Global Interest Rates Turn More Negative by Guest Blogger Buck Klemkosky

For centuries, the bedrock assumption of finance was that borrowers paid interest and lenders and investors received interest, and that nominal interest rates would always be positive. That assumption has been turned upside down in recent years as lenders are now paying interest to borrowers; this prevails mostly in the commercial banking industry on banks’ deposits, called reserves, at the central bank. These reserves can either be required to back customer deposits at the bank or excess, those not needed to back customer deposits. Central banks are now charging commercial banks in 23 countries for their reserves on deposit or on their excess reserves.

Ever since the Great Recession (2008-2009), central banks have had to do the heavy lifting getting economic growth back on track and reducing deflationary pressures. First came the near-zero interest rate policies (NZIRPs), then quantitative easing (QE) and now the negative interest rate policies (NIRPs). The NZIRPs were implemented to boost aggregate demand by consumers and corporate investment by lowering borrowing costs. Another intent was to create a wealth effect by increasing bond, stock and housing prices, making consumers less risk-averse and more willing to spend or invest. QE programs involved massive amounts of bond purchases by central banks with the intent of lowering long-term interest rates on mortgages, auto loans and corporate bonds. The NIRPs work on the supply side by making loans more readily available to borrowers. Central banks impose an interest rate on bank reserves to motivate banks to lend excess reserves to borrowers to help invigorate lethargic economic growth. And there are unprecedented amounts of excess reserves on deposit at central banks.

The central bank of Sweden was the first to have an NIRP in 2009 but dropped it and raised interest rates as the economy improved. The ECB started its NIRP in June 2014 at -0.3%, joining Sweden (-0.5%), Denmark (-0.65%) and Switzerland (-0.75%). In January Japan joined the 22 European countries, 19 in the Eurozone, by implementing an NIRP with a -0.1% charge on some bank reserves as well as maintaining a massive QE program. In March, the ECB made a further cut in its negative rate to -0.4% and increased its QE program to €80b monthly, including the purchase of investment-grade corporate bonds denominated in euros. They also cut the short-term borrowing rate by banks to zero. Interestingly, the ECB imposed a negative rate on itself by offering to pay banks 0.4% to borrow money on a longer-term basis up to 4 years, as long as the banks lend the borrowed money.

These NIRPs have carried over to the bond markets as $7t of bonds, mostly government, have negative yields. This represents 25% of all government bonds outstanding in developed countries. In Japan and Switzerland, government bond yields are negative out to 10 years maturity, 8 years in Germany and the Netherlands, 7 years in Belgium and France, 5 years in Sweden and Denmark, 4 years in Italy and 2 years in Spain. A year ago there was less than $1t of government bonds with negative yields. There are also billions of dollars of corporate bonds with negative yields mostly in Europe and Japan. Some corporate bonds have been issued with a negative yield, Nestlé in Switzerland and more recently a bank in Germany. Today two-thirds of the $26t of government and corporate bonds in the Bank of America Merrill Lynch bond index have yields that are less than 1% or negative.

What are the potential problems with NIRPs? There are a multitude. Low and negative interest rates are challenging for banks that borrow (take deposits) short term and lend or invest long term. Thus far banks have been reluctant to impose negative rates on deposits but have had to lower rates on loans, sometimes negative, to stay competitive. Their net interest margin is being squeezed. Life insurance companies are also impacted as they have guaranteed rates on annuities and other insurance products. Money market funds have struggled with NZIRPs and NIRPs just exacerbated their margins or lack thereof: eleven of the largest money market funds in Japan have turned away new deposits and may return existing funds to depositors. NIRPs present problems to defined benefit pension plans that have assumed returns on investments well in excess of bond yields. More NIRPs may have dire consequences for many financial institutions. And NIRPs are a repression on savers who are receiving near-zero interest rates and perhaps negative in the future.

In addition to financial institutions and savers, NIRPs potentially increase risks to financial system stability by creating bubbles in financial assets like stocks and bonds and real assets like housing. It may also create problems for investors chasing yields in riskier assets and longer maturity assets. Many believe the primary objective of NIRPs is to weaken currencies and make a country’s exports more competitive. This is a zero-sum game if all countries try to devalue and risks the potential of currency wars and trade protectionism. Finally, NIRPs may signal that prior monetary policies such as NZIRPs and QE have failed and people will lose confidence in central banks and then they have a credibility problem.

