Why am I not surprised?

Chinese President Xi Jinping recently consolidated power. Trump told the gathering: “He’s now president for life. President for life. And he’s great.” Trump added, “I think it’s great. Maybe we’ll give that a shot someday.”

There are a lot of people in China who believe in classical liberal principles.  At one time they respected America.

PS.  If you think presidential character doesn’t matter, read this.

PPS.  I just crossed 10,000,000 views:

Commenter HL directed me to this slide from a presentation by the Mexican central bank:

HL suggested that this meant the Bank of Mexico is now “targeting the forecast”.  It does sort of suggest that policy is being adopted, but it’s hard for me to be sure.  Any comments would be welcome.

Let’s recall the mistakes made by the Fed in 2008:

1. Too much weight on inflation, too little on NGDP growth.

2. Growth rate targeting rather than level targeting.

3.  Failure to target the forecast (as well as too little reliance on market forecasts.)

4.  Failure to do “whatever it takes”.

That seems like a lot, but fixing some of these problems makes the other issues much less of a problem.  Addressing problem #2 alone, or #4 alone, would have gone a long way toward making the 2007-09 recession much less “Great”.

When combined with David Beckworth’s recent post on level targeting, I’m becoming more optimistic about global trends in monetary policy.

Donald Trump and other members of the alt-right tend to have a very favorable view of Vladimir Putin.  After all, he shares many of their nationalistic political instincts.  But nationalists face a dilemma, as their ideology is fundamentally selfish.  Nationalists favor the home country and demonize foreigners.  So are nationalists to be pro-America or pro-nationalism?  You can’t have it both ways.

In recent years, Putin has brought back the Cold War, by invading neighboring countries, tearing up arms control agreements and gloating about the fact that the US will not be able to stop a new type of nuclear missile from reaching Florida.  Trump doesn’t seem to know how to respond to this new reality:

Former CIA Director John Brennan expressed “deep worry and concern” Friday about leadership and the nation’s safety in the wake of Donald Trump’s ugly Twitter attack against Alec Baldwin over the actor’s portrayal of the president on “Saturday Night Live.”

Brennan was asked by Nicolle Wallace on MSNBC if he thought Trump was “too unstable” to possess the nuclear codes that would allow him to launch an attack. Brennan responded that he was rattled by the president’s strange focus on Baldwin the morning after Russian President Vladimir Putin boasted of his nation’s nuclear capabilities to strike anywhere in the world, including the U.S. A simulated video presented by Putin appeared to depict next-generation nuclear missiles striking Florida.

Trump has yet to respond to Putin. Instead, he ranted against the actor in an error-riddled tweet early Friday morning (the tweet was later reposted with corrections).

“When I hear what Vladimir Putin was saying about the nuclear capabilities he has [and] then the president of the United States is tweeting about Alec Baldwin this morning, I mean, where is your sense of priorities?” Brennan asked. “I think a lot of Americans are looking at what’s happening with a sense of: This is surreal.”

There’s “deep, deep worry and concern for this country’s national security,” he added.

A couple days ago I visited the Nixon Library in Yorba Linda.  The Nixon administration is the first one that I remember well, and seeing the exhibits brought back a lot of memories.  I view Nixon as one of America’s worst presidents.  He was very corrupt and dishonest.  And yet, he was so far superior to Trump that it’s like they are not even members of the same species.  Even in Nixon’s worst qualities, he was nowhere near as bad as Trump; not nearly as corrupt or dishonest, for instance. (John Dean recently made the same point.)  And in his best qualities he was dramatically superior to Trump.  He worked hard, gave a lot of thought to foreign affairs, and did seriously try to improve our relations with countries such as China and the Soviet Union.  Watching news clips from that era you had the sense that America was actually a serious country, like Canada or Germany or the Netherlands.  Now this country seems like just another banana republic, with a president who has the mentality of a Duterte, a Chavez, a Berlusconi.  It is a surreal experience viewing the Nixon Library with the thought of Trump in the back of one’s mind.

Update:  And isn’t this reassuring?

The Financial Times has a debate over recent Congressional attempts to loosen bank regulation.  Hal Scott supports looser regulation:

The Fed’s stress tests are effectively the binding constraint on bank capital and thus lending. They require banks to prove they could survive extreme adverse scenarios while still complying with global capital requirements. The process has two major deficiencies.

First, the Fed’s adverse scenarios are extreme to the point of incredulity. For example, the latest stress test assumes an increase of the unemployment rate from 4.1 to 10 per cent over seven quarters. That has not happened in the 70 years since today’s measure for unemployment was adopted. There is no open consultation with experts, industry or the general public as to whether these scenarios make sense.

Do we really want banks to hold enough capital to survive events that have no US historical precedent? If such an extreme economic event did occur, would any amount of capital be enough to withstand the panic it could trigger?

We absolutely do want to have banks be able to survive a recession that pushes unemployment up to 10%.  The unemployment rate hit 10% in 1982 and again in 2009 (albeit from a higher base than today.)  In the early 1930s, it rose from 3% to 25%.  After what happened in 2008, how can anyone seriously claim that we don’t want our banking system to be able to survive a recession that leads to 10% unemployment?  That makes no sense.

I don’t know enough about bank regulation to have an informed opinion on stress tests, but this argument actually makes me more likely to support the other side. I didn’t even have to read the arguments made by Lisa Donner, in opposition to loosening regulations.

Ideally we’d have a laissez faire banking regime.  But until we get rid of the GSEs, FDIC and TBTF, we probably need some sort of capital requirements and/or stress tests.  Since neither party favors removing moral hazard from banking, we are unfortunately stuck with regulation.

Off Topic:  The clown show continues: