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Lemme see, 5% of $10,000 is 200, right?

I am back in the classroom after 13 years. I was worried about the cultural divide. I cannot relate to these students and they cannot relate to me. None had been born when Bill Clinton was president. Most were in the second grade when I retired. I am older than their grandparents. My children are older than their parents. My grandchildren are all older than any of them. Tic Tok is one of those windup clocks. I am on no social media sites. I tried to get on X after Elon Musk acquired Twitter, but X rejects any effort I make to create an account and I am not smart enough to figure out why. I must be a Luddite since I can’t even figure out how to use the technology in the classroom. Its almost embarrassing.

I gave a lecture on financial markets. As is my wont I told about the origins of the US stock market and why it was initially denominated in 8ths. I talked about the Spanish dollar divided into 8 reales and that the coin dominated the American colonies even after the US decided to mint its own currencies dominated in 100ths after 1792. In the colonies the Spanish pieces of 8 was divided into bits rather than reales. Remember 2 bits, 4 bits, six bits a dollar, all for UT stand up and holler?

For me this was fun. Not so much for the students who were wondering if they had wandered into the wrong class. Isn’t this a finance class and not a history class? Who really cares why the stock market is denominated in 100ths while the bond market remains denominated in 8ths? I even showed them the narrower margins in the stock market because of this (one penny versus 12.5 cents). The students yawned. Then I said remember in Treasure Island, Long John Silver’s parrot kept barking “Pieces of 8! Pieces of 8!”? The students probably thought that Long John Silver was some fish-selling dude.

I gave them an exam. It was short answer, one problem and three essays. Students had to answer in the spaces provided on the exam and could not use their computers. They complained. They wanted to answer using their laptops. I told them that the computer could not monitor them if they answered on it. They complained that in their four years they had only been tested with multiple choice/true false exams on the computer. Well during my four years at Georgia I only had one multiple choice exam and I refused to take it. So my making them write out their answers was unfair. I also would not let them use a calculator. I told them that they could do the computations in their head and if they used a calculator it meant that they did not understand the concept. The problem involved them being able to compute 5% of $10,000. Over half of them could not do it. When I went over the exam in class, I had to ask ten students what the answer was before one said $500. Again a student complained that the question was unfair and I should have given them the answer because it compared the coupon rate on a bond to its yield to find out if the bond sold at a discount, par or a premium.

I also take off for misspelled words. On the syllabus I toldl the students that I have a zero tolerance for misspelling principal, yield, receive, guarantee and separate. So of course they wrote principle, yeild, recieve, garantee and seperate. Several students also misspelled “usury” even though I spelled it correctly in the question.

These students are passive. I have not been interrupted a single time by students asking questions or for a clarification. Not once! I was talking about Fed policy and changing the fed funds rate by 50 basis points when I realized that some of them didn’t know what a basis point was – and these are finance majors. So I asked “What’s a basis point?” I said that I had wasted the last 30 minutes because they did not know what I was talking about. When I now see a student with dazed eyes I say “Ask me a question.” When they said that they don’t have one, I say “Then make one up.”

These students have had basic economics, introductory finance, financial statements and investments. Yet they cannot draw a supply and demand diagram. They haven’t even heard of net present value. When I asked them about how the market allocates credit, they had no idea. When I introduce a subject I ask them a basic question. Define “interest rates”. They can’t do it. I ask them “Is the minimum wage good or bad.” They say “good” and then I show them it can be both and can create unemployment among those the politicians want to help. I do the same with usury laws. I asked them who holds the most US debt. They all said China. Of course the answer is the Fed and the US government. Even Japan holds more US debt than China. I guess I need to put my lectures on Tik Tok.

Don’t get me wrong. There are some very strong students in this class. Most are smarter than they show. Its that they have not been trained to use their brains and to think how to solve problems. Case in point was a question on the Fed’s Open Market Committee. I said that if inflation were forecast, what actions would the FOMC take to counter it. Half the class said the Fed would buy T-bills and lower interest rates! When I went over the test I asked a student who got it wrong, “If the Fed wanted to slow down the economy, what would happen to interest rates.” He knew that the Fed would raise interest rates. So why did he get the answer to the exam wrong? It was obviously my fault in how I asked the question.

When the semester began I said that I did not want to be the only person in the class having fun. I am actually enjoying being back in the classroom but the student reaction is definitely bimodal. This is messing up my turkey season and I cannot spend a solid week at the farm until spring break. But this is a one off. Seven students dropped when I told them how I tested. Fifteen more did not show up after getting their exam grades. Hopefully the students remaining will be motivated to read the financial press and understand what they are reading. One day they will have to use these skills in the workplace. At least one student said that she has started listening to a financial blog and now understands much of what they are saying.

So maybe there is hope.

I keep seeing these articles asking why aren’t the democrats embracing DOGE in its efforts to cut wasteful spending and trim the federal budget. The answer is obvious. The expenditures for democrats are not wasteful. They play a vital role in getting them reelected. I doubt if the dems see any fraud or waste in any government’s spending. It is evident why they want to stop the reduction in the federal workforce. These are their constituents. Federal workers are overwhelmingly democrat. For democrats, every single federal employee is vital, every single federal job is essential, and every single dollar is necessary. There is no waste or fraud here. It is just a figment of Trump’s imagination and he is just out to get those that didn’t vote for him and that resist his agenda. Really, did anyone expect a single democrat to support anything done by Trump?

