Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.
For months, the White House has lobbied the Federal Reserve to cut interest rates. President Donald Trump has pleaded his case via Twitter on multiple occasions, saying that if rates were lower, then the gross domestic product (GDP) would be a lot higher. Larry Kudlow, director of the National Economic Council, suggests the central bank reduce rates “immediately” by as much as 50 basis points. Other individuals connected to the Trump administration appear to agree: Cut them now!
The Fed has evolved on the issue. The Eccles Building has gone from dismissing the pleas to saying maybe, to conceding that the Fed could lower rates from the target range of 2.25% to 2.50% if the economy cools down.
According to the CME Group FedWatch tool, the market is anticipating a rate cut of at least 25 basis points by as early as the July Federal Open Market Committee (FOMC) meeting. By December, some investors are betting that rates could crash to as low as a target range of 1.00% to 1.25%.
Of course, by doing this, the Fed sends the message that the U.S. economy is not as strong as the president asserts, which could be dangerous ahead of the 2020 election. It will also expand the money supply, providing a short-term boost to Wall Street asset prices. It will not be great for the long-term health of the U.S. economy, mainly from the price inflation it will generate, which will eventually lead to a spike in rates to combat this trend.
But additional manipulation of artificially controlled interest rates is further evidence that only the market can handle such an important matter. It is the market that can determine the appropriate rates of interest, not a dozen or so people. If this were the case, then the current decade-long boom would not rely heavily on credit. When there is an artificial jump in the supply of credit, then rates are pushed below levels that would not drive up bank credit supply and asset prices.
The New York Stock Exchange is happy, though, as equities are rebounding from the trade fallout with China and Mexico. Why? Because traders are betting that there will be another immense injection of cheap money.
No Juan Wants Restrictions
One of the few things that President Barack Obama did right – and that list is minuscule – was easing restrictions on Cuba. Although his measures were more crony than anything else, they were a step in the right direction to open up trade and diplomatic relations with the communist regime. Since entering the Oval Office, President Trump has been slowly reversing his predecessor’s actions.
The Treasury Department announced new travel restrictions on Americans traveling to Cuba. Some of these measures will include cruise ship stops and group educational trips, both of which abide by the Office of Foreign Assets Control (OFAC) regulations. Americans seemed to have taken advantage of the gradual embargo rollback as they were the second-largest foreign group visiting the island nation. But Treasury Secretary Steven Mnuchin believes these new directives are necessary because the country is playing a “destabilizing role” in the region:
“Cuba continues to play a destabilizing role in the Western Hemisphere, providing a communist foothold in the region and propping up U.S. adversaries in places like Venezuela and Nicaragua by fomenting instability, undermining the rule of law, and suppressing democratic processes. This Administration has made a strategic decision to reverse the loosening of sanctions and other restrictions on the Cuban regime. These actions will help to keep U.S. dollars out of the hands of Cuban military, intelligence, and security services.”
Rep.Tulsi Gabbard (D-HI) may have summarized the situation best in a recent tweet:
“Basically Americans will no longer be free to travel to Cuba, because Cuba is a communist country & therefore its’ people are not free. So now the Trump Administration, in the name of freedom, is taking away Americans’ freedom. Make sense?”
If U.S. citizens want to visit Havana, then why should the federal government prevent them from doing so? If tourists want to drink unclean water, use dirty restrooms, and fund a repressive regime, that is their choice. The state has no business in the traveling decisions of citizens.
A Plastic Rap
Legendary comedian George Carlin did a bit in the 1990s about conceited and arrogant human beings who think they can save the planet by targeting plastic. He joked that the age-old question of “why are we here?” has been answered a long time ago: The Earth wanted humans to develop plastic for itself. There was a lot of truth to that stand-up routine, including how leftists believe they will save Mother Nature by outlawing plastic bags.
Indeed, plastic has a bad reputation these days. It is as vilified as billionaires, straight white men, and the Golden State Warriors. The plastic race faces so much prejudice that the government has intervened, fining waiters for serving unsolicited straws to customers, and taxing shoppers for using plastic bags to carry their groceries home from the supermarket.
As crude prices enter a bear market and future growth comes into question, oil firms have determined plastic is the answer to their future. Exxon Mobil, Royal Dutch Shell, and Saudi Aramco have invested billions into plastic and chemical assets, since their primary resource is broken down into these elements used in every part of our life. Worldwide, new oil refineries are being built to produce more chemicals and less fuel. China, for instance, is investing $100 billion in crude-to-chemicals projects over a five-year period.
Fortunes may be lost because the globe is clamping down on these materials. It is not just the government homing in on it, either. Markets are participating in a global crackdown: Chemical makers are investing in recycling technologies, retailers are reducing their use of the component, and waste recovery investments could soon replace virgin plastic by as much as 60% by 2050. These trends would decrease the demand for petrochemicals, which is forecast to lead to a 20% drop in oil demand. Moreover, global recycling rates are surging, something that could cut the industry’s growth in half.
The primary reason for this sudden shift in the market is water pollution. In recent years, there has been a spike in the number of reports highlighting how marine life is being devastated by plastics, humans are consuming it through fish, and chemicals are seeping in to the water supply.
This is throwing out the baby with the bathwater because plastic is one of the more efficient and reliable materials out there. Rather than transitioning away from the malleable item to prevent ocean pollution, free-market capitalism is coming up with superb methods of cleaning up this pollution. Entrepreneurs have developed U-shaped screens, floating rubbish bins, and technology to prevent the flow to the ocean. Plus, if you really wish to ensure oceans are clean, then water capitalism is the best avenue to explore.
Recycling harms the planet, wastes money, and misallocates resources. These efforts to minimize plastic pollution, as well as a reduction in consumption, will do more for the planet than punishing a poor family from the Bronx with a bag levy.
All these stories share a common theme: state intervention. Central banks fiddle around with interest rates, governments restrict travel, and politicians make themselves seem important by taxing or banning plastic bags. It is absurd to think that the Leviathan is an apotheosis that has all the answers to our problems. Let the market determine interest rates, let people travel wherever they wish, and let entrepreneurs solve environmental hazards.
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