How the GOP Blew It’s Chance

The window for Republicans to create a multiracial working-class party closed this weekend when 49 senators nixed COVID-19 aid.

They Senate on Saturday passed President Biden’s $1.9 trillion coronavirus relief package which includes a $1400 stimulus check so go out and buy yourself something nice.  Like November‘s rent. 

The $1.9 trillion Covid relief bill passed by the Senate this week while the Republicans spent most of the weekend trying to derail it while still whining about Dr. Seuss. 

The past few months have offered a deeply revealing look at the state of American democracy and the course it could take over the next few years without major reforms. On the one hand,  we saw a political faction which represents a minority of American voters try to overturn an election they lost and then sell a violent insurrection interfere with a lawful counting of electoral votes. Then about two months later we saw 50 senate Democrats who represent about 41 MILLION MORE Americans than the 50 senate Republicans vote to deliver one of the largest rescue bills in history.  The relief bill has been massively popular in poll after poll. Not a single Republican joined them in the Senate or in the house seemingly because they were too busy doing jobs like reading Green Eggs and Ham. 

The Republican Party has become (once again) the party of NO. And their brand is pearl clutching over reaction.

While the Democrats are working to help real people. The Republican are all up in arms about The Muppets, Dr Seuss and Mr Potato Head.  They used every delay tactic they could to actually delay stimulus checks going out to 80% of Americans.  

The GOP wants all children back to in person learning in schools but they do not support the bill to get vaccines to everyone.  

They spend more time trying to make voting more difficult than they did in confirming Trump’s last minute supreme court justice. 

Politics will ALWAYS be part of the process. But maybe the GOP could take a stand on something a little more substation that Mr Potato Head?!  

While you wait for your stimulus check- remember the GOP delayed it. 

While you wait in line to vote in the next election- remember it was the GOP that made it harder. 

It was less than two weeks ago that Texas Sen. Ted Cruz, a past and future presidential hopeful for the Republican Party, stood before an annual confab of conservative fanatics and proclaimed he could see the future of the Grand Old Party. In Orlando, a stone’s throw from Walt Disney’s Fantasyland, Cruz promised CPAC that the GOP will be “the party of steel workers and construction workers and pipeline workers and taxi cabdrivers and cops and firefighters and waiters and waitresses and the men and women with calluses on their hands who are working for this country.”

Yet on Saturday afternoon, Cruz and 48 of his Republican colleagues raised their uncalloused, millionaire hands and flipped a giant middle finger to the American middle class who could have returned their party to power in Congress in 2022. In unanimously — and futilely — opposing the Democrats’ 50-49 passage of the $1.9 trillion COVID-19 relief bill that will likely be signed by President Joe Biden later this week, Cruz and his fellow GOPers went on the record opposing $1,400 checks for struggling taxi drivers, expanded jobless benefits for waiters and waitresses whose jobs were obliterated by the pandemic, and local aid to stop the feared layoffs of cops and firefighters.

Even before this weekend’s historic vote that will define America’s politics of the 2020s, the Republicans provided a giant metaphor for its drop-dead message to the working class when a party stalwart — Wisconsin Sen. Ron Johnson, who concedes his “preference” is not even running for another term next year —dug deep in the Senate rulebook to force clerks to read aloud the entire 628-page relief bill. The goofy parliamentary stall took some 10 hours and 43 minutes, finally ending around 2 a.m. Friday morning as an anguished Johnson — required to be present — buried his exhausted face in his hands. How bad were “the optics” — in Beltway lingo — of the Wisconsinite’s stunt? While the move held up billions to speed up coronavirus vaccines, approximately 750 more Americans died from COVID-19.

The father of the now lost-in-the-wilderness American right, William F. Buckley, wrote famously that the modern conservative “stands athwart history, yelling Stop.” The political and moral bankruptcy of that philosophy was on full display this weekend, as Republicans planted their flag as the party of obstruction and celebrators of broken, gridlocked D.C. politics, while the Democrats voted to keep history moving forward, with a bill supported by about 70% of the American people, including millions of rank-and-file GOP voters.