The dems have been holding anti-DOGE (I pronounce it dog-ee) rallies. Kweisi Mfume, the past and now present congressman from Baltimore said “This will be a congressional fight, a constitutional fight, a legal fight, and on days like this a street fight, yes we will stand.” I have no idea what all this fighting is about. But the republicans jumped right on it claiming that Mfume was advocating violence. Sounds like a racist slur to me. Essentially, Mfume is saying that he will resist any effort to fight waste and fraud – because of course in his eyes no waste and fraud can exist in the federal government. I am interested in what Mfume claims to be a constitutional fight. Doesn’t the constitution give the president authority over the federal agencies? Isn’t that’s why the president nominates those to run the agencies rather than having the congress appoint them? Of course, the Senate must confirm them and the congress must appropriate their budgets but that is the limit of congressional power. So what is the constitutional fight? Maxine Waters at the same rally had a rant that may go down in history when she said “We have got to tell Elon Musk that nobody elected your ass. Nobody told you you could get all of our private information. Nobody told you you could be in charge of the payments of this country.” No wonder she is called Mad Max.

AOC  urged Democrats to “blow this place up (meaning the congress). “We should not comply in advance. We should not make it easy for them to do what they need to do if they’re going to do it anyway. Make them do it anyway, but not with our help.” Blow it up indeed. Isn’t this what Trump is doing? Was AOC at the House hearing on COVID fraud where the witness said that $1 trillion was stolen?  Another witness testified “As Medicaid has grown, so too has its mismanagement. Today, more than one in five dollars spent on Medicaid is improper. In Medicaid alone, fraud and mismanagement is on track to cost U.S. taxpayers, get this, more than $1 trillion over the next ten years. When it comes to the problem of improper payments the Medicaid program is the biggest culprit, encompassing nearly one third of all federal improper payments. And more than 80 percent of Medicaid improper payments are due to one thing: eligibility errors. If Congress wants to help President Trump address wasteful spending, then targeting eligibility errors in Medicaid should be one of your top priorities.” Of course, no outrage came from any democrat. Greg Casar (D-TX) however castigated the “Trump-Musk administration” for firing watchdogs and cutting agencies and programs he believes are “vital to servicing the poor”. Gee Greg, if the inspector generals were doing their jobs why do you think they were fired?

On the senate side, Chuck Schumer along with Patty Murray, Ron Wyden and Elizabeth Warren also held a press conference where they railed against Elon Musk rather than against government waste – do we see a pattern here? The democrats oppose the auditing being done by DOGE. How else do you think that fraud and waste will be uncovered, Chuck? Schumer then led a rally against DOGE much like the one led by Mfume saying that democrats would resist Trump through the courts, the states and the congress. Wasn’t it fun hearing Warren accusing of Musk being unaccountable while bemoaning the defunding of her pet agency, the Consumer Financial Protection Bureau which is itself shielded from accountability? That the democrats are on the wrong side of public opinion is encapsulated in a congressional democrat approval rating of 20 percent. Congressional republicans are at 40 percent.

So what if DOGE has uncovered crazy spending at USAID, found Politico was paid $8 million for federal subscriptions, found $2 trillion in Medicare, Medicaid and Social Security fraud and found $4.7 billion in untraceable Treasury payments? These are just the price of doing business for the democrats and seriously, the republicans are complicit too having only found religion after Trump got elected. One thing is for sure, I bet that neither Trump nor Musk will investigate how so many members of congress got so wealthy while earning a government salary. Consider Nancy Pelosi (D-Calif.): annual salary $223,000, net worth $202 million; Mitch McConnell (R-Ky.): annual salary $200,000, net worth $95 million; Chuck Schumer (D-N.Y.): annual salary $210,000, net worth $75 million and Elizabeth Warren (D-Mass.): annual salary: $285,000, net worth $67 million.

Instead Musk is going after low hanging fruit by wondering how so many government bureaucrats got so wealthy (Anthony Fauci). “There are quite a few people in the bureaucracy who have ostensibly a salary of a few hundred thousand dollars but somehow managed to accrue tens of millions of dollars in net worth,” he said. “We’re just curious as to where it came from.” For example, Samantha Power, head of USAID under Biden had her net worth increase from $6 million to $30 million in three years while earning a government salary. I’m sure there is a reasonable explanation. 

We know that the democrat politicians cry “resist” but what of their voters? I would think that even democrat voters would like to see government spending addressed. But I could be wrong. One thing is for certain. I have often said that the republicans are just democrat – lite. Has spending ever gone down with republicans in power? Let us see how the republicans act when Musk starts seeking to defund payola going to their constituents.

Thumbs down!.

Thumbs bug me. I send someone a text and they send me back a thumb. Is it that they are too lazy to text back words? Apparently this is the go to emoji of lazy people. I once considered it rude. But then I also consider it rude for the man to walk on the inside of a sidewalk. So pardon me if I feel like responding to your thumb with another finger.

Thumbs up?

I am not a Europhile which may come as no surprise. I am grateful for western civilization, culture, religion and Adam Smith. But in no way have I ever wanted to emulate any of the Europeans. British cuisine is so awful that the best British food is Indian. French cuisine gives me gas much like the effete snobs who populate the country. I like Italian cooking although it too can produce its share of backfires. My mother hated pasta. Spanish food is passable although I once turned down an offer to visit a tapas bar. Then there is Scandinavia which is too cold and much to bigoted for my tastes. Eastern Europe suffers from having a surfeit of unattractive women with unpronounceable names. It seems that throughout most of history, Europeans have been intent on killing each other. That still continues with the war in Ukraine. That Europe has not decided to shut down the Russian economy and fully protect Ukraine is enlightening. If they won’t do it, then why should we? I don’t get the US talking with Russia about ending the war in Ukraine. Don’t the Ukrainians have a say? What about the Europeans? This may be one of the weirdest things Donald Trump has done.

