Jack Kemp Showed GOP How to Appeal to Minorities

Bruce Bartlett writes that late senator Jack Kemp is a role model for how Republicans should engage with minorities:

Although Kemp pushed for a cut in tax rates for the wealthy, he was adamant that all workers must share in the benefits of lower taxes. He also focused heavily on the idea that saving, investment, technological advancement and capital formation were the essential goals of economic and tax policy, because they raised productivity, which would raise the wages of workers. Today, Republicans just blithely assume that tax cuts for the wealthy will automatically help the economy without ever explaining how or why.

The key to a thriving capitalist system is a successful partnership between capitalists and labor. Capitalists benefited hugely over the last half-century from jobs the private sector created — and from rising wage levels — through growing consumption. Without consumption they would fail. Workers on the other side of the bargain have also benefited from job creation and rising wage levels. Without them they would suffer unemployment and genuine hardship. Neither side can afford to focus on their own needs without recognizing the importance of the other’s.

Mancur Olson argued that specialized unions with narrow membership will attempt to optimize benefits to their members, be it airline pilots or sanitation workers, even if this achieves a sub-optimal outcome for the economy as a whole. In other words, they will advance their own interests at the expense of others. But he also argued that broad-based unions will not, recognizing that they cannot advance their own members’ interests if the economy as a whole suffers.

I believe the same applies to capitalists. Monopolies or cartels who attempt to maximize their own profits will damage the economy, while broader-based groups will recognize that they can only maximize profits by advancing the economy as a whole — creating new jobs and lifting wage levels.

You also cannot focus solely on lifting wage levels — as Herbert Hoover attempted in the early 1930s — in the hope that this will support the broader economy. Higher wages will slow job creation and retard the recovery. The focus has to be on maximizing the total wage bill — and consumption. At times, during a recession, this requires lower wages and more jobs. But as the economy approaches full employment, wages will rise while job creation slows.

Exporting jobs offshore may serve the narrow interests of some manufacturers but is ultimately not in their long-term interest. They may gain from cheaper labor costs but they are also exporting consumption, which will directly or indirectly hurt sales.

That Kemp was an extraordinary man is also borne out by his views on immigrants, emphasizing integration rather than exclusion:

I also know that Kemp had a far different attitude toward immigrants than virtually all Republicans today. He welcomed them, seeing immigration as one of the economy’s lifebloods. He would be extremely critical of efforts to demagogue Latino immigrants who come here, legally or illegally, just looking to earn an honest living and enjoy the American way of life.

Read more here: Jack Kemp Showed GOP How to Appeal to Minorities | The Fiscal Times.

DAX breakout above 7500

Germany’s DAX broke resistance at 7500 from its May 2011 high, signaling an advance to the 2007 high at 8000*. A 21-day Twiggs Money Flow trough above zero would reinforce the signal, indicating medium-term buying pressure.

DAX Index

* Target calculation: 7500 + ( 7500 – 7000 ) = 8000

China regulator frets over confidence crisis after investment product fails | Reuters

Hongmei Zhao and Lucy Hornby report:

Investors rushed to [Hua Xia Bank Co Ltd]’s Jiading branch in a suburb of Shanghai after one of four wealth management products issued by the Zhongding Wealth Investment Center failed to pay out as scheduled on November 26.

via China regulator frets over confidence crisis after investment product fails | Reuters.

Clinton’s Spending Cuts—Not His Tax Hikes—Worked

EDWARD MORRISSEY writes about Clinton-era nostalgia:

In his eight years as President, Clinton reduced federal spending to 18.2 percent of GDP from 22.1 percent, thanks in large part to a Republican-controlled Congress that forced the issue……. Barack Obama managed to hike it 3.5 points in just one term, with 3.2 points going to non-defense spending. Under Obama, federal spending now exceeds 25 percent of GDP, and his has been the biggest increase of any of his predecessors over the last 60 years – even for two-term Presidents.The real debate over deficits isn’t over whether to go back to Clinton-era tax rates. It’s how to get back to Clinton-era spending levels, and then create a tax system that will adequately fund it. The 18.2 percent level of federal spending is one piece of Clinton-era nostalgia worth recalling – as well as the bipartisanship that eventually produced it.

Nostalgists should also remember that the housing bubble started in this era — as did the internet boom — followed by the dot-com bust just as Clinton left office. This article is definitely worth reading.

via Clinton’s Spending Cuts—Not His Tax Hikes—Worked.

Goldman predicts falling commodity prices

Matthew Boesler writes that Jeffrey Currie, Goldman Sachs Head of Commodity Research, in his investment outlook for 2013, says commodity prices may be done going up, but that doesn’t mean investors can’t still make money.

