Memo to the Republicans: Don't Over-Reach

You missed a bullet by electing Mike Johnson speaker on the first ballot. By the way I think Johnson has been under-rated by the media, and it is my guess that he has the potential to turn out to be a speaker of consequence. My primary suggestion is that you don't make the same mistakes the early Biden Administration did. They over-reached, and while it looked good early on, the Democrats reaped the whirlwind in 2024. Don't let that happen to you. Remember we are still a 50/50 country; Biden forgot that.

Thus you should focus on a few narrow, but important priorities. Namely extending the 2017 tax cuts with few amendments, immigration control, energy deregulation, increased defense spending and targeted tariffs. Don't mess around with the tax subsidies for alternative energy embedded in the misnamed Inflation Reduction Act. For example wind energy supplies a huge portion of the electricity needs of all of the states going north from Texas to North Dakota. I need not remind you that the folks in those states are your prime constituency. 

I am not smart enough to know that all of this can be done in one or two reconciliation bills. That tactical decision is way above my pay grade. But remember, success breeds success and if you can get this done early, the rest of your wish list could very well come within range.

One more thing, on the foreign policy front, do not abandon Ukraine. If you do, it will be your Afghanistan.

Wake Up Call for the Fed

This morning the BLS reported the biggest increase in year-over-year consumer prices in 30 years. The overall index increased by  a stunning 6.2% and the core index(ex food and energy) increased by 4.6%. The increases were broad based yet the housing component remains substantially understated from what is occurring in the real world. Specifically owners equivalent rent was up 3.1% and tenant paid rent was up 2.7%. Knock, knock the real world increases for both of these housing measures are now running two to three times the official rate of increases. Thus as the official index catches up to the real world measured inflation will continue to run hot. Simply put, the term "transitory" is so last year.

The bond market responded by pushing up still low interest rates by about 10-15 basis points across the yield curve. What this means is that Fed will soon accelerate its tapering process and will start to pencil in rate increase as early as next June. As we noted recently the Fed is behind the curve and the markets will not find it a pleasant experience as the Fed starts to play cach up. (See Shulmaven: The Fed and the High-Pressure Economy  and  Shulmaven: Too Complacent about Inflation ) Further it is making less and less sense for the Biden Administration to push its already expansionist fiscal policy with its $1.75 Trillion Build Back Better social programs.

Its not Easy Being Green

Ten years ago the great Kermit the Frog introduced his classic, "Its not Easy Being Green." (https://www.youtube.com/watch?v=rRZ-IxZ46ng) Today's climate warriors face a similar dilemma.  An example of this can be found in today's Wall Street Journal (https://www.wsj.com/articles/solar-powers-land-grab-hits-a-snag-environmentalists-11622816381) where we have a story about Mojave Desert residents opposing an industrial scale solar farm for Facebook on narrow environmental grounds. Hello! If climate change is such an existential threat to the planet why say no to solar power?

This story will be played over and over as so-called environmentalists oppose high voltage transmission lines that will bring electricity from solar and wind farms to the great urban centers, offshore wind farms, the mining of copper, lithium, cobalt and rare earths that are so necessary for electrifying the economy, and the construction of carbon-free compact nuclear power plants. Something has to give and in paving the road to a carbon neutral economy environmentalists are going to have to give up on many of their long held shibboleths. And the Biden Administration is going to have to find a way to fast track their climate projects.