Prez Pressuring Powell?

The Fed is talking about three rate cuts this year. For what? [The Rude Awakening] March 21, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Prez Pressuring Powell? [Sean Ring] SEAN RING Dear Reader, When Jay Powell looks in the mirror, he wants to see Paul Volcker. But by the end of his run as Fed Chairman, he may see Arthur Burns. You may not remember Arthur Burns at all. But just over 50 years ago, Burns was the Chairman of the Federal Reserve. Richard Nixon nominated him for the job more because Burns was a conservative rather than an eminent economist. And it was a stroke of genius, that move. Because Burns lowered interest rates in 1972 to help get Nixon re-elected. In a fascinating paper titled “[How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes]( by Burton A. Abrams, the author makes some choice observations. Here’s the first one that caught my eye: In Nixon’s 1962 (p. 309-310) book, Six Crises, he recounts that Arthur Burns called on him in March 1960 to warn him that the economy was likely to dip before the November election. Nixon writes that Burns “urged strongly that everything possible be done to avert this development. He urgently recommended that two steps be taken immediately: by loosening up on credit and, where justifiable, by increasing spending for national security.” But when then–Vice President Nixon took this recommendation to the Eisenhower Cabinet, “there was strong sentiment against using the spending and credit powers of the Federal Government to affect the economy, unless and until conditions indicated a major recession in prospect.” Nixon sums up: “Unfortunately Arthur Burns turned out to be a good prophet.” This episode stuck with Nixon. First, Nixon blamed a modest rise in the unemployment rate as one of the reasons he lost the presidential election to John F. Kennedy in 1960. Second, the messenger was indeed a good prophet. The second statement demonstrates Nixon’s power over Burns: Richard Nixon demanded and Arthur Burns supplied an expansionary monetary policy and a growing economy in the run-up to the 1972 election. … M1 growth increased in each of the three years, starting at approximately 4.5 percent growth in 1970 and ending at slightly over 7.5 percent annualized growth over the first half of 1972. M2 growth expanded even faster. Real growth in the economy was accelerating, too. In 1972, real GDP grew 7.7 percent and certainly helped Nixon in the election. Abrams continues: Thus, a monetary stimulus helped to boost the economy in time for the 1972 election, helping to deliver Nixon’s landslide victory. However, the excessive aggregate demand stimulation prior to the election created serious problems for the economy that took nearly a decade to resolve. And how about this telephone conversation on December 10, 1971: With fewer than eleven months until the election and four days until the next meeting of the Federal Open Market Committee, Burns and Nixon have a private telephone conversation. Burns states that “I wanted you to know that we lowered the discount rate...got it down to 4.5 percent.” “Good, good, good,” replies Nixon. Burns indicates that the announcement of the discount rate reduction would be accompanied by the usual statement that it was done in order to bring the rate into line with market conditions, but with an added statement that it was done to “also further economic expansion.” Burns exclaims that he also lowered the rate to “put them [the Federal Open Market Committee] on notice that through this action that I want more aggressive steps taken by that committee on next Tuesday.” “Great. Great,” replies Nixon. “You can lead ‘em. You can lead ‘em. You always have, now. Just kick ‘em in the rump a little.” Burns urges the president to do something about the Pay Board and the Cost of Living Council, who, in his opinion, are “holding back recovery” by squeezing businesses by restraining price increases relative to wage increases. Burns adds adamantly: “Time is getting short. We want to get this economy going.” Note: The discount rate is the interest rate the Federal Reserve charges commercial banks and other financial institutions for short-term loans. The discount rate is applied at the Fed's lending facility, which is called the discount window. The discount rate played a more important role in monetary policy in 1971 than it did in recent times and usually was set below the federal funds rate. I write all this because I want you to know the Federal Reserve’s “independence” is, in the words of our Muddlehead-in-Chief, a load of malarkey. [BREAKING: Supercomputing Firm Partners with NVIDIA]( On March 21, NVIDIA – the world’s leader in AI – is set to release their biggest AI innovation, known as the “X Chip,” and could easily send every single AI stock surging. But that doesn’t mean you should invest in any AI stock… Instead, there’s one tiny AI firm that has partnered with NVIDIA on this X Chip. And rumor has it that Nvidia is going to name this company in their March 21 press release… Which James Altucher believes will send this tiny stock on a 100X run, growing 10,000% by 2025. [Get all the details right here.]