The Europeans are intent on driving themselves into the ground. The embrace of green energy, the shutting down of coal and nuclear, the high cost of getting less energy for more money speaks to the effeteness of the continent. When it started the EU was comparable to the United States in GDP. It is now 60 percent smaller. That should be scandalous. In Europe all you get is a ho hum. Europeans want to work less, produce less and complain more. Is this any way to run (or ruin) a continent? The shrinking populations of all of Europe – I don’t think that there is a country with a replacement rate over 2.1 – and the influx of aliens who do not share the Europeans’ values will be a death knell. 

The Europeans have abdicated their prosperity to the greens, to the influx of illegals who refuse to adapt to their new country’s culture and to general malaise (calling Jimmy Carter). It is like the politicians on the continent are nothing but a bunch of wimps (Italy’s Meloni and Poland’s Duda may be the exceptions). Seriously, do you think Rishi Sunak, Emmanuel Macron, Bajram Begaj, Vahagn Khachaturyan, Katalin Novak, Ignazio Cassis or any of Europe’s leaders is a capable leader? If so, enlighten me. For me this is a continent in decline. Its best days are past.

The Europeans have fallen victim to socialism and the welfare state. They were shocked by the two speeches given by JD Vance. In one speech Vance excoriated the Europeans saying that “the threat that I worry the most about vis-à-vis Europe is not Russia; it’s not China. It’s not any other external actor – What I worry about is the threat from within the retreat of Europe from some of its most fundamental values, values shared with the United States of America.” Vance is telling the Europeans that having the so-called elites seeking to control their citizens’ lives is part and parcel of the continent’s decline. People should be free to make their own decisions. Vance is saying that going forward Europe must take a greater role in their own defense, reject rule of the elites and go back to its roots and strengthen western values against external and internal threats. Vance also scolded European leaders for stifling dissent, religious liberty and free speech. 

The Europeans were shocked, shocked! How dare the uppity Americans tell them what to do! The other important speech by Vance was on European censorship and heavy handed regulation of American high tech firms. Vance said “We believe that excessive regulation of the AI sector could kill a transformative industry. We feel very strongly that AI must remain free from ideological bias and that American AI will not be co-opted into a tool for authoritarian censorship.” Vance then shot a warning shot across the European bow saying for European governments to “look to this new frontier with optimism, rather than trepidation” and warned that “excessive regulation” of AI technologies could “kill a transformative industry.” He then said that the Trump administration “cannot and will not accept” efforts by foreign governments to tighten the screws on “U.S. tech companies with international footprints.” Pow! Take that you effete snobs!

Trump is defending American tech against the onslaught of European regulations. The European Commission fined Google over €8bn and Microsoft over €2bn. In 2024, Apple and Meta also received EU antitrust fines of €1.8bn and €800m. The French and Italian national authorities have levied substantial penalties of their own on Amazon, Apple and Google. In the past I have asked why there were no trillion dollar European firms. Maybe the answer lies in the regulatory straitjacket so prevalent on the continent. 

The future belongs elsewhere. Where? Perhaps America can continue to show the way, provided it throw off the impediments of climate change, social “justice” and letting the education industrial complex get away with not educating our children. I firmly believe that economic prosperity is closely aligned with economic freedom. With Europe in decline – outside of Ireland – where do we look for strong economic growth? Not Latin America where the five of the six largest economies are either in decline from socialist governments or in recession. Argentina, once a basket case is the sole bright spot with Milei as president. Asia with Malaysia, the Philippines, Viet Nam, Cambodia and Thailand is a maybe despite the train wreck that is the Chinese economy. Maybe Australia if it gets its act together. I would like to have high hopes for India and Nigeria but take a wait and see cautionary outlook. Maybe Botswana, Armenia, Ukraine and Poland. Of course there is Israel. South Africa is wonderful country burdened by a woeful and corrupt government. But then again, aren’t most governments corrupt? 

Regardless, if I were Donald Trump I would enter into free trade agreements with countries that valued private property, entrepreneurship and freedom. I would ignore the pompous self-indulgence that is Europe and have America lead the way to a more prosperous and freer world.

What would Adam Smith do?

I read Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations” my junior year at Georgia – yes we actually had to read books when I was in college. It changed my life by reinforcing my decision to major in economics rather than going to law school. Although the concept of marginal analysis was not present in the book, the brilliance of explaining the benefits of trade, the woes of mercantilism, wealth building, free markets, the division of labor, comparative advantage and productivity made perfectly good sense to me. I was astounded to find all of this in a book published in 1776. Smith is our greatest economist and everyone that followed has only been expanding on his ideas and basic principles. If there are non-truths in the Wealth of Nations, please point them out to me because I don’t know of any. 

Smith was the father of laissez faire. Smith said that individuals acting in their own self interest created a greater benefit to the economy than actions taken by the government. This is Smith’s “invisible hand.” In that the government did not have a profit motive, it had no incentive to minimize costs which necessarily lead to waste. Smith was not opposed to the government but argued that markets were more efficient and less wasteful. But government had an important role. Government was responsible for national defense, the administration of justice, enforce private property rights and the provision of public goods. Why? Because of the mispricing of “public goods” by the free market. A public good is one where there is market failure which is a precise term meaning that markets will misprice a public good.

Consider the following. Although individuals and collections of individuals could theoretically provide for the national defense, the market solution would be suboptimal. This is because national defense is a public good and would be subject to market failure if not funded by the government. I once asked my students that if they could dictate how much of their taxes could go for national defense, how much would they allocate? I got answers from 20 percent to 90 percent. I told them the correct answer was zero. The reason being that if I contributed zero I would get defended as much as the person who contributed 100 percent. I said that if the Russians sent missiles to Oak Ridge, our military would not say “Ignore the missile that is going to hit that house with the red roof because he did not allocate any of his money for defense.” Thus why pay for a good if you can get it for free?

The same is true with other public goods such as infrastructure. Yes you could have toll roads throughout your city and toll booths at the entrance to each neighborhood. But it would be frightfully inefficient. So collect tax revenues and let the government build them and maintain them. In the same vein, Smith advocates a role for government in education. Here it is the investment in human capital that benefits future generations but is paid for by the current one. Although I have the feeling that Smith might favor publicly funded private education, his view is that education is a public good.

As to the administration of justice Smith says that the duty of the government is to protect  “as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice.” No argument there.

Lastly, individual private property and property rights are essential to Smith. Here again the individual acting in their own self interest further the welfare of the society. Smith is against constraining trade both domestically by individuals and by businesses as well as constraint of trade by one country toward another. Hear that Donald Trump? Government’s role is to see that markets operate freely without collusion and cartels. Smith opposed cartels, which were legal in his day. He famously said that when businesses gathered to talk amongst themselves it was to restrict competition to keep prices high and profits high. Thus, a role of government was to foster competition by preventing constraint of trade which is ironic since much of today’s government restricts competition.

Thus, given the state of the government today, one would ask “What would Adam Smith do”?  Smith would likely say that if the government is outside its prescribed roles, then its actions are necessarily wasteful and harmful to the economy. The spending on such projects is simply wasteful. That spending is financed by issuing government debt which raises market interest rates and makes borrowing more expensive in the private sector. The harmful impact is that there will be less capital accumulation and lower levels of economic growth. There will also be higher levels of inflation lowering the real income of residents. Thus when Smith would look at the budget slashing and federal employment rollbacks coming from Trump and DOGE, Smith would pooh pooh them unless the cuts were permanent. Currently, all the budget slashing and people being laid off is only temporarily. If the government agency remains on the books, then a new administration could easily resuscitate it. Trump must eliminate the agency but without congressional approval, this seems unlikely.

Thus Trump and Musk’s efforts are only transitory and short term in nature. Adam Smith would call for the complete elimination of much of today’s government. Trump while trying to restrain the growth of the government by downsizing its current components is doomed to fail. The real task is to limit the scope of government which will in turn limit its size. This would mean eliminating most of the cabinet level agencies completely. No more departments of education, energy, transportation, commerce, interior, agriculture and labor. No more HHS. No more HUD. No more veterans’ affairs. It would mean preventing the agencies from expanding their mission and reach. How many undersecretaries do we really need? Do you know that there are over 4,000 presidential appointed positions in the federal government? Adam Smith would be appalled at a government spending $7 trillion a year. The fact that we are not appalled is a sad commentary on how we have allowed the government to grow like Topsy with politicians handing out billions for purposes related more to their own welfare rather than the public good.

Spring training is coming soon.  

The college football season is over. The NFL just had its Super Bowl leaving only basketball and hockey as nationally televised sports. I am not a fan of either. I love baseball. Some of my fondest memories involved my folks taking their vacations to coincide with the Brooklyn Dodgers schedule. We would either go to Brooklyn and stay with my mother’s brother (Uncle Son) or to Cincinnati and stay with my Dad’s brother (Uncle Floyd). We saw Jackie Robinson and the wonderful Dodgers of that era. We saw Willie Mays when they played the Giants and Frank Robinson, Curt Flood and Vada Pinson when they played the Reds.

This year, pitchers and catchers started reporting on February 9 with all teams reporting on February 12. Although it seems that there is only one truly great player today (Shohei Ohtani), I would rather watch the talk on the MLB Network than to see LaBron or Luka running down the court. Even Draymond Green calls the basketball boring. He is right. Baseball may be the most strategic sport. Every pitch has a purpose. I am still amazed that the outfielders can run at the crack of the bat, turn their backs to the infield, run to a spot and put up their glove and the ball lands in it. How do they do that? 

Basketball seems to be just running up and down the court, jacking up threes and slam dunks. I actually think basketball would be a better sport if it were four on four.

The spring training games start February 20^th with the Cubs playing the evil empire of the west, the Dodgers. There are two leagues, the Cactus League (Arizona) and the Grapefruit League (Florida) with 15 teams in each league. We always spend a week at Maderia Beach to watch the Rays play somebody (we chose the games based on the opponent). This year the question is whether we want to drive all the way across Tampa Bay to see the Rays play their regular season games at the Yankees spring ball park since the roof at the Trop got ripped off by Hurricane Milton. They got guaranteed funding for a new stadium in St Petersburg so they will not be moving to Tampa as was previously rumored.

Both of us once lived in Florida and hated it. And this was fifty years ago before the influx of millions into the state. I have dear friends who have lived in Florida ever since our days being assistant professors at the University of Florida. They retired to a peaceful neighborhood in the Sarasota area. They usually come see us when we camp at Maderia Beach. But last year because of failing health, we went to see them. We were appalled by the congestion. It was bumper to bumper traffic. The peaceful neighborhoods were all encroached by high rise condos and apartments. People actually blew their horns – must be Yankees. It was awful. I can’t imagine living there. My friends bemoaned the change. I remember saying that the two happiest days of my life were the day when I moved to Florida (from Columbus, Ohio) and the day I moved away.

We will also start going back to Cincinnati for a couple of times a year if they finally decide to field a major league team rather than the imposters who are triple A players wearing the major league uniform – with the except of Elly de la Cruz. They added Jose Trevino, Brady Singer, Taylor Rogers and most notably Gavin Lux so they should be better. Perhaps the best acquisition was Terry Francona as manager. Tito is a great manager with a great track record in Boston (despite the 2011 fried chicken fiasco) and Cleveland (my favorite American League club).