Currie’s explanation is this: sustained high prices over the past decade have caused producers to invest in new technologies that help them to harvest more commodities, because they can sell them in the current market for high prices. However, those new technologies have the effect of relieving long-term supply constraints, because the world will be able to use them to access previously unaccessable energy resources, shale oil being just one example.

If Currie is right, returns will be “generated more by the backwardation in the term structure and less by price appreciation”. That means that investors can profit from rolling current contracts into consecutively cheaper future contracts. But it also means a bear market in resources stocks as commodity prices fall.

via GOLDMAN: The 'Old Economy Renaissance' Is About To Offer Opportunities For Commodity Investors Not Seen Since The 1990s – Business Insider.

Sterling threatens euro down-trend

Pound Sterling broke its long-term rising trendline against the euro and is testing support at €1.225 on the weekly chart. Retreat of 63-day Twiggs Momentum below zero warns of a primary down-trend. Breach of support would confirm. Respect of support is most unlikely, but would test €1.260 in the medium-term.

Pound Sterling

* Target calculation: 1.23 – ( 1.28 – 1.23 ) = 1.18

Aussie Dollar bullish consolidation

The Aussie Dollar is consolidating in a narrow range below resistance at $1.05 — a bullish sign. Breakout would indicate a test of long-term resistance at $1.06. Rising 63-day Twiggs Momentum, above zero, indicates a primary up-trend. In the long-term, breakout above $1.06 would offer a target of $1.10* but the RBA may take measures to prevent further appreciation. Reversal below $1.04 and the rising trendline is unlikely, but would warn of a correction to test primary support at $1.015.

Aussie Dollar/USD

* Target calculation: 1.06 + ( 1.06 – 1.02 ) = 1.10

How cancelling central banks’ holdings of government debt could be a useful thing | FT Alphaville

FT’s Kate Mackenzie writes: Morgan Stanley cross-asset strategist Gerard Minack says the remarkable thing about developed economy deleveraging is how little of it has happened:

The credit super-cycle ended four years ago, but leverage has hardly fallen in major economies: debt-to-GDP ratios remain historically high.

Debt To GDP Ratio

Minack says the problem is some of that deleveraging (particularly for households) is being tackled by saving more, but that won’t solve the problem, or at least not very quickly. This is because of what the borrowings were used to finance: mostly pre-existing assets (that were forecast to rise in value) rather than expenditure.

There is a simple reason why deleveraging is taking so long: governments are borrowing money (deficit-spending) to offset private sector deleveraging and avert a deflationary spiral. So overall (non-financial) debt to GDP ratios, which include government debt, are almost unchanged.

That is not necessarily a bad thing — unless you would prefer a 1930s-style 50% drop in GDP after a deflationary spiral. What can be destructive is funding government deficits from offshore because you eventually have to pay the money back. Far better to borrow from yourself — in other words your “independent” central bank. That way you never have to pay it back.

As for canceling central bank holdings of government debt. Why bother? Interest payments made on the debt go right back to the Treasury as central bank profit distributions. And why set a precedent? I doubt many would believe government promises that this was a once-off and would never be repeated…….until next time.

via How cancelling central banks’ holdings of government debt could be a useful thing | FT Alphaville.

Weaker commodities threaten down-turn

Commodities remain weak despite the softer dollar, with the DJ-UBS Commodity Index hovering above support at 140 on the weekly chart. Breach of support would test the primary level at 125/126, warning of a global economic down-turn. Reversal of 63-day Twiggs Momentum below zero would also suggest a down-trend.

DJ-UBS Commodity Index

The gap between Nymex WTI Light Crude and ICE Brent Crude  Middle East widened to $24/barrel as a result of tensions in the Middle East. 63-Day Twiggs Momentum holding below zero suggests a primary down-trend despite the weaker dollar.

Nymex WTI Light Crude

Gold breaks $1700

Gold broke support at $1700 per ounce, indicating a test of primary support at $1675. Breakout would offer an initial target of $1600*, with a long-term target of the May 2012 low at $1525. Declining 63-day Twiggs Momentum indicates weakness but values above zero still reflect a primary up-trend and the weakening dollar suggests strong support.

Spot Gold

* Target calculation: 1675 – ( 1750 – 1675 ) = 1600

The Dollar Index broke medium-term support at 80 on the weekly chart while the dollar is approaching its September low against the euro. The 63-day Twiggs Momentum peak below zero indicates a primary down-trend — confirmed if primary support at 78.50 is broken. Recovery above 81.50 is most unlikely but would indicate an advance to 84.

US Dollar Index

* Target calculation: 78.5 – ( 81.5 – 78.5 ) = 75.5

The daily chart shows retracement to confirm resistance at 80.

US Dollar Index