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Sen. Ron Johnson (R., Wis.) tried to hold up the coronavirus relief bill.

Greg Nash / MCT

Yes, there were moments when the Democrats — still no more of an “organized political party” than when Will Rogers told that joke a century ago — looked determined to snatch defeat from the jaws of victory, confronted with a bill that, with the arguable exception of Obamacare in 2010, does more for the U.S. middle class than any legislation since Lyndon Johnson’s Great Society since the mid-1960s. The macho posturing of West Virginia Sen. Joe Manchin — for whom getting on the Sunday talk shows matters more than his state’s high rate of poverty — nearly toppled the bill, and the Democrats’ blind spot on the $15 minimum wage is deeply disappointing to leftists who voted for Biden last November.

But in the end, the Democrats’ resolve and unity among its one-vote Senate majority was a stunning victory for a new American political reality in the 2020s. It involves forging an all-new definition of “bipartisanship” around hardball politics for measures that are supported by majorities of citizens, rather than negotiating with a Republican Party that continues to rally behind a Big Lie around nonexistent voter fraud and the 2020 election that threatens our democracy.

Saturday’s bold vote didn’t change the overriding dynamic behind America’s warring political tribes. The Democrats’ base is still college-educated voters, while Republicans’ toxic stew of both class and racial resentments will continue to amp up white people without diplomas. But Democrats just passed a bill that, frankly, does more for the nation’s broad, multiracial working class and the less-advantaged than for upscale suburbanites who put Biden over the top in 2020. In doing so, the party has a great chance to stop the slow bleed of working-class voters — especially a shift of Latinos and some Black voters to Donald Trump last fall — and ride a booming post-pandemic economy in 2022, thus bucking the powerful trend of a party in power losing seats in a midterm election.

After a half-century or so of watching American politics, it’s hard for me to overstate what an epic flub we are witnessing from today’s GOP. Trump’s reckless, demagogic presidency riled up voters on both sides; even in losing badly to Biden, the 45th president increased his turnout from 62 million in 2016 to more than 74 million, in a way that suggested a path forward for a new kind of right-wing populism. Indeed, many voters on the long lines in pro-Trump precincts cited their initial $1,200 stimulus check, and there’s little doubt that the GOP standard-bearer would be serving his second term if he’d forced through a second $2,000 check before Nov. 3, as Trump himself realized after it was too late.

The tragedy of the coronavirus had offered Republicans an opportunity to show a kind of economic empathy for the “essential workers” of the blue-collar electorate that would have doubled down on its current limited strategy, which is mostly cultural warfare. But — other than a laudable child tax credit offered by Utah Sen. Mitt Romney, who’s not super popular among the party’s pro-Trump base these days — GOP politicians have only offered the middle class empty platitudes and pale light beer versions of Democratic social welfare, much as the Dems looked utterly lost trying to sell watered-down Republican ideas for 30 years after Ronald Reagan.

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In this image from video, the vote total of 50-49 on Senate passage of the COVID-19 relief bill, is displayed on screen in the Senate at the U.S. Capitol in Washington Saturday.

AP

The Republicans do have a plan but it’s as dumb as it’s morally repellent — doubling down on its scheme to try to win national elections with just 46-47% of the popular vote, aided by the anti-democratic aspects of the Constitution and our political norms as reflected in the makeup of the Senate, its arcane rules and, in presidential years, the Electoral College.

This week showed us both what the GOP is incapable of doing — aiding the middle class — but also its fundamental three-prong strategy for the elections of 2022 and 2024. First, burn a lot of empty political calories on cultural outrage such as the supposed banning (not really) of Dr. Seuss and (also not really) Mr. Potato Head, with the subliminal messages that what leftists really want to cancel is their white supremacy. Second, muddy the waters on the pandemic with “free-dumb” policies like Texas and Mississippi ending mask mandates and other restrictions just as new variants appear. Third — and this is really the centerpiece — is to fall back on Trump’s 2020 Big Lie to pass a slew of voting restrictions targeting Black voters, Latinos, or the young, to win in 2022 not on the best ideas but by picking the voters.