I am an Atlanta Braves fan although my fandom went down a few notches when they let Freddie Freeman go to the Evil Empire of the West where he was MVP of the World Series. The Braves also let Dansby Swanson go to the Cubs and haven’t been as strong at shortstop. Orlando Arcia has his moments but is probably just a place holder for phenoms Nacho Alverez or Jose Perdomo. They let Max Fried go to the Mets (its pronounced “freed” rather than “fried”). Charlie Morton is also gone. But they bring back Chris Sale – if he can stay healthy – Renaldo Lopez, and Spencer Strider (if he is healthy). Ronald Acuna, Jr is back (if he is healthy), along with Matt Olson at first base who replaced Freddie. Olson seems to alternate good and bad years, so this should be a good year. Austin Riley is back at third (provided he is healthy). Sean Murphy is catching (if he is healthy) having let Travis D’Arnaud go to the Evil Empire of the West.

If everyone stays healthy this time, the Braves have a legitimate chance to win the East and play the Dodgers in the World Series. The Evils added Blake Snell and bring back Clayton Kershaw, Dustin May and Tyler Glasnow. But the biggest addition to the pitching staff is the unbelievable Shohei Ohtani who might win the Cy Young, MVP and the triple crown in the same year. The Braves have a chance but honestly, the Dodgers are going to win it all – if they can stay healthy.

I had been planning to go to spring training this year but agreeing to return to UT to teach a class derailed those plans – as well as messing up my turkey season. But this is a one off and next year I’ll be back in the woods and also will go to spring training – if I can stay healthy.

The US Military: Is there a DOGE in its future?

In arguing against the nomination of Pete Hegseth for secretary of defense the Rev. Senator Honorable Doctor Raphael Warnock said “As a voice for Georgia’s nearly 100,000 active duty servicemembers and reservists, and as the son of a veteran, I understand the tremendous sacrifice our servicemembers and their families make to protect and serve our nation. Since coming to the Senate, I’ve always prioritized military readiness and protecting the safety of our men and women in uniform. That is why I voted against Pete Hegseth’s nomination to lead the Department of Defense.” Hardly. Warnock is about as concerned about the welfare of the military as he is about the welfare of unborn babies in their mother’s womb.

But are there really 100,000 service members stationed in Georgia? Actually there are over 120,000. They certainly are doing a great job protecting us from whatever they are protecting us from. I know that the military is sacrosanct to most conservatives but the military’s budget and status must be scrutinized by Trump and Elon Musk like any other federally funded group. You know if there is fraud and abuse at USAID with a budget of “only” $40 billion, there must be rampant fraud and abuse at an agency with a $850 billion budget that is greater than the next eleven countries combined.

There are 2.9 million service members worldwide. There are over 750 military bases across 80 countries. Domestically there are 128. There are over 4,760 military sites of which 2,600 are in the US. There are 11 commands under the Pentagon supposedly looking after our interests worldwide. We have 65,000 troops in the Middle East, 100,000 in Europe, 55,000 in Japan and 26,000 in South Korea. Does that mean that Georgia needs defending more that these countries? There are 30 bases in Okinawa. Thirty? Hank Johnson (D-GA) is probably wondering why the island hasn’t sunk. Remember at a hearing on the military buildup in Guam he said “My fear is that the whole island will become so overly populated that it will tip over and capsize.” Maybe that is why the ocean around Okinawa is rising.

Why do we have so many military bases? The UK has 145 bases. The Russians have only a couple of dozen. China has 160 with 80 in their own territories. We are protecting Germany (where we have 30,000 troops) and Japan against the Russians and the Chinese. But can’t they protect themselves? They did an awfully good job of doing so in World War II. Is it because we do not trust the Germans or the Japanese? The Japanese pay us over $2 billion a year for our bases there. The European’s pay us over $3 billion annually which covers about 22 percent of total costs. Trump has in the past has asked those countries to pay more. He has questioned the scale of the U.S. troop presence in Europe and has raised the possibility of relocating or reducing the U.S. footprint on the continent. He has even said that the military’s budget might be slashed in half. 

It is a discussion worth having. First the Pentagon needs to pass its audit – for the first time in a decade. We need to know where every dollar goes. Second, there needs to be an assessment of troop strength with the possibility of decreasing the number of US bases. Third, there needs to be a discussion as to whether we should continue to be the world’s policeman. The mere fact that US presence is so ubiquitous around the world means that other countries can use their resources in places other than on their militaries. Trump and Pete Hegseth are attacking vigorously the DEI and trans ideology that have infested the military. Hegseth says he wants to return the military to its primary mission of being a lethal force rather than a social laboratory. Do it! But he will also need to address the question as to whether such a large military force, such a large budget and such a surfeit of bases around the world are really necessary. My guess is that the military is bloated and should be treated as such. But politicians on the right and even those on the left like Warnock will resist mightily any effort to shut down bases in their states. But do we really need more troops protecting Georgia than protecting Germany?

Inspector Generals: You are fired!

Trump fired 18 inspector generals. Why? Was it for political reasons? If they were doing their jobs, there would be no need for DOGE. Is there an inspector general at USAID? The inspector generals are supposed to be independent. But are they? It turns out that half of them are appointed by the agency heads – an obvious conflict of interest. Practically speaking all IGs should be appointed by the president and be independent of the agencies that they inspect and report directly to congress.

