Another Round of QE4, Please!
When the Federal Reserve announced that it would be suspending the reduction of its $3.8 trillion balance sheet two months early, nobody expected that the central bank would add to it again so soon. Does this mean a fourth round of quantitative easing (QE4) has begun? It looks like the Fed is in the early phase of igniting the aggressive bond-buying program.
For two weeks last month, the central bank bought $14 billion worth of Treasurys. This is the first time the Fed has purchased a significant amount of government bonds in five years.
The Eccles Building ended QE3 in October 2014 and started to unwind its enormous holdings three years later. But the Fed confirmed that it was getting ready to hit the pause button on quantitative tightening. Ostensibly, Fed Chair Jerome Powell is selling off the institution’s mortgage-backed securities (MBS) in exchange for US debt, and that should be a welcomed relief for the administration – not for the future.
Over the last 18 months, the Treasury Department has been selling tens of billions in bonds to keep the lights on. Instead of practicing fiscal conservatism, the federal government is returning to trillion-dollar deficits and going as far as suspending the debt ceiling. And it is the Fed that is enabling this reckless behavior by monetizing the debt.
While it might be premature to declare QE4, the signs are pointing in this direction because $14 billion is nothing to sneeze at.
Allergic to Profits
The Business Roundtable (BRT) is a non-profit organization comprised of chief executive officers of major American companies. Founded in 1972, the Washington, DC-based association endorses public policies that are favorable to businesses, but it also lends its support to other causes, mostly of a progressive nature as of late.
The group recently made headlines for redefining the purpose of a corporation, dismissing its primary aim: maximizing profits. Moving forward, the BRT will encourage corporations to put the interests of customers, employees, communities, and suppliers on par with shareholders.
In a statement signed by 181 CEOs, the group says:
“Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include language on the purpose of a corporation. Each version of that document issued since 1997 has stated that corporations exist principally to serve their shareholders. It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable.”
Sure, these are heads of private companies and, thus, they can run their businesses how they see fit. But this is just another unjustified dismissal of profit. Many people fail to grasp how valuable it is to an overall economy. In a free market, profit is when capital, labor, and resources have coalesced at a price that is less than what the created product is sold for in the marketplace. Since the price reflects consumer demand, higher profits mean greater customer satisfaction.
Profits drive market economies and improve everyone’s lives – consumers, employees, and shareholders. Let’s remember the Milton Friedman Doctrine: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
When discussing Walmart’s decision to no longer sell guns, Ben Shapiro tweeted: “The Left has found a new way of implementing policy from the top down, without the use of government: simply pressure massive corporations to do their political bidding.”
Well, it looks like the left is getting corporate heads to shun its main objective – make a lot of money for shareholders – to look like it is woke. Bowing down to the gatekeepers of what is and is not acceptable is never a wise strategy.
Manufacturing Slumps on Trade
The Institute for Supply Management (ISM) released its manufacturing index for last month and it was not a good sign for the industry. The index slumped from 51.2 in July to 49.2 in August – any figure below 50 suggests a contraction in activity. This is the lowest reading since January 2016 and is lower than the median estimate of 51.0.
ISM officials say that the new orders index declined 3.6 points to 47.2 and the output index slipped 1.3 points to 49.5. Just nine of the 18 manufacturing industries recorded gains last month, and only three reported new orders growth.
First, let’s get this out of the way: There are certain underlying issues at play that are affecting the sector, such as falling motor vehicle sales and Boeing’s 737 Max jet problems. However, the major issue stems from the US-China trade war as the ISM index has plunged ten points since tensions escalated last summer.
Prior to the trade war, America’s manufacturing industry was quite strong, posting tremendous output levels. But all its gains in recent years are being threatened by this prolonged trade spat. From automobiles to steel, the US-China dispute is affecting the entire industry, and there is no relief in sight.
It is uncertain if President Donald Trump can make good on his campaign promise to resuscitate US manufacturing, despite it doing quite well. What we do know is that a trade agreement is desperately needed to curb market volatility, save consumers some money, and limit the damage already done to every facet of the US economy. A trade war might not ignite a recession, but it is still causing headaches that most free-market minds warned about for years.
Mixed Week for Free Marketeers
It was a mixed week for free marketeers.
The central bank is easing monetary policy again, which is what some contrarian libertarians, like Peter Schiff, had anticipated. Chief executives are trying to please leftists by concentrating on more than just profits, but the left will still hate them. Manufacturing has weakened again, proving that the trade war is producing negative effects. This is why it is hard to be bullish on the long-term health of the United States; too much central planning and too much pandering to the loudest minority on the left. Oh, well. At least the consolation prize for libertarians is sky-high gold.