Downhill and Uphill

Four years ago, on the day Joe Biden was to be inaugurated  I wrote a blog post that has proved to be eerily prescient.

It was titled "It's All Downhill From Here". 

Excerpts from that blog post.

Joe Biden reaches a lifetime goal today.

He has dreamed of being President of the United States since he first entered the U.S. Senate when he was 30 years old. That was 48 years ago.

Unfortunately, Biden's inauguration today will probably be the one shining moment for him.

It will most likely be all downhill for him from here.

Joe Biden is leaving office four years later with the lowest approval rating of his Presidency.

A mere 35.6% approve of Biden's job performance. 57.1% disapprove.

61% of Americans view Biden's term in office a failure.

Source: https://nypost.com/2025/01/15/us-news/biden-leaving-office-with-record-low-approval-rating-61-say-his-presidency-was-a-failure-poll/

Biden's approval rating is actually lower than President Trump when he left office four years.

Keep in mind that Trump's approval rating was depressed significantly in that he was two weeks away from the January 6th protests for which he was under a barrage of attacks for supposedly instigating an "insurrection".

I suggested three big factors as to why I thought it was going to be all downhill for Biden in his four year term.

1. Biden has to overcome the fact that a good portion of the country believes that he is taking office illegitimately. He starts with a pretty large handicap out of the gate. Biden says he wants to "unify" the country. It is a nice sound bite but color me skeptical. Perhaps "Good Old Joe's" heart is in the right place but his head is going to tell him that he can't cross the majority of Democrats who don't want any unity.

2. Biden also clearly has diminished mental capacities compared to what he once had. It is undoubtedly going to get worse. There are a lot of expectations about Presidential performance. It is going to be harder to hide Biden and any gaffes will be more noticeable to the public at large. 

3. It is also likely that the Hunter Biden investigation will rear its head at some point. Biden has to hope that the deep state and the media will cover it over but there is already enough evidence to suggest that Hunter is very, very dirty.

All of these factors were significant in Biden's downfall.

However, what really hurt Biden the most was having his economic record compared to that of Trump.

I documented various economic measures as they existed on January 19, 2021 in that blog post so that it would be easy to compare how Biden's record compared to Trump at the end of his term.

Let's look at those measures under Trump and compare them to Biden's record.

(All Biden measures as of January 16, 2025).

The 10-year Treasury yield was 1.094% when Trump left office.

It is 4.613% now.

The 30-year average mortgage rate was 2.87%.

It is now 7.04%

A gallon of gas (AAA national average for regular) was $2.39

It is $3.10 now.

Natural gas per cf was $2.48. It was $3.39 when Trump took office.

It is now $3.54 per cf.

The inflation rate for the last full year of Trump term (2020) was 1.2%.

Inflation was 2.9% for the last full year of the Biden term. The December inflation rate was 0.4%. That is equal to an annualized rate of 4.8%

However, consider these price increases on individual items over the entire four years of Biden to better understand the impact of inflation on Americans.

Real median household income during Trump's first term increased by $7,000 per family.

During the Biden administration, it only increased by about $1,000 thanks largely to a positive result in 2024. For most of his term Americans actually lost ground as wages did not keep up with inflation.

Inflation over the four years almost totally wiped out nominal income gains.

Poverty rate in the United States at end of 2019 --10.5% (2020 not yet published in Jan, 2021  

Poverty rate at end of 2023-- 11.1% (2024 not yet published in Jan, 2025)

S&P 500 at 3,799 (+ 67% during Trump's 4-year term)

S&P 500 now is 5,937 (+56% during Biden term).

I wrote this four years ago.

I wish Joe Biden all the luck in the world to better these measures.

More power to him if he can.

However, most likely it is all downhill from here simply due to the fact that it is hard to imagine anyone bettering these marks. How much better can it get on some of these? We have to be near the top of the hill right now. Trump would almost certainly not have been able to come close to matching them himself if he had remained in office. 

We may see the stock market go higher due to the Fed continuing to print money. Perhaps there is a post-Covid economic explosion to push things ahead for awhile. However, the bubble would seem to have to burst at some point. Can they keep it going for another four years? That seems doubtful right now. 

In that blog post written four years ago I also forecast that it was way too earliy to count Donald Trump out despite how grim his future looked at that time in the wake of the events of January 6.

All of this suggests to me that Biden will struggle in office on a downhill trajectory for a combination of the factors outlined above.