One unintentional consequence of NIRPs has been cash hoarding and a surge in safe sales in Europe and especially Japan. The cash hoarders are ordinary citizens responding rationally to NIRPs which work only if savers spend or invest their money. Money is unproductive if stuffed under a mattress or in safes and safe deposit boxes. Cash hoarders prefer large denominations as do those carrying out illicit activities such as drug trafficking, money laundering, tax evasion, corruption and terrorist activities. The high denomination notes like the $100 bill, the €500 note, the SFR1000 note and the ¥10,000 note make up the largest portion of the respective paper currencies. 

Demand for these has accelerated in Europe and Japan; circulation of the SFR1000 notes ($1010) grew 17% in 2015 after Switzerland imposed a NIRP in January 2015.

Cash hoarding is an impediment to NIRPs and because of that some economists want to retire high-denomination notes and others to eliminate all paper currency and go digital. Theoretically negative interest rates can go lower but are constrained by cash hoarding, shadow banks and other factors.

NZIRPs, QE and NIRPs all had the same objective of stimulating stagnant economies. The question is have they worked? Japan has had an NZIRP and QE for some time but their NIRP is just two months old. The initial reaction to it was not as expected. The yen did not weaken, but strengthened relative to the dollar by 8%, savings increased and borrowing declined as citizens began to hoard cash. An NIRP has not helped Europe which is still experiencing anemic growth and deflationary pressures. There have not been a lot of positives so far with the NIRPs, except perhaps for lower borrowing costs, especially for governments, but that also could have unintentional consequences. The lack of robust economic growth in the countries that have implemented these policies may be due to other economic headwinds, and these economies may have been in worse shape if the policies had not been adopted. 

Christine Lagarde, managing director of the International Monetary Fund, states “if we had not had those negative rates, we would be in a much worse place today with lower growth and lower inflation.” Former Fed Chairman Ben Bernanke stated in his blog that negative interest rates “appear to have both modest benefits and manageable costs” and that “market anxiety over below-zero borrowing costs seems to me to be overdone.”

Even though the Fed raised short-term rates in December, some, including Congress, are questioning whether the U.S. could experience negative interest rates in the future. Janet Yellen, Fed chairperson, stated in congressional testimony in February that negative rates were discussed in 2010 but not implemented at that time. She also stated that she was not aware of anything that would prevent the Fed from implementing a NIRP but it would need further investigation of legal hurdles. The Fed already includes a negative interest scenario in bank stress tests and short-term U.S. Treasury bills have occasionally had negative yields.

If these monetary policies lose their efficacy or potency, what might be the last salvo of monetary policy? One possibility is what the late Milton Friedman referred to as a “helicopter dumping policy” (HDP). This would entail the central banks directly financing government spending or tax cuts, or directly sending checks to tax payers. This would be a more dramatic monetary policy than the three prior ones and would certainly be the “big bazooka” in stimulative monetary policy.  It is hard to imagine HDPs ever being implemented, but a decade ago the same could have been said about NZIRPs, QE or NIRPs.

Lesson 12 Balance of Payments: 2015 Data is in or is it?

As my loyal followers might recall, some of my posts are a tad more educational than others. Those of you who have degrees in silly things like fine arts and biology often appreciate my patient and vainglorious attempts to make every day complicated economic concepts even more complicated. If you look back among the 9,763 stories I have posted in the last 217 years you will see 11 such insightful JD motivated dramas. Today is #12.

Balance of payments is one of those sad macroeconomic indicators that MSW grads from Harvard know nothing about. If you asked all the remaining presidential candidates what BOP means they would probably guess it is the name of a dance invented by Bill Haley and the Comets. So I have chosen a wonderful topic for today’s blog and I want you to know that a test will follow.

BOP is a pretty optimistic and archaic name for data that attempts to record all cross-border or international transactions. Wow – what a goal – to record all international transactions! So let’s start out with the very well-known fact that BOP data are about as accurate as a CNBC presidential poll.  The BOP data is a noble gesture but if you think it is hard to measure how much your kid earned at her Lemonade Stand today, then imagine trying to account for ALL cross border trades in goods, services, stocks, bonds, bank accounts and what the Tuna would refer to as college boys gone wild in Tijuana.

But they try. I won’t defend the methods except to say that people who do this kind of thing are vastly underpaid professionals and most of them care very much about doing a good job. And who would bribe the guy in charge of measuring the exports of Chevy hubcaps to Havana? These government workers are saints and deserve a two-for one coupon at the Colonel Sanders Restaurant of their choice.