But Congress is too busy trying to get themselves reelected than to pay much attention to what happens at the agency level. When one starts paying attention like Joni Ernst, they simply get stonewalled. Something needs to be done. If waste and fraud exist then the IG needs to be fired and replaced by a junkyard dog to ferret out the garbage. Of course, the agency head must go too. Although, it is difficult to replace a head confirmed by the congress, enabling waste and fraud would constitute grounds for dismissal. BTW, Defense and HHS both have over 1,500 employees in their IG offices. 1,500?  These agencies should be squeaky clean. I bet they are not. 

You mean I won’t get arrested for using my gas powered leaf blower?

Trump ended for now  the government’s war on gas stoves, light bulbs, central air conditioners, clothes washers and dryers, walk-in coolers and freezers, gas-powered water heaters, commercial refrigeration equipment, and air compressors. Lee Zeldin, the EPA administrator is moving fast to cancel all the ridiculous mandates of Michael Regan, Biden’s EPA chief. What about tankless water heaters, water nozzles, shower heads, leaf blowers, lawn mowers and weed eaters? Don’t forget about the bathroom toilets which now often require two flushes where one used to do the trick.

Will RFK, Jr stay a kook?

RFK, Jr has been sworn in at HHS. Even though he has truly weird ideas, my bet is that he will not move to codify them. I believe that Trump was motivated by Kennedy’s campaign to “make America healthy again.” Watch for attempts to remove artificial colors from our food. Froot Loops! Watch for a roll back in high fructose sugars and salt. American foods are loaded with sodium, refined grains, sugar, saturated fats and unhealthy oils. Why? Packaged processed foods are cheaper than more healthy choices. It is more convenient to stop by a fast food restaurant than to prepare a nutritious meal at home. I have not eaten a fast food meal since 1971. Most Americans know that they are not eating healthy. They probably know that it leads to obesity. But do they know that it could also lead to impaired cardiac function, diabetes, cognitive decline and asthma? Even so, some will not give up their sugared sodas, chips, fries, burgers and pop tarts.

Kennedy is a vaccine skeptic but not of all vaccines. A lot of us resisted taking a COVID vaccine. My problem was that the drug companies were indemnified against being sued which logically would make them less careful and the drugs less safe. Kennedy was vilified for voicing similar concerns. He has announced that he is establishing a vaccine-injury system to track adverse effects of vaccines. This system along with his food health concerns will put him in the crosshairs of the lobbyists for the food and pharmaceutical giants who will resist every move he takes. Lets hope that Trump will continue to support this effort to MAHA.

Some faint praise for Mitch McConnell

Most on the right do not care for Mitch McConnell. But isn’t it interesting that he stepped down as majority leader when Trump was elected? McConnell and Trump obviously do not like each other. Although McConnell kept the odious Merritt Garland off the Supreme Court, there is no love lost between he and Trump. Yet stepping down and giving the gavel to John Thune meant that McConnell allowed Trump’s nominees to sail through the Senate, despite his voting against many of them. But seriously, even the most MAGA amongst us has to admit that RFK, Jr, Pete Hegseth and Tulsi Gabbard were all weird choices. Only a Trump apologist would disagree.

A bad case of TDS

The Trump haters are totally irrational. One of my dearest friends suffers from Trump Derangement Syndrome – although she says such a thing does not exist. She wishes that Trump had been killed that fateful day in Pennsylvania. She insists that Trump won’t leave after his term ends. I asked her who would support his staying in office. He won’t have the support of the congress, the courts or the military. I don’t know of a single MAGA type who wants Trump to hang around and be a dictator. She then said “I still stand by my statement that there may not be an administration after this one.” Surely this is TDS. She said “Well Georgia’s Buddy Carter has introduced a bill to acquire and rename Greenland “Red, White and Blue Land.” Pardon me but maybe Buddy Carter is an idiot. She then said that Tennessee’s Andy Ogles had introduced a resolution to amend the Constitution to allow Trump a third term. I told her that she should know better. There is no chance that such a resolution would pass both houses of congress with a two thirds vote, then be ratified by three fourths of the states. I said that maybe Andy Ogles was a fool too. She also said that government guardrails that used to exist are not there anymore leaving us with few checks and balances. Funny but that is what I had said during the Biden administration when the republicans in congress refused to do their jobs, leaving the heavy lifting to the republican AGs.

The Donald the First? Hardly. My TDS infected friend seems to have forgotten that Trump’s alliance even within his party is not ubiquitous. Lisa Murkowski, Susan Collins, Mitch McConnell, Tom Tillis and John Curtis are no slam dunks. Courts have blocked DOGE’s access to sensitive Treasury Department records and blocked layoffs at the Consumer Financial Protection Bureau. Remember the judge that excoriated Trump’s attorneys over trying to repeal birthright babies? A federal judge blocked Trump’s order mandating that transgender women in federal prison be moved to men’s facilities and the government stop paying for their gender-affirming care. A federal judge in Massachusetts delayed the deadline for federal workers to accept Trump’s buyout offer. Currently, there are 70 lawsuits brought against Trump with more coming. Trump will win some and lose some. What is he going to do fire the judges? Some dictator!

Pieces of 8! Pieces of 8!

My positing on Trump having no cents stirred the memory of the dollar being denominated not in 100ths but in 8ths. Remember 2 bits, 4 bits, 6 bits, a dollar? Did you ever get your 2 bits worth? A quarter is two bits. Confused? Its all because of the Spanish pieces of eight where the Spanish dollar was valued at 8 reales. All of this stemmed from when the Spanish were the dominant sea power in the 1500s and its coinage dominated the western world. In America the currency of the colonies during the 1600s and the 1700s was the Spanish dollar. To change the Spanish dollar it was divided in to “bits” rather than reals. Hence 2 bits was a quarter.