This also suggests to me that Donald Trump might begin to look better and better over time to the voters who rejected him in 2020 for not having the style or comportment they wanted in their President.

In summary, Biden appears to have nowhere to go but down. At the same time, Trump seems to have nowhere to go but up when people start comparing records down the road a little bit.

That is exactly what transpired.

In fact, in a recent CNN poll only 5% of voters say that their #1 memory of Trump's first term was January 6.

And only 37% of all voters believed that Trump was greatly responsible for January 6. Almost 50% believed that in January, 2021.

Link to video: https://x.com/ForecasterEnten/status/1876377693824114720

Biden entered office in the shining moment of his career but it was all downhill from there.

Trump enters his second term looking at uphill challenges almost everywhere he looks.

The debt ceiling limit is frozen. Almost nothing can be done legislatively until this issue is resolved.

Trump has to do it with razor thin majorities in both the House and Senate.

The federal government is spending in excess of $2 trillion more than it is taking in on an annual basis.

Rising interest rates mean that interest expense on the federal debt is in excess of $1 trillion/per year.

The housing market has almost locked up due to the combination of inflationary pressures and high interest rates. Few can afford to buy or sell.

Inflation appears to be ticking up again and the bond market is reacting negatively.

Commercial real estate is in deep trouble with large vacancies and many banks have significant credit exposure.

Over 25 million illegal immigrants are now in the United States.

Social Security and Medicare are both heading to insolvency within the next decade.

War continues in Ukraine and the Middle East.

Southern California has just experienced the costliest disaster in U.S. history.

Joe Biden drained the Strategic Petroleum Reserve and left it with the smallest oil reserves in 40 years.

Biden was on the top of a mountain looking down.

Trump is at the bottom of a mountain that needs to be scaled to get to the other side.

Of course, great Presidents usually come about by facing great challenges. 

In many respects, the times make the man. It was certainly true with Washington, Lincoln and Roosevelt.

Greatness does not follow when taking the easy road. It only graces those who are not afraid of the challenge on the hard road.

Success is never assured. Trump may fail bigly in his second term. 

However, as I pointed out in a recent blog post, Trump is an iconoclast. 

He is willing to challenge the status quo and he has proven in the past that he can do things that others say can't be done

There is one other thing about Trump that should not be overlooked.

Donald Trump is not afraid to be great. That in itself is a rare commodity. Keep that in mind as you listen to those who criticize Trump.

The hill ahead that must be climbed will be hard and arduous.

It may turn out to be more challenging than any of us can imagine right now.

However, there is no one who I trust more to lead us in that challenge at this time in history than Donald J. Trump.

H-1B Visas---No Easy Answers

There has been a lot of talk recently of where the H-1B visa program will go in the Trump administration.

This visa program allows individuals in "speciality occupations" who are not citizens to be permitted to enter the United States to work.

The visa is generally available for up to three years but may be extended for up to an additional three years.

An annual numerical limit of 65,000 new visas is allowed but an additional 20,000 per year are allowed for those with graduate degrees or higher from U.S. colleges. In addition, any H-1B visa holders who works for an institution of higher learning in the U.S,, nonprofit research organizations or government research organizations are not subject to the numerical cap.

All of this aggregates such that there are over 600,000 H-1B visas currently in use today.

There appears to be a division among Trump supporters on what the future of the H-1B program should be.

Elon Musk and Vivek Ramaswamy have argued that the program needs to be expanded to provide for the allowance of more visas for talented immigrant applicants.

MAGA purists argue that there are already too many using the program, the program is being abused, and it is disadvantaging U.S. citizens with similar qualifications.

Donald Trump has sent mixed messages about the program over the years.

He has expressed concerns in the past that there are too many H-1B visas but he has also indicated that he is in favor of allowing more talented immigrants into the country.

What is true is that the Trump administration was much more strict in approving H1-B visas than was the case with either Obama or Biden.

Let's take a deeper look at the H-1B issue to put all of it in better context.

There is one thing that is true about the H-1B program that is the case with almost every government.

It may be well intentioned, and make sense theoretically, but it inevitably gets abused and strays from each original purpose.

That has been the case with H-1B.

This becomes apparent when one looks at the leading sponsors of H-1B applicants.

Four of the top 10 sponsors of H-1B visas are Indian IT outsourcing firms.

Source: https://x.com/RodneyR58127664/status/1863519648601260095

They hire Indian tech employees who will work for less pay than their U.S. counterparts and then mark up the labor costs for the American companies who buy their IT services.