Before I get into the nitty gritty, I want to say in all seriously (ha ha) that BOP is the main event these days and helps us to understand things like economic growth, interest rates and so on. For example, BOP changes should help us understand why the dollar rose by 20% last year.  So don’t get lost in the trees – a forest of delicious fruits will unfold if you stick with this. Your life will never be the same. 

Let’s start with the easy stuff. Exports are the goods and services we ship to other countries. In 2015 we shipped $2.2 trillion to our trading partners. Of course we also bought that same kind of stuff from foreign countries and that amounted to $2.7 trillion in 2015. If you music majors can do the math, that means that we had a goods and services trade deficit of about $500 billion in 2015. I had a reading deficit once and that was not pleasant. So you can imagine the anguish when a lovely country like the US has a goods and services deficit of $500 billion. But here is the cool part. This deficit means that there are $500 billion dollars scattered across the world that didn’t want to buy US goods and services. We sent them $2.7 billion but they only sent $2.2 billion back. Thus they are holding $500 billion.

The suspense builds. What did foreigners do with all that money? Probably the first thing that comes to mind is to get rid of it. If you don’t want dollars – then you probably sell the dollars for renminbi or yens or some other currency. If that was the only outcome, then all that selling of dollars would probably cause the value of the dollar to depreciate.

But foreigners have other choices. They can use the dollars to invest in America. In this case invest should be taken broadly meaning they can use the dollars to open bank accounts, or buy stocks and bonds, real estate, a US company or buy a famous US monument like Mount Rushmore or Stone Mountain. If they do that instead of selling their dollars then the dollar does not depreciate and instead the prices of financial assets increase and/or interest rates decrease.

Back to the BOP accounts in 2015. Something called the Current Account measures exports, imports and a couple of other things. The exact deficit in the current account in 2015 was $484 billion after being $390 billion in 2014. Thus in 2015 we left even more dollars around the world.  But the Current Account is only half the fun. This brings us to what is called the Financial & Capital Account. Here is what I learned about the F&C account in 2015. After adding $977 billion to their US assets in 2014, foreigners only invested another $426 billion in the US in 2015. That is quite a turnaround. If I stopped the story there it would appear that in 2015 the dollar should have depreciated since foreigners were not pouring their dollars into US exports or US assets. All that would  make the dollar sound pretty unpopular.

But there is one more part to the F&C Account. That part has to do with US investments abroad. In 2014 US citizens added $792 billion to their foreign asset holdings. In 2015 that number fell to $242 billion. US citizens were investing more at home rather than abroad. Now put these two facts together – foreigners were investing less in the USA and US citizens were investing less abroad. In a crazy uncertain world, money was staying at home!

Cutting through all the numbers – according to the Current Account $484 went out of the USA for goods and services in 2015. According to the F&C account $209 billion came back to the USA to buy financial stuff. Thus there are $275 billion unaccounted for in the usual transactions in the BOP. Where are those dollars and what are they doing? Somehow they must be desired because during 2015 the value of the dollar increased. I think most of us know that global tensions created a healthy appetite for US dollars. But somehow BOP is not fully recording that appetite.

Right now that $275 billion is recorded in the F&C account as a “statistical discrepancy.”  Or in an accountant’s words—we have a $275 billion fudge factor in our accounting. I am guessing that revised data will show more foreigner investment in US assets. One likely suspect is governments who bought dollars in an attempt to depreciate their currencies. Otherwise the BOP data leave it very hard to explain a 20% rise in the value of the dollar in 2015. 

The Services Growth Engine

I often hear people lament the decline of real production and wealth as our nation has evolved from agriculture and mining to things like manufacturing and then finally services. To these people there was something real and tangible to digging stuff out of the ground.  Even manufacturing seemed lame compared to endowments of real landed wealth. Imagine their thoughts about basing a nation’s economy on services. The definition of a service is something that disappears upon production! How can you base an economy on something that disappears and soon as it is delivered!

But let’s face it, some countries do quite well when it comes to surviving and growing without having natural resources and some do it today mostly with services. According to the CIA Factbook the services sectors comprise nearly 80% of national output in the USA and UK. Bermuda counts 92% of its GDP as created by services. In contrast, Afghanistan, Burma, Ethiopia, Somalia, and Togo were among the countries where agriculture represented more than 30% of total output. A quick look down the list of countries makes it pretty clear that most higher income countries live off services production. See the table below for recent US data on employment. 