The fact that the current Republican Party is so quick to fall back on racism, xenophobia and misogyny makes me happy that its leaders seem to have also flunked Poly-Sci 101. The opportunity for the GOP to become a true majority national party as a foil to the increasingly diploma-wrapped image of the Democrats — in a nation where just 37% of adults currently hold four-year college degrees — was right there, if the party had been willing to put its money where its mouth was, on Cruz and his phony-baloney rhetoric about cabdrivers and the wait staff.

Instead, the 2022 election will turn on Republicans’ success as an anti-democratic (with a small “d”) party trying to keep as many legitimate voters away from the ballot box as possible. For Democrats, the ultimate lesson of this weekend may prove less about economics and more about courage in using just 51 votes to make the tough calls for saving America. Giving aid to the working class was a good first step for the Democrats, but whether it matters at the polls in 20 months depends on their bravery in abolishing the filibuster and passing laws to make sure that the working class can still vote.

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Will Bunch

Will is the national columnist — with some strong opinions about what’s happening in America around social injustice, income inequality and the government

The 1920s Roared After a Pandemic, and the 2020s Will Try

A year ago I was faced with an incredibly difficult decision. Do we close the gyms because of the pandemic or do we fight to remain open. Yesterday I wrote an e-mail to my staff and posted it on the Atlantic Gymnastics Blog. Just to help them keep things in perspective. Not on what we have lost- but on how far we have come.

Today I was reading Bloomberg Business Week and I came upon an article from a couple weeks ago. 2020s Will Try To Roar Like The 1920s by Peter Coy. It gave me a lot to think about.

The 1920s Roared After a Pandemic, and the 2020s Will Try

The day was cold and windy. Standing outside the Capitol, the just-sworn-in president called for “a new unity of spirit and purpose” to bind together a nation that had been wracked by a pandemic and high unemployment. His predecessor wasn’t on stage. The inauguration of Warren G. Harding on March 4, 1921, marked the inauspicious, unofficial start of an historic decade. The somber mood gave no hint that America was about to go on a tear.

The Roaring Twenties saw widespread adoption of the assembly line, the automobile, radio, motion pictures, indoor plumbing, and labor-saving electric appliances. Consumerism and mass culture took shape. It was the decade of art deco and jazz, Coco Chanel and Walt Disney, The Great Gatsby and the Harlem Renaissance. It was “the first truly modern decade,” says retired Marquette University economic historian Gene Smiley.

As the U.S. suffers through another pandemic, it’s tempting to ask whether history will repeat itself. Once the virus passes, will the 2020s roar the way the 1920s did?

It’s not impossible. The past year demonstrates that the economy and society can change shape quickly. We’ve seen multiple Covid-19 vaccines developed in record time and an almost-overnight transition to remote work. Tesla Inc. delivered just shy of a half-million electric vehicles in 2020 despite the pandemic. A London-based unit of Alphabet Inc. solved a half-century-old scientific puzzle, using artificial intelligence to predict accurately how proteins fold, which could revolutionize drug discovery.

In all probability, though, the U.S. will continue to wrestle with “secular stagnation,” an economic plague of developed nations. Preconditions include an aging population, slow labor force growth, and weak demand for credit, which is why the disease is resistant to traditional monetary remedies. The latest evidence that investors aren’t holding out much hope the coming decade will break out of that mold: The yield on inflation-protected 10-year Treasury notes is around negative 1%, down from 4% during the ’90s tech boom.

Despite the differences, by copying what was done right in the Roaring Twenties and avoiding what went wrong, Americans can make the 2020s a success—by today’s standards, anyway.

The world of 2021 is “a muddled mix of the Twenties in a lot of ways,” says Rutgers University economist Eugene White. Stock prices are high in relation to corporate profits, as then. Today’s suspicion of international institutions such as the United Nations and World Health Organization would be familiar to a traveler from the 1920s. Race relations are once again strained, though Black Americans are in a far better position than they were a century ago. Tariffs rose under President Donald Trump, as they did in the 1920s. Americans continue to complain about overbearing government, as they did during Prohibition. The 1920s was the first decade in which the rural population was smaller than the urban one; in the 2020s, rural White America is feeling disenfranchised after having gone strong for Trump’s failed reelection.

