US imposes major trade sanctions on all nations still trading with N Korea it will create a global trade war and send China into an economic tail-spin. Three numbers tell the tale. China exports about $600B to the US—about 5% of its total GDP. The US exports less than 1% of its GDP to China. China exports less than $3B to N Korea—1/200th of China’s exports to the US. A global trade war would be devastating for all and probably send the global economy into recession or at least stagnation. But, keep in mind the balance-of-power and magnitude of the economic and financial damage here and that General Secretary/President XI is up for re-election to those two posts this fall and next spring. MUCH MORE ON THIS IN COMING WEEKS.
- WSJ article today points out that the yield curve in China has flattened—the prices of 3-year bonds are essentially the same as 10-year bonds. Such flattening is often, but not always, indicative of an economic slowdown on the horizon. The article also mentions the mantra that I have been preaching…that the government of President Xi is manipulating the economic and financial system to assure no major problems before he is re-elected as party leader this fall and President next spring.
- The conviction of three young pro-democracy campaigners in Hong Kong moves the authoritarian mainland government ever closer to the control of Hong Kong. This is a clear violation of the letter and spirit of the agreement with the British when they returned Hong Kong to China’s control. Steadily, the rights of Hong Kong’s people are being reduced. They have not revolted in a major way and probably won’t. Chairman Xi clearly plans an non-democratic future for Hong Kong and Taiwan as well. Taiwan will fight.
- China and its President Xi are walking a tightrope over the N Korea-US tempest. To mix metaphors, they are between a rock and a hard place. The only way China can “win” is if Trump backs down and that is most unlikely.
- China’s UN vote for strong new sanctions on N Korea is an indication of at least two major things: [1] China wants the N Korea nuclear crisis resolved very soon and, [2] China fears President Trump will launch major trade sanctions bursting its asset and debt bubbles.
- Several weeks ago, the IMF raised its projections for Chinese growth but sternly warned that rapidly increasing Chinese debt will hit 300% by 2022. Others like the Institute for International Finance [IIF} asserted in June that Chinese debt already totaled over 300% of GDP, a high percentage for a developing country.
- President Trump ordered a formal investigation of China legal and illegal methods of stealing or extorting intellectual property from US firms. He is considering more trade sanctions against China, especially due to his frustration with their limited actions against N Korea’s rogue regime. China did vote to add serious new sanctions on Kim Jong-un’s regime in a UN vote last week.
- China is now officially and publicly instructing its companies that they must stop foreign investments in areas like insurance, hotels, other real-estate, gambling facilities, etc. Foreign investments are to be directed to two areas. The first is into strategic areas, as defined by the government, such as technologies where the intellectual property gained fits with government plans for China to become a major, worldwide competitor in various fields. [Sound like Japan in the 1970s and 80s?] The second area is into investments consistent with China’s One Belt-One Road strategy to tie it more completely with all of Asia as well as Europe and Africa.
- Reuters reported that… “China will strengthen oversight of arbitrage that takes advantage of uncoordinated regulations and increase penalties to prevent structural risks from getting out of control, a senior banker said”. TRANSLATION—we’ll crack down hard on companies and individuals skilled at gaming the system.
- Beijing is tightening its grip on Chinese state-owned companies listed in Hong Kong reported the WSJ.
These all indicate concern that economic, financial and political risks are rising.
Until next week…
Al Tuchfarber
Professor Emeritus of Political Science, University of Cincinnati
Al.Tuchfarber@gmail.com
Tuchfarber Political-Economics LLC, Inc.