What are these services? Some of the largest services providers in the USA include real estate sales, state and local government, finance, banking,  insurance, healthcare, retail trade, wholesale trade, entertainment, education, tourism, transportation, and more. In each of these cases, a service is provided to a customer. When the cruise ship kicks you off the boat, the only tangibles you possess are the selfies you took and those extra 10 pounds hanging over your alligator belt. Yet GDP was created, workers were paid, and importantly capital was created and retained.

People worry that since there is no land or metals involved, somehow economic power expressed within services can disappear as easily as it arrived. But that is not true of services alone. Locusts or other such things have destroyed land and its ability to produce crops. A good red tide can kill fish and other sea creatures in the millions. Tsunamis, earthquakes, tornadoes, and asteroids can easily undo the value of natural wealth. A new invention makes one commodity almost obsolete as it is replaced by another.  So it is no great advantage or staying power guaranteed by land and commodities.

Think about tourism. No good is produced when a travel agent sells you a trip to Sanibel Island. You consume touristic output as you travel to this lovely destination. But notice how much lasting capital gets created by this event -- not because you want to buy a Chevy – but because you want to spend a few days getting a sunburn and indigestion. Your vacation wouldn’t be much fun if you didn’t have at least a Trump Hut for shelter and a bevy of restaurants and bars to quench your thirsts. Why are those buildings that produce touristic services any less real, enduring, or impactful than a tomato farm's harvester or a shoe manufacturing's factory?

Some people argue that many services are very low price or low skill. They worry that a transition from manufacturing makes a country poorer. They see manufacturing replaced by, say, retail outlets. But let’s be honest – not all manufacturing is high value added and many of these same people have complained that manufacturing companies take advantage of US workers or worse yet ship the jobs abroad. We still have a lot of low wage low skills manufacturing jobs in the USA but how long will they last? So maybe this claim is a bit exaggerated. And of course, it is easier for foreign countries to entice these lower skill manufacturing companies from our shores. It is a little harder to do the same with the Macys store in Bloomington.

And what the above argument completely ignores is the existence and importance of very high skilled services. Not all services workers push brooms or wash cars. People who dream up convenience Aps for our phones sell no phones yet they provide a lot of employment. Medical research professionals are indispensable to high tech manufacturing companies who will use the inventions and innovations to support superior goods. Since high tech services (in finance, health, transportation, tourism, etc) rely on higher paid and highly educated professionals – growth in these areas take advantage of US prowess in education and training.

I get my telecom services from AT&T. My monthly combined bills for TV, phones, and Internet are sizable. I pay much more for those services than I paid for the phones, TV, and computer. Think of the range of employment offered to service workers at AT&T. Think of all the capital invested by AT&T to support these services. Maybe not all those jobs pay super-high wages, but most of them defy the usual stereotype of the broom pushing service-worker.

We have enough to argue about. Going back to an economy based on land, commodities or even manufacturing just doesn’t make sense for the USA. Services are here to stay. They produce jobs and they are supported by huge capital stocks. Let’s appreciate our US trade surplus in services. Let’s appreciate what we have today and build on it. There is no guilt in a services economy!

Below is a table I created with data I took from the Bureau of Labor Services of the US Government.

Employment in February of 2016 (bls.gov) Thousands of jobs
                                 
NonFarm Employment Total      139,343

Goods                                                19,042
Mining & Logging                    861
Construction                           5,962
Manufacturing                      12,219

Services                                             98,042                                
Wholesale Trade                     5,816
Retail Trade                          15,239
Trans and Warehousing          4,738
Utilities                                      552
Information                             2,729
Finance                                   8,016
Real Estate, Rental, Leasing   1,481
Professional and Bus Svs      19,137
Education                                3,591
Healthcare                             14,847
Social Assistance                    3,449
Leisure and Hospitality         14,374
Other Services                         5,555

Government                                       22,259
Federal government                 2,730
State government                     5,227
Local Government                 14,302

Globalization and the Trumpaline

A trampoline is a thing you jump on. If you get really good at it you can do flips and all sorts of amazing gymnastic maneuvers. Right now everyone is jumping on Donald Trump so I thought I would jump on him too. Let’s call this a Larry Cannonball on the Trumpaline.

I will leave all the exciting stuff to other people and focus on the one thing that I think I know a little about – industrialization and globalization. Okay smarty pants – those are two things but in some ways they amount to the same thing because they are known to chew up jobs. Industrialization is a force that has been going on for centuries but it got a very hot reputation when it resulted in tractors replacing horses and plows. 