“There is no chance of sustained decade-long growth that matches the achievement of the 1920s”

The 1920s didn’t get off to a good start. The Spanish flu pandemic, which killed about 675,000 Americans out of a population of 100 million, was over, but the U.S. was deep into an 18-month downturn marked by the sharpest one-year decline in wholesale and consumer prices in 140 years of record-keeping. The economic miracle of the Twenties didn’t really begin until July 1921, when the recession ended and boom psychology set in.

This summer, depending on how vaccinations progress, there will likely be a flicker of that mania as people emerge from their Covid-19 bubbles, ready to party. Economists surveyed by Bloomberg are predicting above-average growth in gross domestic product after a difficult first quarter, with the median forecast peaking at an annualized 4.7% in the third quarter.

Indications of pent-up demand are abundant. Carnival Corp., in a sign of confidence in the public’s desire to socialize again, plans to begin boardings in April for its biggest ship ever, the 5,200-passenger Mardi Gras. Finally free to do as they please, Americans may make like the Lost Generation, who chose to “live in the pure moment, live gaily on gin and love,” as the literary critic Malcolm Cowley wrote.

Gin and love make a powerful cocktail but won’t sustain a decade’s worth of growth. The bull case for a repeat of the 1920s is that the pandemic lockdown has accelerated the adoption of technologies such as videoconferencing and digital commerce that will keep paying dividends long after the virus is vanquished. McKinsey & Co. says a global survey of executives revealed that they were a “shocking” seven years ahead of where they planned to be in terms of the share of digital or digitally enabled products in their companies’ portfolios. And there’s still headroom. Cowen Research reports that almost half the corporate technology buyers it interviewed said they were in the early stages of a transition to cloud computing.

What’s hard about forecasting technological progress is figuring out where we are on the adoption curve. Take robots. The word was coined in 1920 by a Czech playwright, Karel Capek, but a century later robots haven’t lived up to hopes—or fears. It took 13 years, from 2005 to 2018, for the number of installed robots in the U.S. to double, according to the International Federation of Robotics. To a pessimist, that’s almost a plateau. To an optimist, it means robots are still on the bottom of the S-shaped adoption curve and are poised for takeoff at any moment.

Disclaimer

Bearish forecasters say labor-force expansion and gains in schooling don’t match those of the 1920s, and information technology and biotech breakthroughs, while impressive, don’t measure up to the transformative, general-purpose technologies—electrification and the internal combustion engine, to name two—that powered growth a century ago. As investor Peter Thiel famously said, “We wanted flying cars, instead we got 140 characters.” (It’s 280 characters now, but still.)

For the average American, life changed more from 1920 to 1929 than it’s likely to change from 2020 to 2029. Electrification gave us refrigerators (instead of ice boxes), washing machines (instead of washboards and hand-cranked wringers), and radio (instead of your sister at the piano). With electrification, factories no longer had to rely on power from a single engine that was connected to machines via noisy, inefficient belts and pulleys.

The internal combustion engine came into its own in the 1920s, powering cars, trucks, farm equipment, and airplanes. The number of registered drivers almost tripled during the decade. The automobile’s rise sparked investment in roads and suburbs as well as production of rubber, steel, glass, and oil.

Two Decades Far Apart

Robert Gordon, an economist at Northwestern University, is a leading proponent of the argument that these modern times don’t live up to those modern times. At the request of Bloomberg Businessweek, he assembled figures on labor productivity for the entire economy from 1893 through 2019, clustering the data into roughly equal spans that begin and end at high points in the business cycle. The data up to 1948 come from a book he wrote, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War. For the rest he relied on government figures.

The data compiled by Gordon demonstrate that productivity growth jumped in 1920 and remained high for a half-century before slumping after 1973. “While it is likely that productivity growth will revive somewhat in the 2020s from the dismal record of the 2010s,” Gordon wrote in an email, “there is no chance of sustained decade-long growth that matches the achievement of the 1920s.”

One lesson, then, is that timing matters. The 1920s roared because technologies that had been nurtured for several decades were finally ready for mass deployment. That may not be the case today.

It’s easier to spot social similarities between the decades than economic similarities. Then as now America was divided between a fast-moving, multiethnic, urban society of immigrants and a predominantly White, conservative, rural society pining for a past that it perceived as purer and less tumultuous. Americans elected three Republican presidents in the 1920s—Harding, Calvin Coolidge, and Herbert Hoover. Harding vowed a “return to normalcy,” while Coolidge, a taciturn Vermonter, “appeared to be a reluctant refugee from the previous century,” wrote Nathan Miller in New World Coming: The 1920s and the Making of Modern America.

The reformist Progressive Era that began around 1900 had lost its moxie, and the big-government New Deal hadn’t yet arrived. Business was given free rein. “Never before, here or anywhere else, has a government been so completely fused with business,” the Wall Street Journal wrote in 1928. Said Coolidge: “The man who builds a factory builds a temple. The man who works there worships there.” Elon Musk slots in nicely as this century’s answer to Henry Ford, though our society is more skeptical that what’s good for business is good for the country.

Gordon calls the 1920s “a Janus-faced decade that defies simple characterization.” It was a time of liberation, in which women got the vote and dared to wear short skirts, smoke cigarettes, and drink bathtub gin, while Black poets, authors, and musicians found wide audiences. “It was the period when the Negro was in vogue,” poet Langston Hughes wrote.

But women still faced discrimination, and Black Americans and immigrants faced that and worse. In 1921 a White mob burned more than 1,200 homes in a Black neighborhood in Tulsa, Oklahoma. In 1925 thousands of unmasked Ku Klux Klan members marched down Pennsylvania Avenue in Washington.

The Immigration Act of 1924 barred the gates to immigrants from Asia and seriously restricted immigration from southern and eastern Europe—drawing the admiration of none other than Adolf Hitler, who wrote approvingly in Mein Kampf, “The American Union categorically refuses the immigration of physically unhealthy elements, and simply excludes the immigration of certain races.”

The 1920s was a time of rising prosperity on the whole but also rising inequality of incomes and wealth and deepening divisions in society. Prohibition, which took effect in 1920, drove a wedge between “drys” and “wets” and fueled organized crime. Factory workers, stock investors, and Big Business mostly did well, but the still-sizable agriculture economy was shocked by a 53% decline in farm product prices in the 1920-21 recession and would take years to recover.

The first three years of Trump’s term were likewise marked by a tide of strong economic growth that lifted many boats, though not all. The unemployment rate for Black Americans, for instance, reached a record low. The pandemic has wrecked much of that progress. Bringing the economy back to its potential to lift up the less fortunate is a second reason, after saving lives, for President Biden to accelerate the distribution of vaccines.

Perhaps the most important lesson the 2020s can learn from the 1920s is the peril of isolationism. The U.S. emerged from the Great War of 1914-18 as the world’s most powerful economy as well as its biggest creditor, having lent heavily to the Entente Powers to finance the war effort.

Yet the U.S. resisted taking on the responsibilities of global leadership. Fed up with Europe and its bloody quarrels, isolationists in Congress prevented the U.S. from joining the League of Nations. With stringent fiscal and monetary policy, the U.S. forced its deflation onto other countries. Washington also insisted that the U.K. and France repay their war debts to the penny. In a vise, those countries raised the money to pay the Americans by exacting reparations from Germany. That fed the resentment among Germans that contributed to the rise of Hitler.

Much has changed since then. The U.S. is now a debtor nation, consuming more than it makes. Trump was correct that this is a problem: The U.S. is accumulating debts, while its productive capacity is being hollowed out.

What’s similar is that today, as in the 1920s, the U.S. can’t escape the special obligations that go along with being the world’s biggest economy. Americans learned that lesson after the twin disasters of the Great Depression and World War II. The U.S. was instrumental in the founding of the UN, the International Monetary Fund, and the World Bank and led the push to lower tariff barriers, which enabled poor countries and those ravaged by war to prosper through trade. Nations such as Germany and France set aside imperialist dreams and focused on quality of life. “If you ask an average European man what he cares about, it’s very often soccer,” says Columbia historian Adam Tooze, author of the 2014 book, The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931.

In four years in office, Trump revived isolationism, even resurrecting the “America First” motto that Harding campaigned on in 1920—and that was embraced by the anti-Semitic, fascist-sympathizing America First Committee that fought to keep the U.S. out of World War II.

In the absence of U.S. leadership, nations such as Kenya, Ethiopia, Nigeria, Malaysia, and Vietnam are at risk of falling into the orbit of China, says Tooze. “As in the Twenties, we are our own worst enemy,” he says. Biden must attempt to demonstrate that the U.S. is once again a reliable partner.

Meanwhile, the notion that the Covid-19 pandemic is some kind of trampoline that will bounce the U.S. toward a bright future is not only off-putting, but wrong. Pandemics enduringly damage societies in ways that go beyond the death toll. In October the IMF released a working paper by senior economist Tahsin Saadi Sedik and economist Rui Xu that uncovered a vicious cycle: Pandemics reduce output and increase inequality, stoking social unrest, which further lowers output and worsens inequality. The study was based on disease outbreaks in 133 countries from 2001 to 2018. “Our results suggest that without policy measures, the COVID-19 pandemic will likely increase inequality, trigger social unrest, and lower future output in the years to come,” the authors wrote.

A final lesson of studying the 1920s is simply that history does have something to teach us—a point that the movers and shakers of that frenetic decade sometimes had trouble grasping. “History is more or less the bunk,” Ford said in 1916. “It is tradition. We don’t want tradition. We want to live in the present, and the only history that is worth a tinker’s damn is the history we make today.”

Introspection wasn’t the forte of the Roaring Twenties. “Torn nerves craved the anodynes of speed, excitement, and passion,” Frederick Lewis Allen, looking back from the near remove of 1931, wrote in Only Yesterday: An Informal History of the 1920s.

Our nerves, too, are torn. But learning from the past can help the healing begin.

It May Be Time To Sell Your Stock

From Jim Collins at  FORBES

The yield curve has inverted and you should sell your stocks.  That is a simple, declarative statement, and yet one that I have not read anywhere this morning.  Having awakened to the news that the yield on the 2-year U.S. Treasury note had risen above that on the 10-year U.S. Treasury note, I have enjoyed this morning’s sell-off in the equity markets.  I founded a new asset management firm, Excelsior Capital Partners, a month ago to initiate short positions on stocks, and so far the timing has worked out well.

There seems to be a basic misunderstanding of the meaning of the inverted yield curve and its meaning for equity markets.  I am making a few bucks on this confusion, to be sure, but I would rather see an educated investing public. Some of the articles I have read this morning in the financial media are wildly misleading.  So here are a few answers to basic questions:

What is an inverted yield curve?  The yield spread is a simple calculation that involves subtracting short-term interest rates from long-term interest rates.  The yield curve is a plot of interest rates for government bonds of all maturities in a given country. Bond yields represent, in percentage terms, the price investors are willing to pay for those securities.  When demand for bond purchases rises, prices rise, and thus yields (interest rates) fall. When long-term bond yields are lower than short-term yields, the spread is negative and the yield curve is inverted.

Money has a time value.  A dollar today should always be worth more than a dollar tomorrow.  I think most investors grab that basic fact.  There’s a second derivative there, however.  At most times in economic history, a dollar two days from now has been worth more than tomorrow’s dollar, which is worth more than today’s dollar.  Similarly, a dollar a year from now is worth more than that two-day dollar and the dollar five years from now is worth more than the dollar one year from now, and on and on and on.  If I am lending you a dollar for five years not five days, I want an extra incentive to do that. Five years gives you much more time to default on that loan, plus—in a concept known as duration among bond investors—there is a much larger chance that the interest a lender will earn over a longer time period can be rendered less valuable by inflation, always the biggest factor impacting bond pricing.

The rate of inflation in the U.S. probably won’t change much in three months.  In ten years, though, it could show a marked difference.  The Federal Reserve and other central banks have consistently referred to the fear of deflationary pressures as the biggest worry facing financial markets.  This morning’s bond markets are telling you that inflation is going to be much much lower in 2029 than it is in 2019.

