GLOBAL ECONOMICS AND POLITICS

Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.

 

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AMERICA: A HOUSE DIVIDED © Leo Haviland December 7, 2015

Before Abraham Lincoln became President and the outbreak of the American Civil War, he stressed regarding the slavery issue: “A house divided against itself cannot stand.” (Speech, “A House Divided”; Springfield, Illinois, June 16, 1858). He added: “I do not expect the house to fall—but I do expect it will cease to be divided.” Lincoln’s “house divided” metaphor traces back to the Bible. Jesus warned (Matthew 12:25; see also Mark 3:24-25): “Every kingdom divided against itself is brought to desolation; and every city or house divided against itself shall not stand.”

CONCLUSION AND OVERVIEW

From colonial times to the present, America always has had political divisions. History reveals that such differences- whether based on political ideology, economic viewpoints and interests, religious or other social opinions, “human nature”, overseas events, or other phenomena- can vary in substance and intensity. Although sharing of the American Dream culture helps to unite Americans, diverse visions regarding the Dream’s content exist, evolve, and are debated. Political wars, battles, fights, feuds, quarrels, squabbles, and disagreements never disappear entirely even though that rhetoric can differ in quantity, severity, scope, and quality.

Doomsday or other terribly bleak scenarios have appeared within American political discussions. However, nowadays “civilization as we know it” is not ending (even if it arguably has deteriorated), economic growth continues (though often fitfully), and so-called “core values” expressed by the American Dream remain (in various fashions) shared. America nowadays obviously is not as divided as it was during its long and bloody Civil War. The American scene did not banish physical violence as part of the process of resolving notable national or regional disagreements. Recall wars with Indians, labor (union) fights, and the civil rights movement. Yet significant internal national conflicts, especially after the Second World War, increasingly have been resolved within a comparatively peaceful political process, including the passage and interpretation of laws.

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However, a brief survey of the United States political realm from the national perspective nowadays suggests that America’s political house over the past several years probably has become more divided than usual. It probably will remain so for quite some time, and at least through the 2016 election campaign.

Political fights often can express (reflect) economic phenomena, including diverging doctrines and competing practical interests. What does the recent picture display? Political battles and resultant significant legislative gridlock within the American political realm has coincided with sluggish real GDP growth, weak average household income, an elevated poverty level, and increasing economic inequality.

Is increasing political conflict confined to the American domain? Political (as well as economic, social, and religious) divisions of course exist around the globe. Reasons for fights over power within the United States are not necessarily the same as those inspiring political conflicts elsewhere. And cultural analysis must beware of overgeneralization and oversimplification. The world as a whole is not completely falling to pieces. Yet it nevertheless seems that political hostilities within and between many nations (and between groups with different views and aims) around the globe, as in the US, have increased in the past few years. This trend, especially if it worsens, arguably endangers international (and American) economic expansion. Severe and heated political divisions not only often reflect economic problems, but also can create or magnify economic (and political) risks. World history (for example, after the First World War) reveals that substantial and widespread economic distress and fears can greatly assist the rise of rather extreme political (economic) views, whether far left, far right, ultranationalist, fringe, and so forth.

In recent years, in the United States and many other advanced nations, insufficient economic output, political divisions, or both increasingly have encouraged faith in and reliance on central banks to spark and sustain economic growth.

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America- a House Divided (12-7-15)

ECONOMIC AND POLITICAL LINES (c) Leo Haviland October 22, 2012

Highlight two International Monetary Fund comments in its recently unveiled “Fiscal Monitor” (October 2012). “With downside risks in the global economy mounting, policymakers must once again tread the narrow path that will permit them to continue strengthening the public finances while avoiding an excessive withdrawal of fiscal support for a still-fragile economic recovery.” (page ix). And: “In most advanced economies, the near-term fiscal stance has to walk the fine line between continued adjustment and supporting the economy.” (p6).

This IMF rhetoric, which many other luminaries embrace, of “tread the narrow path” and “walk the fine line” offers hope for the global economy and for the United States in particular. Maybe subtle financial and political sorcerers somehow can escape the dilemma of an economic downturn (too slow growth or recession) and the consequences of additional (irresponsible) substantial deficit spending! Have faith that wise guardians can discover a middle way to evade further suffering!

In the amazing Goldilocks Era, didn’t substantial and growing worldwide debt and leverage joyously promise and provide nearly limitless opportunity for almost everyone (“us”) to prosper with very little (or at least manageable) risk? In the aftermath of the wonderful Goldilocks epoch, should we believe that the implications of significant leverage and mountainous debt accumulation can be magically pain-free, at least over some misty medium term or long run vista?

Despite such entrancing sermons of narrow paths and fine lines from many respected central banking and political guides, economic and political pilgrims should ask if such a path or line exists in practice. It probably doesn’t. Is there really a way for the United States to avoid the looming fiscal cliff and other long run deficit challenges without significant hardship? Probably not.

Most observers are not focusing closely on the potential composition of the Senate. They should. The Senate election result probably will have notable consequences for legislative action (or inaction) in many domains. For example, think of the troubling fiscal cliff and the terrifying long run deficit problems.

Clairvoyants on balance believe the Democrats probably will maintain control of the Senate. Even if the Republicans gain an edge in the Senate, it would be very surprising for them to capture anything close to 60 seats. According to Senate rules, to end debate (halt filibusters) on a legislative proposal (bill), 60 of the 100 Senators must agree to do so (invoke cloture). The sixty votes do not have to all be from the same party. Nevertheless, the failure of a Senate majority party to control 60 or more Senate seats means that its opponents generally can block the majority party’s legislative efforts.

So suppose the House is Republican, and the Senate is Democratic (or even imagine a modest Republican majority). Given such Congressional division, it will be a major challenge for the parties to readily resolve issues over which they disagree dramatically, such as on how to repair the federal deficit disaster. In that situation, the party membership of the winner of the duel for the Presidency matters much less. After all, for the past several years, the Republican House and the Democratic Senate stubbornly have faced each other. With these battle lines, there has been at best little progress on reducing the deficit. Why should having a Republican President instead of a Democratic one change this partisan deadlock in any notable fashion?

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Economic and Political Lines (10-22-12)
Chart- Commodities- Broad GSCI (10-22-12)