On the Russian hacking episode

I think Donald Trump's position on whether Russia hacked the DNC or not was reasonable. He wanted to see physical proof that Putin was involved before drawing a conclusion. After all, no proof was offered, only opinion by the intelligence agencies. Now, if he saw proof and still refused to acknowledge it, that would have been down-right scary. But he has accepted the Russian’s role in hacking and wants his own intelligence team to make recommendations on how to prevent hackings or how to retaliate against all hackers in the future.

Two points. There are 17 intelligence agencies in existence. That's crazy! The redundancy and expense let alone the bureaucracies competing with one another should be consolidated to maybe three or four. Like most of government, it is a red tape nightmare, and way too expensive and usually leads to confusion and therefore incompetency.

And as to the Democrats outrage at the Russians for doing what everyone knows Russia does, I liken the DNC to a driver that leaves his keys in an unlocked car in the middle of a high crime neighborhood. If the car gets stolen, sure, you blame the thief; but you also blame the idiot that left his car unprotected.

What the DNC did was right in line with what Hillary did leaving her computer unprotected even after warnings not to. And her campaign manager, John Podesta, did the same thing. This is what comes from ignoring reality and feeling that you're above normal rules that others have to follow. I'd rather have someone in charge of national security that is careful, than rightout foolish. And we appear to have that.

On Trump's "conflict of interest"

I don't know what all the fuss is about when it comes to Trumps holdings. It is not against the law to be rich and to have businesses throughout the world. Being a businessman that has dealt with people all over the world, is an asset not a liability. What people are so upset about is a potential conflict of interest. I could care less. Let's get on with solving the problems of Americans.

Conflicts of interest are not illegal, they are potential acts, not acts, and the acts can be detrimental or totally unimportant. Trump has refused to take a salary as President and is giving any profit made from renting hotel rooms to foreigners inside this country to the Treasury and the American taxpayer. He doesn't have to do that but chose to as an act of good faith. I think that is sufficient. Call me when some kind of criminal activity actually occurs and not before.

On Obamacare

The war on healthcare is about to begin. In the battle, note one important difference between those that want to dismantle Obamacare and those that will fight for it. The standard of Obamacare according to the Democrats is the number of those insured. The standard by Republicans is the quality of coverage, the price, and the choices available.

Almost every nation in the world has universal coverage where all its citizens have full coverage. Yet every nation wants American healthcare because the wait for medical attention is less and the quality of treatment is better here. But then there is our Veteran Hospitals. I give you the universal healthcare of the Veteran's Administration, compared with more private healthcare as an example of universal healthcare and its' results. All Veterans are covered but they are still dying waiting for treatment as reported again just yesterday. The same is true all over the world where they have some form and degree of Obamacare or universal coverage.

Americans reject Obamacare instead wanting what they had before with a few changes. If Congress can give it to them the subject will be closed even though not everyone who is now covered may be covered in the future. Numbers covered versus choice and results is what this battle will come down to.

Which leads us right into...

The Trouble With Systems

We talk about the healthcare system only because of the degree of government intervention into that industry. We don't talk about the steel system or the technology system or the food system because it isn’t controlled by government. But we do talk about the transportation system and the education system and the health system. All of these systems are controlled by the federal government and are in serious trouble. If we didn't have the federal government involved in the transportation industry for example, we would have bridges and roads financed and built by local taxpayers, and/or banks, and mostly local workers would be hired. The people that used the infrastructure would pay for it.

Instead we have tax payers in Montana paying for bridges in New Your City. It makes no sense whatsoever to send money to the Department of Transportation in Washington to build a road in Boise Idaho. Eliminate the Dept. of Transportation and you can eliminate the middle man, a huge bureaucracy, huge office buildings that then can be sold or rented out for a profit, and all that goes on to pay for and support that Department. The result would be roads built faster, better, and less expensively. This holds true of all centralized systems.

Eliminate every government system and return it to states, cities, and localities and with it the money you save from shutting down huge empires of bureaucrats, and let the locals solve their own problems. That's the reasonable and economic way of doing things.

Politically if you severed Transportation, Education, and Healthcare entirely from the federal government, politically and strategically there would be no reason to protest the Federal government. That would end the socialist movement nationally. Will Trump do that? I doubt it. But that is what it would take to shut-up the economic special interests. There would be no power or reason to lobby the national government.

And as to the charge that the Republicans don’t have a plan to replace Obamacare, that is a trap. A plan presupposes the desire to reestablish a new system. We have no plan for the food industry because the government is not in charge of food. A plan assumes control and regulation of healthcare by government. A transition  to remove government from the insurance business and healthcare is what we need. Then we will have insurance companies acting on the basis of actuary's tables, and doctors acting on the basis of medicine and patient needs instead of both acting in accordance with government decrees and mandates.

The Border Tax

Perhaps one of the most worrisome new developments is the border tax that is being proposed. It is in effect will be a value added tax or a national sales tax. This form of tax has been fought by most free market economists as one of the worst forms of taxes a nation can impose. What makes it inexplicable is it comes from the House leadership including Paul Ryan who knows better.

If our goal is to create an environment where businesses will want to return to America to do business and to stay in America rather the fleeing, we want a tax system that will encourage such decisions. Trump and others want to use a stick to force business to take actions.  A carrot is more the way to do so in a free society.

A border tax is a form of sales tax on all imported goods and is considered a more efficient tax. And that it is. It is broadly used in Europe and has proven to a very efficient way of confiscating people’s money -- especially the poor and middle class that buy low cost imports. It is one of the main reasons for economic stagnation. A border tax is a terrible idea yet, it is now being considered.

The plan would impose a 20% tax on imports and raise a trillion dollars over ten years. In addition it would penalize importers and reward exporters. So here we are again. The government picking winners and losers and taxing the American consumer for consuming. Nothing has changed accept the players!

Border Adjustment Tax

This week there was a distinction made by the House between a border tax and a border adjustment tax. The first was initially rejected by Trump as "too complicated". The second is back on the table -- revised. The distinction is the first is a form of value added tax, and the second eliminates taxes on all exports and eliminates all deductions on imports. That says the advocates, levels the playing field.

This is a new approach and less onerous than a value added tax for sure. But I'm not sure it improves free trade. Why not just let importers and exporters set the terms of trade with consumers and businesses around the world? The best thing the government could do would be to eliminate all tariffs and quotas which distorts the market and imposes taxes and less choice on consumers. This is rejected out of hand by protectionists as leaving our exporters at the mercy of a flood of foreign goods. But it benefits consumers and we are all consumers. Tariffs and quotas are taxes on the American consumer and the elimination of them is a tax break. It's that simple.

Protectionism doesn't work and free markets do. This is provable on every level. The problem is that governments have a vested interest in providing subsidies to exporters and taxing consumers. Exports lead to more money coming into a country raising prices and wages and temporarily stimulate the economy. This gives an illusion of prosperity.

But soon that artificial stimulus where's off and consumers find their standard of living falling from the higher prices and less choices of goods due to the import taxes and quota's. Protectionism institutionalizes mediocrity in production. Progress stalls. And stagnation sets in.

This is the case in Japan and has been for decades. So, what to do? I suggest going over the heads of governments and talking directly to the people through editorials in papers, and forms at Universities. I would seek out the very best writers and communicators that can explain why free trade directly benefits all the people, and why protectionism just benefits exporters, lobbyists, bureaucrats, and politicians. It is education that is the best way to promote free trade. That, and the example of America compared with protectionist nations.

Hopefully in time the voters of other nations will throw out the protectionist politicians and seek free trade. By the way, Britain and the United States have a perfect opportunity to do that today given the split from the EU. So could Japan, and Mexico, and Canada, establish bi-lateral free trade. Will it happen? Not on your life!

The Dollar

The most important thing that happened this week was the breaking of the tradition of political silence on the value of the dollar. Both the President elect and the Vice-President elect said they thought -- in so many words -- that the dollar was too high. That is unprecedented. Such comments can rattle markets. Gold went up 20 bucks on the news.

In 1987, I was a young investor and at the time was heavily invested in common stocks based on the Reagan economic programs. The market had soared for five years. Then, Secretary James Baker commented on the high value of the dollar and the dollar began to fall. I sold out my position entirely on the basis of that statement. Several days later the market crashed. It was more severe than the crash of 1929. That's the kind of thing that can happen when investors begin to worry about a government messing with the value of their currency.

It’s one of those “big mistakes” that I’m worried about with this Administration.

It is one reason I'm all in on gold. The Trump Administration is leaning toward protectionism. Currency depreciation goes hand in hand with protectionism. I doubt the market fully appreciates what will happen if the Administration actually takes action to depreciate the dollar. Most likely the Dow will fall dramatically, and gold and interest rates will move briskly higher. In 1987, we saw the stock market crash, and since then no Treasury Secretary or anyone else in government has said one negative thing about the value of the dollar.

Until now...

I want to close with a word about President Trump’s inauguration. I applaud the spirit and the philosophy of his speech. It was all about freedom and self-interest. That pretty much sums up my political philosophy. But with one guiding principle: you don’t initiate force to accomplish goals. That includes the absence or coercion, which is a derivative of force.

The speech was a muscular speech and left no doubt that there’s a new sheriff in town. Let’s hope that the new sheriff knows the difference between reason and compulsion when it comes to solving problems. We should know soon.

Trade

The entire reason for wanting to run a trade surplus by stimulating exports is jobs. Consider: only one out of ten workers is in the export industry. But ten out of ten workers are consumers. Who do you want to help -- 10% of the population or 100% of the population?The imposition of tariffs is a tax on all consumers which reduces the money they have to spend on American goods. This reduces jobs.

That's exactly what you see in protectionist countries -- high unemployment. Also, protectionism prevents imports. The US is the largest importer in the world. It stands to reason then, that if you reduce imports you contract the import industry which reduces jobs in America.

The fact is that protectionism is just another way for big government to pick winners and losers. And at the end of the day protectionism is a losing proposition for just about everyone. Nine out of ten economists know this.

The other reason given for stimulating exports is wages. It is asserted that wages rise when exports increase. This is true but deceiving. Prices rise as money enters the economy. That's inflationary. Wages rise also but it takes more wages to pay for higher prices. In fact, inflation robs many of purchasing power since prices rise first and wage increases lag. Higher wages are only higher due to inflation. It is an illusion -- but an easy sale.

Wages did not rise during the gold standard; purchasing power and living standards did. A man’s suit cost the same in 1800 as it did in 1900 under the gold standard. Prices remained stable for a hundred years. It's productivity that increased along with the quality of goods. It is better products for less money that raises a population’s living standard. And I might add there was not a world war in the 19th century. Nations weren’t fighting each other over trade, they were too busy producing and prospering.

Historically, free trade leads to peaceful times and protectionism leads to wars. I give you the Industrial Revolution of the 19th century with no international war for over a hundred years, versus the trade wars of the 20th century, with a mulitude of wars world-wide.

Immigration

The proper use of force by government is defensive force. It is to be used only to protect life, liberty, and private property. The initiation of force in a free society is banned. This is where I draw the line to any political question. Is the government initiating force or not? So far, all of the executive orders signed by Trump have been defensive in nature, not aggressive. This may change, but as of today, there has been no government force ordered against anyone.

The ban on immigrants is a case in point. It is an act of defense. Immigration is not a right, it is a privilege and as such, permission to enter this country can be withdrawn. Now, it can be argued that the temporary ban on travel from various warring nations was implemented incompetently, that it was amateurish, or that it was harsh or any other number of adjectives to describe it. But it is legal; and in fact the job of the commander in chief of this country is to first and foremost to protect American citizens against the threat of force.

The ban on immigration from war-torn nations where vetting becomes at times impossible is a defensive move. If there were errors in implementation they can be corrected, but we should always err on the side of the defense of national security.

The Political Backlash On The Ban

The political Left is just coming to grips with the fact that they have lost the election, and more, they have lost the confidence of the vast middle class. They fear that Trump may succeed in stimulating growth. They implicitly know that many of the economic policies Trump wants to institute will succeed in turning the economy around. The intellectuals of the Left have always known this. They are against the policies for other reasons than economic. By their philosophy, economic growth should be sacrificed to social justice. That's the dirty little secret of socialism.

In order to fight the Right, they are already changing tactics from arguing on economic grounds, by trying to take the higher moral ground. They have seized on the travel ban as heartless, racist, and un-American. At the root of this new fight is philosophy and morality. It is the Lefts insistence that America must be a caring nation that helps those less advantaged around the world, versus Trumps policy of "America first".

It is the age old battle of selflessness versus self-interest. To paraphrase Donald Trump’s words, losing stops here and now. Every decision from now on will be judged by the standard of does this action benefit Americans. The battle has been engaged and the lines have been drawn in the sand. In economics, it is Adam Smith's invisible hand of self-interest and the founding fathers priority of the government to defend these borders, versus the altruism of socialism and the demand that America must defend other nation’s borders at our expense, while leaving ours exposed.

The fight has only just begun.

Click here: Self-Sacrifice Versus Self-Interest - PaulNathan.biz

On Currency Depreciation

President Trump jaw boned the dollar down on Tuesday. From Kitco news:

"The U.S. dollar index has dropped to sharply lower levels, due in part to comments just out from U.S. President Donald Trump, who suggested he wants a much-lower-valued U.S. dollar on the world foreign exchange markets, in order to improve U.S. trade."

The reaction was predictable -- the dollar fell and gold popped 20 bucks. The price of gold continued higher during the week. Once again, all you need do is look at those nations that have depreciated their currencies over the decades in order to run trade surpluses to see that their economies and employment levels have fared far worse than ours. A stable currency and free trade beats protectionism in all its forms every time.

This notion that currency manipulation harms the US trade position, and that we need to do the same thing is perverse. People like Peter Navarro, who is President Trumps special trade advisor, is dangerously wrong about how the US should react and what trade policies we should impose. They are counter-productive.

If there is going to be real trouble for Americans, it will most likely come in errors on trade and currency policy. This is one reason a position in gold is important.