( [Click Here To Learn More]( Powell’s Press Conference Below is yesterday’s market, split out by 10-minute candlesticks. Do you notice anything at 2 p.m. (14:00)? [The rude awakening] The SPX, Nazzie, and Dow roofed it. Bitcoin (not shown) jumped over $7,000 to nearly $68,000. Why? It's because Jay Powell isn’t taking away the punch bowl. In fact, he’s loading us up for more! The FOMC statement opened up like this: Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. If that’s the case, why are rate cuts even on the table? NikiLeaks got it right in today’s [Wall Street Journal]( Higher housing prices and stock-market gains are boosting wealth and thus supporting consumption, especially in high-income households. The price of bitcoin has recently surged to records, a sign of exuberant risk-taking. With GDP growth at 3.2%, inflation at 3.1%, and unemployment at 3.9%, Jay Powell is still discussing three rate cuts this year. Incredible? Not if you remember Burns and Nixon. NikiLeaks continued: Democrats are nervous that higher rates are sapping consumer sentiment and risking a slowdown ahead of November’s elections. This week, a handful of the most liberal lawmakers called on Powell to cut rates. “We read these letters with respect,” Powell said. “But at the end of the day…we have to make our judgments.” It’s not a question of “If,” but “When?” when it comes to rate cuts, regardless of what the data reads. Wrap Up Everyone wants something for free, especially money. That’s why no one wants to pay interest. But if we’re going to have a functioning economy, we need appropriate, market-determined interest rates. The old men in the Fed are too susceptible to political pressure, especially when they don’t want to work for Orange Man. Cutting rates here will feel really good. But leaving rates too low for too long will lead to problems that will take a decade to fix. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( In Case You Missed It… An Unhappy America Makes An Unproductive America [Sean Ring] SEAN RING Usually, I don’t care about the general population’s happiness. It’s their business, not mine. Though Gross Domestic Product is a lousy measure of economic output—so bad that it’s been nicknamed “Grossly Deceptive Product—” I still wouldn’t use Bhutan’s measure of Gross National Happiness in its place. But seeing the US fall out of the top 20 happiest countries felt like a gut punch. Really, if you can’t feel happy in America, where can you feel happy? How can the Land of the Free and the Home of the Brave not be one of the happiest countries on earth? Well, there are plenty of reasons. In this Rude, I want to discuss the exciting connections between happiness, confidence, and economic output. What Happened? I just read in The Wall Street Journal that the “[US No Longer Ranks Among World’s 20 Happiest Countries]( The article starts with this: The U.S. has fallen out of the top 20 happiest countries for the first time since a global ranking began in 2012, due in large part to a drop in happiness among younger adults. Americans fell to 23rd place in happiness, down from 15th a year ago, according to data collected in the Gallup World Poll for the World Happiness Report 2024. Costa Rica and Lithuania were among the countries that reported being happier than Americans, according to the annual survey, which asks respondents to rate their current lives on a scale of 0 to 10, with 10 being the best possible life for them. Nordic countries dominate the top 10, with Finland at the top. Unfortunately, the study didn’t give reasons for the unhappiness. But scientists suspect some of the reasons include worries about money, loneliness, anxiety about their futures, and what is happening around them. Why is this worrisome on a national level? Let me explain. What is Happiness Economics? Often seen as a subjective state, happiness plays a crucial role in the broader spectrum of economics. Beyond the mere accumulation of wealth and the pursuit of growth, the significance of happiness within an economic framework offers profound insights into societal well-being, productivity, and sustainable development. The Foundation of Happiness Economics The study of happiness economics emerges from the intersection of psychology and economics, challenging traditional metrics of economic success, such as GDP. Nobel Laureate Richard Easterlin’s Easterlin Paradox highlighted the complex relationship between income levels and happiness. It posits that beyond a certain point, increases in a country's wealth do not lead to greater happiness among its citizens. This insight propels the argument that economic policies should not solely focus on material wealth but also consider the happiness and well-being of the population. Happiness and Productivity A significant body of research underscores the link between happiness and productivity. Happy employees tend to be more engaged, creative, and resilient in facing challenges. They exhibit lower absenteeism and turnover rates, contributing positively to their organizations' bottom line. A seminal study by Oswald, Proto, and Sgroi (2015) at the University of Warwick found that happiness led to a 12% spike in productivity, while unhappy workers were 10% less productive. This suggests that investments in employee well-being can yield substantial returns in productivity, a critical component of economic growth. Consumer Behavior and Economic Stability Happiness influences not only how much individuals consume but also what they consume. Happier people are more likely to make long-term investments in their health and education, which are pivotal for economic stability and growth. Furthermore, a content populace is less prone to erratic spending patterns, contributing to a more stable and predictable economic environment. This stability is