Visions of Robert Louis Stevenson’s Treasure Island came unbidden. Remember Long John Silver’s parrot, Captain Flint always screeching ‘Pieces of eight! pieces of eight!’? Some might remember Roger Miller’s King of the Road Ah, but two hours of pushin’ broom buys an / eight by twelve four-bit room. Or Langston Hughes’Six Bit Blues.

Gimme six-bits’ worth o’ ticket
On a train that runs somewhere.
I say six-bits’ worth o’ ticket
On a train that runs somewhere.
I don’t care where it’s goin’
Just so it goes away from here.

The US started minting coins with the Coinage Act of 1792 and created the US dollar denominated in 100ths rather than 8ths. However, the coins of the Old World dominated trade and Spanish and British coins were at first more accepted than the nascent US dollar. Ironically, 1792 was also the year that the first US stock exchange was founded. Not surprisingly the market trades were based on those in Europe which traded stocks in 1/8ths. The problem for the investor/trader is fractions have to be converted into decimals. How many shares of stock at 4 3/8 you can purchase for $4,375?

This system hung on until 2000. In 1997 Congress passed the Common Cents Stock Pricing Act and with it the decimalization of the stock market starting in August 2000. One of the immediate advantages of the switch was that the minimum spread on stocks was reduced to a penny rather than 12.5 cents under the old system. For many traders the large spread offered gains in times when the markets were inefficient. The lucrative spreads between bid and ask would diminish as the minimum spread was reduced from 12.5 cents to a penny – causing a resistance to switch.  Does Trump know about this?

Although stocks trade in decimals, bonds, notes and Treasuries still trade in 8ths, 1/32nds. 1/64ths and 1/128ths. Treasuries and futures based on U.S. Treasuries trade in points and fractions of points (1/32).  But when doing any mathematical calculations, we must first convert from 1/32 to decimals, do the calculation, then convert back to 1/32 price convention. Sometimes the trades are in 64ths and 128ths – again divisible by 8.

Here is a bond quote from the New York Fed:

ISSUE                                      BID             ASK            CHANGE      YIELD

6 ½.  8/15/30-N  10/20         105.08       12              +3              5.57

This is a Treasury bond (actually a Treasury note – it has a maturity less than 10 years) that has a 6 ½ percent coupon that matures on August 15, 2030. The bid is $105 and 8/32nds of a dollar per $100 of face value. The ask is $105 and 12/32nds. 10/20 means it’s a $10 million bid on $20 million offered. The “change” is the change in the previous day’s price. The bond yield (“i” in the present value formular) is 5.57 and is lower than the coupon. The bond is trading at a premium.

This is actually part of a lecture that I am giving my class in Financial Markets and Instructions at the University of Tennessee. When I last taught 13 years ago students criticized me by saying “This is not a history course. This is not a political science course. This is not a physics course. This is not an English course.” I would say “Yes it is.”

Reciprocal tariffs, Now I get it – I think

I have called Trump’s tariffs “stupid” and they are – maybe. I still don’t understand the across the board tariffs on Canada and Mexico which punish US car companies and reward the Japanese and the Koreans. If Biden did this I would speculate that Hunter probably had a hand in it. But Trump? Of course Trump has threatened a 100 percent on Chinese EVs but only put an additional 10 percent on Chinese goods. Why only 10 percent? 

Trump’s trade representative Peter Navarro loves tariffs and is pushing for “reciprocal” tariffs. Although there is a bill in the House to give Trump the authority to impose these tariffs, Trump is likely to rush ahead and do it by executive order. What is a reciprocal tariff? They are tariffs on every country that trades with the United States that match any tariff levied on American goods exported to those countries. The White House released this statement:

“The United States has one of the most open economies and has among the lowest average weighted tariff rates in the world.  The United States imposes fewer barriers to imports than other major world economies, including those with similar political and economic systems.  For many years, the United States has been treated unfairly by trading partners, both friend and foe.  This lack of reciprocity is one source of our country’s large and persistent annual trade deficit in goods — closed markets abroad reduce United States exports and open markets at home result in significant imports.”  

Trump loves to say that the rest of the world is “cheating” us. He likely got the term from Navarro. The plan equalizes duties with virtually all U.S. trading partners If a country charges a tariff on the US it will receive the same treatment on its exports to America. Actually the US now only trails Brazil in the average tariff applied to all goods. Brazil is 8.5 percent and the US in now 7.5 percent. Does this mean that the US will lower rather than raise tariffs? The tariffs will be applied country by country. India imposes higher tariffs on American goods than America imposes on Indian goods. So look for import tariffs on Indian goods to go up until they are equalized with American tariffs on Indian goods.

You may recall that I had a conversation with Reagan’s most influential economic advisor who said that he had spoken to Trump about the tariffs. He insisted that the author of the Art of the Deal was using tariffs as a bargaining tool. He pointed out that at a G-7 meeting, Trump offered to lower all US tariffs to zero if the other countries reciprocated. None did. Now Trump is forcing their hands and using reciprocal tariffs as a negotiating tool. It is revealing that this threat was floated to coincide with the visit of Indian prime minister Modi. India imposes among the highest tariffs on selected American goods. Faced with reciprocal tariffs Modi is expected to agree to cut import tariffs on at least 30 products including cell phones, a 100 percent tariff on Harley Davison motorcycles and a 25 percent tariff on US automobiles. Top US exports to India in 2023 included crude oil and petroleum products ($14bn), LNG, coal, medical devices, scientific instruments, scrap metals, turbojets, computers and almonds. Trump wants them to buy more US arms and agricultural products to reduce the trade deficit currently at $45.7 billion. Chump change? But as Everett Dirksen famously said “A billion here, a billion there and soon it becomes real money.”