Ever since then we acknowledge that new technologies and innovations destroy jobs. Of course, we have also learned that while each significant industrialization phase creates its own destabilizing impacts the net result takes time and usually leads to not only more national employment but also higher wages and incomes.

Lauren’s great grandpa used to be the guy who blew out the candles in all the street lamps in Bloomington. Electricity knocked him out of work but that whole electricity thing also led to cool inventions like vacuum cleaners and blenders and pretty soon all sorts of people had great jobs as electrical engineers and bar tenders. If you take a big swig of JD, close your eyes, and think about your life you can easily think of all the labor-displacing inventions that caused similar disruptions but eventually came to be ho hum. I make light but these are no small things. When the textile industry abandoned the NE part of the US – it wasn’t very funny to those displaced by the invention of air conditioners that made work in the South more tolerable. Now we all say "yawl" and I "guarandamnteeit".

Most of us don’t fight industrialization very hard. We know it works. We like the fact that all those street lamps can be turned off with the push of one button and we like the fact that we can afford vacuum cleaners and bartenders. One of the reasons we have social programs is to try to make the transitions a little gentler. Helping those persons who become unemployed or otherwise disadvantaged by change is both good for the head and the heart. So we usually embrace change. Some of us love change but that is not necessary so long as society allows these transitions. The truth is in the pudding since not many of us are demanding a return to the horse and plow.

That brings us to globalization. Globalization is pretty much the same thing as industrialization except it allows us one more angle – the good guys (us) versus the bad guys (foreigners). Globalization is the same as industrialization because it does the same things – it creates havoc for some people while opening up avenues for growth and change for the rest of us. If a company closed operations in Indianapolis and reopened in Guadalajara Mexico you could hear the labor union and Donald Trump screaming all the way to the South Pole. How dare those blankety blanks leave Indianapolis to go to Mexico? They must be national traitors and they should be hung in the public square or in the Hoosier Dome.  Trump has made it very clear that he will make America great again by pulling all those companies back to Indianapolis and Detroit. Hillary Clinton is saying similar things. 

It sounds great. Let’s save American jobs. How can one argue with that? For one thing, it amounts to asking us to return to horses and wooden plows. Industrial transitions do not just occur in America. Now that dozens of countries are freer to compete in global markets the marketplace for change is everywhere. New ideas and innovations that improve our lives are developed and sold everywhere. To think that all that stuff would always be made in America does not make any sense. China will be the best place to make some items but even China is outsourcing output to Vietnam. Mexico will be a place of manufacturing for other things and they will outsource some of their supply chain to Chile. To think that Donald Trump or anyone else can or should fight globalization is silly.

For another thing fighting globalization means voting against change and the transitions that actually make American workers worth what they want to earn – close to $50,000 per year. We talk about greedy US companies who want to go to Mexico to take advantage of lower labor costs in Mexico. Now they are greedy. Yesterday and for how many years were those same companies employing American workers? Unions might complain about this or that but the truth is that many people raised families for decades because of the jobs offered by these companies. Were they greedy then? I don’t know whether they are more or less greedy today. What they are doing is fighting to succeed and in some cases to survive.  Competition across the globe is intense. To not change is to die.

So long as the average income of educated and/or trained workers in many emerging markets is less than $10,000 per year it is pure folly to think that US workers hired at $50,000 will offer the best place to do business.  To save the company and American jobs, a US multinational will move some operations out of the US. Of course to save the remaining jobs they will continually have to improve productivity of the domestic workforce or even the higher skilled jobs will be threatened. Think of wave after wave of enemy combatants coming after your defensive position. Building a bigger wall might work for a while. But what you really need is an advantage.

Trump vilifies other countries for trying to come into the global economy and for daring to compete with the USA. The only real solution to this challenge is not to regulate US companies but to unleash them. Making America great means American companies winning in the global marketplace. It means change and growth. Don’t tell me that centuries of US growth are over. Tell me we have a plan to empower US companies so they can do what is necessary to continue producing good jobs and incomes in America.  The world is not always a fair place. Making it even less fair isn’t the solution. We have so many advantages over emerging market competitors they are impossible to list. We should use them and quit bellyaching!

Socialism

I wanted to write something thoughtful about socialism. Socialism seems to be sexier than ever and so I had a lot of motivation. And then like reading a four hundred page textbook on sexual dysfunction, I soon glassed over and wondered why I had begun the project in the first place.