crucial for long-term planning and investment at the individual and governmental levels. Public Policy and Happiness Indexes The understanding that happiness is a valuable economic indicator has led several countries to integrate well-being measures into their policy-making processes. Bhutan famously prioritizes Gross National Happiness (GNH) over GDP to measure its development. Similarly, the World Happiness Report, an annual publication by the United Nations, ranks countries based on their citizens' self-reported well-being, considering factors such as income, social support, and freedom to make life choices. These initiatives underscore the shifting paradigm towards policies that foster economic environments conducive to happiness. The Broader Impacts on Society The emphasis on happiness within an economic context extends beyond the immediate benefits of increased productivity and stable consumer behavior. It fosters a society where mental health is prioritized, social bonds are strengthened, and inequalities are addressed more holistically. By valuing happiness, economies can create a virtuous cycle where well-being and economic prosperity reinforce each other, leading to a more resilient and cohesive society. How does happiness interact with confidence? [URGENT: Your New Crypto Book Is Awaiting Shipment]( [James Altucher]( If you’ve kicked yourself for not investing in cryptocurrency… Watching Bitcoin go from $61… To $1,000… To over $60,000… Then pay close attention. Famous crypto millionaire James Altucher just released a brand-new book on crypto… [And he’s releasing a limited number of books to folks who click here now](. We have a copy reserved in your name, and we just need to hear back from you. [Click here now to see how to claim your copy](. [Click Here To Learn More]( Happiness Translates Into Consumer Confidence Economics has increasingly recognized the importance of psychological factors such as happiness and confidence in shaping economic outcomes. The interaction between happiness and confidence is multifaceted and influential, affecting individual behavior, market dynamics, and overall economic health. Here’s how economics handles this interaction: Consumer Confidence and Spending Consumer confidence, often measured by indices that reflect optimism or pessimism about future economic conditions, directly influences spending and saving behaviors. When consumers are happy and confident about their financial future, they are more likely to spend, driving demand for goods and services. This increased demand can stimulate economic growth. Conversely, low confidence can lead to decreased spending and slowing economic activity. Economists and policymakers closely monitor consumer confidence as an indicator of economic health and potential shifts in the business cycle. Investment Decisions and Risk Tolerance Happiness and confidence play a critical role in investment decisions, impacting individual and institutional investors. Confidence in the economy, markets, or specific investments can increase investment activities, driving capital formation and economic growth. Happy and confident investors, like Paradigm’s own Alan Knuckman, may exhibit higher risk tolerance and seek growth opportunities that can yield higher returns. Conversely, a lack of confidence can lead to risk aversion, potentially slowing economic growth as investment in new ventures and projects diminishes. Labor Market Dynamics The interaction between happiness and confidence in the labor market influences job satisfaction, productivity, and career decisions. Confident and happy individuals are more likely to pursue career advancements, switch jobs for better opportunities, or start new businesses. This dynamism contributes to economic flexibility and innovation. Furthermore, happier employees tend to be more productive, as mentioned earlier, which can enhance a firm's performance and, by extension, the economy's efficiency. Macroeconomic Policy and Stability From a macroeconomic perspective, happiness and confidence intersect in the realm of policy-making. Economic policies that foster stability, growth, and employment boost confidence and happiness across the population. For instance, effective monetary and fiscal policies that curb inflation, ensure low unemployment, and promote equitable growth can enhance overall economic confidence and happiness, creating a positive feedback loop that supports sustainable economic health. Behavioral Economics Insights Behavioral economics, a subfield integrating insights from psychology and economics, provides a framework for understanding how happiness and confidence affect economic decisions. It examines how cognitive biases, heuristics, and emotional states influence economic behavior, challenging the traditional economic assumption of rational decision-making. Through this lens, the impact of happiness and confidence on economic decisions is studied not as anomalies but as integral aspects of human behavior that significantly shape economic outcomes. Hopefully, it’s clear why the confidence indicators of the Confidence Board and the University of Michigan are being watched. Wrap Up That America isn’t happy anymore is noteworthy in and of itself. But this unhappiness has knock–on effects, from macroeconomic policy to the labor market to individual job decisions. America needs to turn its frown upside down. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. 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