That is the key meaning of an inverted yield curve.  Inflation expectations for future periods are lower and that can only mean a slowing, and perhaps contracting, global economy.  Stocks are valued based on growth, and the colossi that are Amazon, Facebook, Netflix, etc. have all been built on rapid rates of growth in revenues and earnings.  If the bond market is telling us the global economy is slowing, the stock market should price in lower rates of growth for individual stocks.  That is why shares of those tech titans—and the vast majority of stocks around the globe–are falling sharply today.

Isn’t lower inflation a good thing?  If it costs me less to buy things outright and lower interest rates also result in lower costs to finance purchases made over time (house, car, etc.) how is that a bad thing?  Simply put, it’s not a bad thing for consumers. At the same time it is a horrible, terrible, awful thing for financial institutions such as banks. If it costs a bank more to finance the money underlying a loan than the interest that bank can earn on the loan, the bank would take a loss on that loan.  Obviously bankers are not stupid, and loan growth can be expected to decline when short-term funding costs are higher than long-term loan prices.

The global economy in 2019 is based on access to credit, and it has been for the past 50 years.  This is what we should have learned from 2008. Jamie Dimon’s balance sheet at JPMorgan is much more important than the one based on your household’s financial situation.  I am sorry if that offends you from a political standpoint, but please do not misunderstand. There have been zero real changes in policy or statute since 2008 that would change that.  If credit conditions dry up, we could just easily see a meltdown in 2019 as we did in 2008-2009. These are basic facts, not conspiracy theories or political slogans.

For the past 10 years, naysayers have been calling for another global financial crisis and yet my stock portfolio has gone up, up, up…what is different now?  The biggest development in the world economy over the past decade has been the astounding growth of the financial system in China.  China’s economy, which was barely dented by the financial crisis that ravaged Western economies in 2008-2009, is now, ten years later, just as dependent on credit as that of the U.S. and in fact more so, by certain measures.  The Chinese only really embraced state-sponsored capitalism in the early 1990s and it took them 20 years to embrace the concept of leverage. But, man, have they done it in a big way.

In December 2008 the total assets of the Chinese financial system were $9.1 trillion.  That compared to $12.2 trillion in U.S. financial system assets. As of June 30, 2018, the latest data available, Chinese financial system assets totaled $39.0 trillion dwarfing the U.S.’ total of $17.5 trillion.  So, the Chinese financial system has more than quadrupled in the past decade. Does that worry you? It should.

That’s why pictures of protestors occupying the airport in Hong Kong are so scary.  That’s why the Chinese government’s decision to let the yuan/dollar exchange rate rise above 7:1 (making Chinese financial assets worth less in dollar terms) is so scary.  That’s why President Trump’s trade tweets can and will move the markets significantly—in either direction. Anything that makes Chinese companies less likely to repay their loans is a decided negative for global bond markets.  Each of those three factors certainly qualifies.

That’s also why the yield curve in the U.S. has inverted.  Any measure of U.S. current economic activity or financial system liquidity looks fine or even better than fine.  But the bond market looks like the world is in the middle of a global catastrophe. Why? Because global markets are interlinked.

You can’t just sit in Peoria, Illinois and say the fact that Danish banks like Jyske are now offering negative rates on 30-year mortgages doesn’t affect you.  It does. Some financial institution you use will have exposure to European bonds and when those bonds mature refunding them at negative rates is going to lead to losses.  You can’t just sit in Rexmont, Pennsylvania and say that the fact that assets in China’s financial system now represent more than half of the world’s GDP doesn’t concern you. If you have a 401k, it damn well should.

So, wake up, smell the coffee and lessen your holdings of equities.  The bond market and its inverted yield curve are telling you that economic growth is slowing—or perhaps even contracting.  The valuation of stocks, above all else, depends on estimates for rates of earnings growth. Anyone who is telling you “don’t panic” or “you can’t time the market” is a complete buffoon and should be ignored.  That includes many of the talking heads on CNBC, by the way.

Selling stocks into an economic downturn isn’t panic, it is just smart investing.  Practice it.