That got me thinking again about Bernie Sanders, his supporters and critics, and the possible usefulness of understanding socialism better. I began by searching around for definitions of socialism and that didn’t seem to help very much. If you read enough you soon find that like drugs and bourbons – there are many different kinds of socialism. So I started looking for a common refrain or set of words that were party to most of the definitions and I hit on “state or social ownership” and “democratic control over the means of production”. These are interesting words but hardly ones that we use very much today.

One theme or set of words that made more sense to me was something like “a way of organizing society in which major industries are owned and controlled by the government rather than by individual people and companies.” Now that one I could sink my teeth into. Immediately China and Vietnam come to mind. In Russia the government owns Gasprom and in Venezuela PDVSA is one of many large companies owned by the government. In Sweden and Norway the government owns many companies too. According to that definition there are many socialist countries.

But as I said above, there is no single definition of socialism and as it turns out there is no simple manifestation of it either. Some countries own many companies while in other countries the government owns only a few. But the differences go even further than number of companies owned. Nowadays we would say that a country is more socialist if the government plays a large and active role in society. One might say that Germany is socialist not so much because the national government owns some banks but more so because government spending is a large percentage of the national economy (as it also is in Belgium, France, Finland and several other countries). In this case the notion of socialism has more to do with the size and reach of government. In this definition a country is less socialist and more market-oriented if it has relatively less government spending and regulation.

I draw two conclusions from the above. First, socialism is not a binary yes/no answer.  Countries are more or less socialist and there are few extreme cases today in which 100% or 0% of all activity is within the government sphere. Thus all countries are at least a wee bit socialist. Second one can always discuss how socialist a country is by looking at how much of national activity is done or largely affected by the the control of government. 

The reason for going through all the verbal torture above is to make the point that “we are all socialists.” The US is already socialist if you agree that about 17% of all US employees work for a local, state or federal government office. Or that the federal government’s debt is approaching 80% of the size of the economy. Or that federal, state, and local government tax revenues will soon reach $6.6 trillion or 36% of the national economy.

So this whole thing about the US becoming a social state is a red herring – no offense intended to small fish. Most of us operate in an environment of markets with a medium to heavy involvement of government. Thus we are both capitalist and socialist. Even China, once the leader of the Communist world, has deregulated many state-owned enterprises and has allowed market forces to effect prices, wages, and other key economic indicators.

So forget that Bernie Sanders is called a socialist or that America is going to become a socialist country. The real question is how to make America’s economy better or how to address our worst economic problems and make the economy work better for all of us. In pursuit of those goals we have a choice but it isn’t between capitalism or socialism. 

The choices are about how we use government to pursue these goals. On the far left we have ideas that essentially greatly increase government reaches. On the far right we have the opposite. There used to be a day when we had a middle approach that took it for granted that we probably should not greatly increase or decrease the role of government but should find ways to make the current extent of government work much better.

A more moderate approach is a compromise and that satisfies almost no one. We could find solutions for the middle class and we could find ways to deal with global competition and industrialization. There are ways to create fairer taxes and more economic growth. But the sad thing is that we will never get any of these things because we would rather argue about who is socialist and who is not. 

One last point about socialism. It seems odd that the people who seem to yell loudest about wanting socialism are the ones who do not live in socialist systems. In Cuba and China, for example, citizens would not be able to broadcast their opinions especially if they questioned socialist policies. And while capitalism may not be perfect it has a long way to go to equalize the economic sins of some socialist systems. In the Soviet Union one could go to the ballet for free -- but many people had to wait decades to receive an apartment or replacement parts for their dilapidated Ladas. Imagine the chagrin of Venezuelans today as the government stopped the expensive practice of virtually giving away goods to the people (7 cents per gallon of gasoline!). And finally, I just saw a report that China has more billionaires than the US. What does that tell you about distribution of income in China?

I see some of you folks at the gym now and then. A couple of you approached me the other day and asked me about my solutions. They were frustrated that I point out the defeatist nature of warring ideologies without suggesting any remedies. I have to admit that I don’t have any real solutions. But I can say that I wonder if democracy is still a viable system when the voters themselves line up in ideological extremes. We haven’t always been that way in America. How did we get there? And if I am right, is there a path back to compromise and meaningful negotiation among people with different opinions and solutions? No I don't have the answer. Do you? It might be the question of our times!