It clearly was not the original intention of the program that a private sector middleman would be reaping such a large benefit from the program.

As is this perspective.

The heavy Indian influence in the H1-B program is readily apparent in looking at the origin countries for H1-B visas.

If this is about the "best and brightest" why is it that 75% of the visas went to Indians and another 12% to Chinese?

Where are the Europeans, the Japanese and the Australians?

Do they not have any talented people who want to come to the United States?

You would also think that with that large number of H1-B visas being given to those from India that they are almost all well-educated and would be products of an excellent college and university background.

However, I found it surprising that India does not have one university in the Global Top 500.

Credit: https://x.com/JeanineT3/status/1875383230855344246/photo/1

It is also interesting that U.S. college seniors in Computer Science actually show more fully developed skills than their counterparts in other countries.

Students in India are actually the worst performers.

However, the problem is that for quite some time the United States has not been graduating nearly enough Computer Science majors compared to the number of new jobs for recent grads.

Some argue that the heavy preponderance of Indians in IT jobs due to the H-1B program is actually depressing the number of native Americans from majoring in Computer Science.

Source: https://cacm.acm.org/blogcacm/computing-is-the-safe-stem-career-choice-today/

This shortfall is likely to continue into the future as the United States is about to enter a period where there is declining college enrollment due to lower number of individuals turning 18 years of age.

Source: https://hechingerreport.org/the-impact-of-this-is-economic-decline/

This equates to about 650,000 fewer high school graduate per year within the next 15 years.

It also means a couple million fewer potential students attending colleges in each four year period.

Colleges are going to be under even more financial pressure in the future due to this demographic cliff.

However, it also means that it will be increasingly difficult for the United States to have the supply of trained talent necessary to continue to fuel the domestic economy.

It will either require many more U.S students to choose courses of study in the STEM fields than are doing so today or more talent will have to be imported from overseas in programs like H1-B.

There is no easy answer.

It is not hard to see why Donald Trump is concerned about the effects of H1-B on American workers but also understands that we likely need more immigrant talent to fill the jobs of the future.

It will be interesting to see how this plays out in the coming debate about immigration reform.

The Iconoclast

Acquire Greenland?

Take back the Panama Canal?

Make Canada the 51st state?

Rename the Gulf of Mexico the Gulf of America?

Donald Trump has talked about doing all of these things recently.

Is Trump crazy? Doesn't he understand anything? Is he serious?

It is easy for the media and political pundits to try to portray Trump as a mad man.

After all, these are all suggestions that defy the status quo and conventional thought.

However, that is what an iconoclast does.

And Trump is most definitely an iconoclast.

I`con`o`clast/ n / 

A person who does something that others say can't be done.

A person who strongly opposes generally accepted beliefs and traditions:

A read a book about 15 years ago about iconoclasts written by Gregory Berns who is a Professor of Neuroeconomics at Emory University.

Source: https://www.amazon.com/Iconoclast-Neuroscientist-Reveals-Think-Differently/dp/1422133303

His basic thesis is that we need a lot more people to exhibit iconclastic thinking.

No society or organization can advance without iconoclasts.

However, iconoclast are extremely rare. It takes an individual with advanced intelligence and the ability to perceive things that others do not but also someone who has the strength of personality to withstand the ridicule and possible scorn that comes with challenging the status-quo and conventional wisdom.

Iconoclasts don't do it the way it has always been done. They break rules along the way. It can be uncomfortable for those set in their ways. Iconoclasts are often attacked, ridiculed or subject to scorn. However, iconoclasts often get results that few expect.

From the book summary.

No organization can survive without iconoclasts -- innovators who single-handedly upturn conventional wisdom and manage to achieve what so many others deem impossible.

Though indispensable, true iconoclasts are few and far between. In Iconoclast, neuroscientist Gregory Berns explains why. He explores the constraints the human brain places on innovative thinking, including fear of failure, the urge to conform, and the tendency to interpret sensory information in familiar ways.

Yes, that is Donald Trump.

It might also describe Elon Musk. Or Steve Jobs.

Let's take a deeper dive at what is behind Trump's thinking.

Is there any logic to renaming the Gulf of Mexico as the Gulf of America?

Source: https://images.mapsofworld.com/answers/2017/12/map-of-gulf-of-mexico.gif

Looking at the map, the United States and Mexico both have about equal amounts of shoreline on the Gulf.