Obstructionism

All I can say about the Democrats, who have united to vote against perfectly qualified candidates for a Cabinet position, is that it is no different than bigotry. Democrats are voting against Republicans, because they are Republicans.  Qualifications no longer matter. It's the ”them against us” bigotry that rules politics today, and it is obnoxious to witness in this country.

Ironically, It is bigotry that the Left denounces. Democrats insist that the temporary ban on travel is a Muslim ban. That's absurd. It is anyone trying to travel from war-torn countries that are banned. The reason is that the documents from those countries cannot be verified. There is no paper trail to trace back since most official agencies and businesses have been destroyed.  

If you can't vet a traveler here, you can't know who he or she is. Until we can, it is only reasonable to suspend travelers from war-torn nations from coming here.

Trade and China

There is little doubt that Trump is going to go after China on trade due to its huge trade surplus with America. I want to point out a simple statistic. Since China has been allowed to join the World Trade Organization, US exports to China have increased 600%! The US is in fact the number two exporter in the world, and our largest trading partners are China, Mexico, and Canada and Japan. The EU is also one of our largest trading partners and I want to point out that all have a lower standard of living than the US. This is why to press our advantage makes little sense.

We have nothing to gain by going to war with these nations economically, and a lot to lose. Having said that I would come down hard on China for its hacking, stealing of intellectual property and industrial secrets, and its counterfeiting of American products. But these are not economic issues. As such they should be a part of foreign policy decisions and handled through the Defense and State Departments. And they do need to be handled. But they should be handled by methods other than economic.

A trade war would be a lose-lose situation.

Trumps Super Bowl interview

Bill O'Riley of Fox News interviewed President Trump before the big game and asked him why he doesn't criticize Putin. Trump dodged the question and O'Riley followed up with "But Putin is a killer". Trump responded "There are lots of killers. Are we so innocent?"… thereby unleashing a firestorm over what appeared to be a moral equivalency of Russia and the US as if we are both killers.

The statement is indefensible. Since the next sentence out of Trumps mouth was about Iraq, one might conclude that he was comparing Bush and Putin as both killers. American Presidents have unleashed death and destruction onto many nations over its history, but always in the defense of life and aggression. We as a nation have never murdered people of other countries -- we have killed them because they murdered.

Once again, it is the use of force in defense of aggression which is a moral use of force. It is the difference of a policeman killing a criminal in the act of aggression versus a criminal killing a policeman. They are not equivalent. The fact that Trump doesn't understand the difference is a monstrous evasion and is one of the reasons why I could not vote for him.

If you think this is just semantics, I want to point out that Trump to this day says America should have taken the oil in Iraq when we went into that country to defend them against a vicious dictator. That's a criminal act. Trump calls it "to the victor go the spoils". That's something that barbarians use to say. Not only does America not confiscate property of others...they don't conquer a nation like Russia does. Our morals and motives are totally diametrical.

Japan today is a free country even though they unconditionally surrendered to the US after WWII. The same is true of Germany. Both have been our allies since and I might add friendly allies. We do not control their resources or their people. They are free.

As I have warned before, Trump has an authoritarian streak in him and needs watching, closely. He is irrational and sadly lacking in important knowledge on many issues, and you can count on that being a factor in the years to come. I will continue to give him credit when he's right, and criticize him when he's wrong.

The Super Bowl

And speaking of the Super Bowl, did you notice the difference between the Super Bowl crowd and today’s political crowds? The Super Bowl crowd was joyous, celebrating the event, whooping and howling with excitement. At the end, even given the great disappointment of losing, the sides (who sat together during the conflict) both left peacefully, quietly, and accepted the results. The next day they went back to work and resumed their daily lives.

This was pretty much the case when Obama won both times. The Republicans sat back and watched what they believed was the destruction of their country as they knew it. But they licked their wounds and peacefully put up with it for eight years.

Not in this election. This election the losing side which preaches peace, and love, democracy and tolerance, took to the streets and broke windows of innocent business owners, destroyed property, burned vehicles, and vandalized property while yelling obscenities; then they threatened violence on those that won the election.

The Super Bowl was America at its best while the action of the extreme Left was America at its worst. During the Tea Party demonstrations there was no violence and was orderly and lawful. Perhaps you don’t remember this, but the KKK was originated by the Democrats while the Republicans were the party of Lincoln and ended slavery. I’ll bet you that 9 out of 10 people asked today would say that the reverse was true. That’s how effective the propaganda from the Left has been in this country. It is always assumed that Republicans are the bigots of this country and the democrats are not. They are supposed to be for tolerance, peace and love. Then you see them in action when they lose.

They are not!

These views were all edited from my Market Updates over the last month. They excluded all investment advise since that is exclusive to my subscribers. If you found the views interesting and would like to subscribe Click here: Subscribe to Market Update - PaulNathan.biz.

And I might add that the investment advice given in that letter has led to huge profits in just the last few months. 

Paul Nathan