Trump is obsessed with the trade deficit which is $918 billion. However Trump is only concentrating on the trade deficit in goods and ignoring the trade surplus in services. In 2023, the US exported a trillion dollars in services and imported $750 billion with a trade surplus of $250 billion. Of course Trump even with reciprocal tariffs will not be able to eliminate the trade deficit with every partner. For example Viet Nam has very low tariffs of 1.1 percent. It has a trade deficit of $110 billion. Can this deficit be eliminated? It is doubtful given Viet Nam’s per capital income and small population. However, the country’s currency the dong has fallen to very low levels against the dollar making US goods more expensive and Viet Nam imports cheaper. Look out for Navarro to accuse the Vietnamese of currency manipulation. Will Melania ask Trump not to target Slovenia with its $5 billion trade deficit?

So I think I get it. Reciprocal tariffs are being used to equalize the tariffs between the United States and every country in the world. It is a bargaining tool if it impacts the foreign countries more than it does the United States. What is overlooked is that the US has a trade surplus with at least 25 countries. Afghanistan, Columbia, Lebanon, Morocco, Costa Rica, Peru, Paraguay, the Netherlands, Jamaica, Egypt, Qatar, the UK and Panama are some of the countries. Hong Kong is number one. Then do we lower our tariffs on these countries even if they have higher tariffs on American goods? No. If they impose a tariff on American goods then Trump will impose a tariff on theirs. Trade surplus be damned.

Trump is imposing 25% tariffs on Canada and Mexico. I am still not sure why. However, last year nearly 4 million cars and trucks were imported from the two countries which is about 22 percent of total US vehicle sales. What is weird is that the tariff is not a comprehensive one. Japan and Korea are not included meaning a likely shift by US consumers from Ford and GM to Honda and Hyundai. Only Trump apologists understand the logic behind such an action.

No more bad penny?

Did you see where Trump ordered Treasury to stop making pennies? Does this mean that the remaining pennies will be hoarded and become objects of desire by numismatists? That’s hard to imagine since there are 240 billion pennies in circulation. Trump said it was because the cost of making a penny was 3.7 cents meaning that the Treasury loses about $85 million a year producing pennies. He said “Let’s rip the waste out of our great nation’s budget, even if it’s a penny at a time.”

Does this mean that Trump has no cents? Do we still have penny arcades and penny loafers? Somehow quarter arcades and dime loafers just don’t sound right. What about half dollars from heaven? A quarter for your thoughts? A dime saved is a dime earned? A pretty quarter? In for a nickel, in for a pound? The Beatles would now sing “Dime Lane” and Lionel Richie will croon “Nickel Lover”.

What about all the millions of goods whose prices end in 9 cents? I have always thought that the pricing was psychological making the good seem a bit cheaper. It’s not just Walmart and Home Depot pricing either. I saw a luxury car sticker of $99,999.99! Look at gas prices. Why do they always end in 9 cents? Locally unleaded regular is selling at $2.89.9 cents. Diesel is $3.39.9 cents. How is it going to feel when you see that gas is $2.90 and diesel is $3.40? I guess all prices will be rounded up. Canada, Australia and New Zealand have eliminated pennies rounding to the nearest 5 cent and ten cent.

So if Trump wants to get rid of pennies because of the costs it got me wondering how much does it cost to produce the other coins? Lo and behold it costs a whopping 14 cents to make a nickel! However it only costs 6 cents to make a dime, 15 cents to make a quarter and 34 cents to make a half dollar. So if the object is to save money then then the nickel must go. Then we will no longer get nickeled and dimed to death.

You are fired!

Is there anyone in the federal government that Trump cannot fire? He is moving to terminate the USAID and leave in place only 600 of its 10,000 employees. His acting CFPB director has shut down all operations and told the Fed that he will not request any funding going forward. The CFPB has a budget (acquired from the Fed) of $823 million and has 1,781 employees. Trump has dismissed the advisory boards of all the service academies asserting that they have been “infiltrated by woke leftist ideologies.” So bye bye to the boards at West Point, Annapolis, the Air Force Academy and the Coast Guard Academy. Trump also fired the commandant of the Coast Guard Academy, Admiral Linda Fagan. In a statement the Department of Homeland Security said Fagan was terminated for reasons involving a lack of leadership and concerns over border security and recruiting. “Adm. Linda L. Fagan has been removed from her position. She was terminated because of her leadership deficiencies, operational failures, and inability to advance the strategic objectives of the U.S. Coast Guard.” Trump has – for now – left in place the commandants of the other service academies. Do you think the Coast Guard commandant was a DEI hire?

Trump fired the head of the Office of Special Counsel – the government’s whistleblower agency – responsible for guarding the federal workforce from illegal personnel actions. He fired the chair of the Federal Labor Relations Authority which oversees federal labor disputes. He fired the three democrats on the Privacy and Civil Liberties Oversight Boards. He fired the head of TSA and members of the Aviation Security Committee. Bye bye to the general counsel of the NLRB. He fired two democrat commissioners on the Equal Employment Opportunity Commission. He terminated members of the Merit Systems Protection Board. How many boards are there? He fired the National Archivist. He fired the board of the Kennedy Center and named himself as chairman. Trump was displeased with the Kennedy Center putting on drag shows and following a woke agenda. However, it would be difficult to find instances in which the LBGTQ agenda is not present in any of modern plays, movies, and fiction. He replaced two senior ICE officials citing a need for accountability at the agency. Accountability? He should have fired all the top brass at the Pentagon too.

Whew! There is more to come. Stay tuned.