Why is it called the Gulf of Mexico to begin with?

It is also the biggest gulf in the Americas---North or South.

That gulf is also sitting almost exactly in the middle between North and South America.

Trump is not proposing it be named the Gulf of the USA.

Why would it not make sense to be called the Gulf of America if you looked at this logically rather than what some Spanish explorer thought four centuries ago who had a very limited view of the total geography of the Western Hemisphere?

Is Trump off-base?

I don't think so when you view this from a wider perspective.

What about Greenland?

Greenland is officially an autonomous territory of Denmark and its 57,000 residents are considered full citizens of that country.

However, international law allows the citizens of Greenland to declare independence from Denmark at any time and most observers believe Denmark would have a difficult time not acceding to the wishes of Greenland's citizens.

There are a number of advantages that Trump sees in making Greenland a U.S. territory.

This graphic shows the relative size of Greenland compared to the continental United States.

It is almost 25% larger in area than Alaska but has less than 10% of the population.

Of course, 80% of the land mass is covered in ice year round.

Source: https://guidetogreenland.com/travel-information/lasse-kyed/the-true-size-of-greenland-should-it-be-a-continent/

Greenland is in an important strategic location. The United States already has an air force base in Greenland and it is a key component of the nation's missile early warning system.

Greenland is also ideally located should the northwest shipping passage ever become a reality if the climate warms enough to allow for ice free passage through a northern route to the Far East.

Most importantly, it is believed that Greenland is home to abundant natural resources including oil and many rare earth minerals that might be especially critical for the technology applications of the future.

Many of these rare earth minerals are now found primarily in China.

Denmark has not shown the interest nor does it seem to have the financial strength to commercially develop the potential that Greenland's natural resources holds.

The United States taking control of Greenland would make a great deal of sense--for the United States and also for the citizens of Greenland.

Many seem to believe that Trump would have to convince Denmark to sell Greenland.

I don't think that is the way this might unfold.

It seems it would only take the citizens of Greenland to vote for independence from Denmark and then agree to become a territory of the United States.

Important in all of this would be some form of guarantee that the citizens of Greenland continue to receive similar (or greater) subsidies that they currently receive from Denmark for their healthcare and welfare systems.

This would not seem to be a significant problem when you consider that the United States could promise $1 million to each of the 57,000 citizens of Greenland and it would only amount to $57 billion.

For context, the United States has already committed $183 billion to fund Ukraine since Russia invaded it almost three years ago.

I could also see the United State promising Greenland's citizens a share of any revenues derived from mineral resources extracted in the country similar to the money Alaska residents receive each year for oil extracted in the state.

A recent poll from the University of Copenhagen indicates that a substantial majority of those in Greenland already favor independence from Denmark.

It will be interesting to see where this goes.

However, Donald Trump appears to have set something in motion that might turn out to be as historic as the Louisiana Purchase or the acquisition of Alaska.

Does any of this suggest that Trump is crazy? 

Should the United States take back the Panama Canal?

 

The United States funded and built the Panama Canal.

Under the terms of the 1903 treaty with the nation of Panama when canal was built,  the United States was granted the right to use, occupy and control the Panama Canal Zone in perpetuity.

Jimmy Carter decided to give the canal to Panama and in 1978 a treaty was approved by the U.S. Senate with Panama's dictator at the time to completely turn the canal over to Panama by the end of 1999. 

An important part of that treaty was a provision that stipulated  that Panama had to insure that the canal remain neutral and the U.S. retained the permanent right to defend the canal from any threat that might interfere with its continued neutral service to ships of all nations. 

Panama subsequently entered into agreements with Chinese firms to manage the ports on either side of the canal. Recent years have also seen Panama significantly raise transit fees for ships using the canal.

Chinese control over ports on both sides of the canal could facilitate a rapid militarization of the canal if the Chinese chose to do so.  In addition, Panama's willingness to relinquish economic control of strategic assets and critical infrastructure adjoining the canal raises question about Panama's commitment and resolve to the neutrality principle in the treaty.

That treaty also gives the United States the right to intervene if the neutrality principle is not being adhered to.

Consider what a professor of International Relations at the University of Panama recently said in an interview.

“China has turned Panama into a geographic and commercial concentration center or strategic hub for its political, commercial, and military advance in the region,” according to Euclides Tapia, professor at the School of International Relations of the University of Panama.

Tapia continued with this observation.

“China’s primary objective is to control the canal, they are not here for the beauty or wealth of this country, they are here because Panama has become the hub of the region, and they want to control it.”

Is Trump crazy to be concerned about the Chinese influence in and around the Panama Canal?

What about annexing Canada?

The United States and Canada share a 5,525 mile border across 13 U.S. states 8 Canadian provinces.

In fact, it is the longest shared border between two countries in the world.

Beyond that, there are deep cultural and economic connections between the two countries.

$700 billion of trade was conducted between the two countries last year with Canada enjoying a $50 billion trade surplus from the activity.

That surplus has grown substantially from when Trump was last in office. During his previous four years in office, Canada averaged only about $19 billion per year.

To put the US-Canada trade numbers in perspective, the United States did $532 billion of trade with China with a $270 million trade balance deficit.

These numbers prove there is a lot of trade between the U.S. and Canada and it is a much more balanced relationship than what exists with China or Mexico.

It needs to be kept in mind that although Canada encompasses a larger geographic area than the United States, its population is only 40 million compared to 335 million in the U.S.

Further, 90% of the Canadian population lives within 100 miles of the U.S. border.

Looked at from the perspective of a businessman like Trump. if the U.S. .and Canada were corporations, they would be ideal candidates for a consolidation or merger.

Canada is resource rich but does not have the population, manufacturing and technology infrastructure to take full advantage. Nor do they have the financial resources to maximize its assets.

All of this also means that Canada simply cannot defend itself but for the fact that the United States is next door. Part of its national strategy for years has been to under spend on defense knowing that the United States will insure that Canada is protected.

Canada is only spending a meager 1.4% of its GDP on defense which is woefully short of the 2% commitment it is supposed to make as a member of NATO.

It should also be noted that the Canadian dollar has recently hit a 10-year low in value relative to the U.S. dollar.

It takes $1.44 $CAN to equal $US at recent exchange rates.

11 years ago the Canadian dollar was trading at parity with the U.S. dollar.

Source: https://www.investing.com/currencies/cad-usd-chart

Stated another way, a little over a decade ago a Canadian dollar would buy a full U.S. dollar.

It now would only bring 69 cents.

The Justin Trudeau administration in Canada has been disastrous to the financial well-being of average Canadians.

In this era where economies of scale are more important than ever, and the cost of government services (especially defense) is growing more expensive every year, there is an argument that combining the United States and Canada would make sound economic sense.

A formal merger or annexation is probably not achievable but an economic union with open trade, a common currency and the ability for Americans and Canadians to travel and work freely by and between the two countries might not be out of the question.

However, this would necessarily require a common policy on immigration that limits and controls this problem.

No economic union or other consolidation would work unless there is full agreement on this issue.

The media and others may want you to believe that Trump is a madman highlighting the possibilities described above.

However, I think I have shown from the facts above there is sound logic and arguments for everything Trump has talked about.

It is confusing to many because Trump is literally thinking two or three steps beyond where most everybody else is who are captured by conventional thinking and the status quo.

This is the advantage of having an iconoclast testing accepting beliefs and traditions and asking why can't we do more?

Put me down as being very happy to have this iconoclast working on behalf of the United States of America.

Natural and Man-Made Disasters

The big news this week was the Pacific Palisades fire in California that has devastated over 17,000 acres in Los Angeles County and destroyed over 1,000 homes.

For perspective, that is a wider acreage that Manhattan Island in New York (14,604 acres).

It has been called the most destructive fire in the history of L.A.

Source: https://ktla.com/news/california/wildfires/palisades-fire-thursday-live-updates/

Source: https://ktla.com/news/california/wildfires/palisades-fire-thursday-live-updates/

It will also most likely be the costliest. 

I saw once estimate that places the damages at over $50 billion.

Anyone who has ever traveled the Pacific Coast Highway through Malibu has seen the expensive homes that line the oceanfront in that area.

That stretch is home for many Hollywood stars and celebrities.

Source: https://www.latimes.com/california/live/pacific-palisades-fire-updates-los-angeles

A BEFORE image of part of that oceanfront stretch of highway in Malibu.

Source: https://x.com/rawsalerts/status/1877239402474385692

AFTER the fire.

Source: https://x.com/rawsalerts/status/1877239402474385692

Of course, when a horrific event like this occurs it does not take long for the finger pointing to begin as to where to cast the blame.

On cue, Bernie Sanders quickly blames it on climate change and Donald Trump.

California Governor Gavin Newsom and L.A. Mayor Karen Bass were also quick to blame climate change and Trump.

Southern California did experience less precipitation than average in 2024. However, Southern California has always had a dry climate. However, there is some evidence that the last century has actually seen this area being much wetter than it has been historically.

It should also be noted that while Southern California was drier than average in 2024, Northern California was much wetter than normal.

This is actually positive for the state as a whole because most of the water supplies for the state come from the Sierra Nevada region that is then routed south.

Source: https://calmatters.org/environment/water/2025/01/california-rain-drought-north-south/

A wildfire ravaging the Pacific Palisades area is also not new. It has happened before.

Of course, there has been a lot more expensive development that has taken place in that area since those earlier fires.

This has been seen before in 1938 and 1961.

Let's start with the obvious in assessing blame.

It is laughable to blame climate change or Donald Trump for these fires.

Where was the climate change and Donald Trump in 1938 and 1961?

We may never know what caused the fire to start.

Was it a negligent camper? A downed electrical wire? An arsonist? Lighting?

These are the usual culprits.

However, once the fire started it became a natural disaster that was stoked by ferociously high Santa Ana winds that made it challenging to control the conflagration.

That being said, there were many contributing factors that made this fire much, much worse than it had to be due to policy decisions made by government authorities in Los Angeles and the state of California that should be held to account.

Let's list a few.

1. The failure of California to clear underbrush from wildfire-prone areas which acts as tinder and an accelerant for these fires. Environmentalists oppose a lot of the clearing efforts and California has generally not wanted to spend the money necessary to support that effort. Its policy as seem to be let FEMA and the federal government pick up the tab after the damage is done.

2. The failure of California to build more reservoirs and water storage projects despite voters approving billions of dollars of spending for this over a decade ago. A major problem in fighting the Palisades fire was lack of water and water pressure to fight the blaze.

3. It should be noted that while California's leaders decided they did not have the money for clearing underbrush or building water facilities it has enough money to spend billions of dollars on a high speed rail line that is estimated to cost over $100 billion (when originally approved the price tag was $33 billion and will be many years before it is completed, if ever) and billions each year on illegal immigrants including providing free healthcare. 

4. The decision by Los Angeles Mayor Bass to cut $17.6 million from the fire department budget inthe past year to spend on other priorities including housing illegal immigrants.

5. You also have to wonder whether the policies of the LA Fire Department that prioritized DEI over merit had any hand in all of this.

This is the current leadership team of the LA Fire Department.

They are all female. They also check other DEI boxes.

What are the odds that these three women would all rise to the top of the fire department?

Does this suggest a meritocracy?

Credit: https://x.com/truckdriverpleb/status/1877107652469149990

6. It may not have done anything to mitigate the fire's effects but you also have to ask the question as why LA Mayor Karen Bass was in Ghana attending the inauguration of the new President when the fire started?

What earthly reason would the Mayor of Los Angeles believe it was important to her constituents and the duties of her office to fly halfway around the world to Ghana for an inauguration?

Does anyone sense that the priorities in Los Angeles are the slightest bit misguided?

7. It should also be noted that the risk of this event was well understood by private insurance companies like State Farm. State Farm cancelled 72,000 policies in the state within the last year after California refused to allow it to increase home insurance premiums for the heightened risk of loss the company saw in some of the areas affected by this and other fires.

Rather than bear a risk that it was not going to be fairly compensated for, State Farm chose to quit writing coverage in those high risk areas.

Note below that the Pacific Palisades area had the most cancellations.

Credit: https://x.com/303BlondieLeigh/status/1877152072283328792

Homeowners who lost their private home insurance coverage may very likely had to then resort to coverage through the state insurance fund.

Their problems may just be beginning.

The California FAIR Plan (the state insurer of last resort) will soon be insolvent from the claims from this one wildfire.

It only has $200 million in reserves and $2.5 billion of reinsurance.

The claims that will soon be filed from the damages are likely to dwarf these numbers very quickly.

8. Californians have a known propensity to like socialist-style policies.

They will soon find out what that means as every homeowner in the state will likely be assessed a tax to bail out the insolvent state insurance fund.

One expert projects that cost to be as much as $3,000 per homeowner.

Liberals like to state that climate change is man-made.

Of course, that ignores centuries upon centuries that saw temperatures rise and fall, droughts come and go and even ice ages appearing and then disappearing. All of this without the slightest influence of fossil fuels or mankind.

What cannot me ignored are the decisions made by men and women such as documented above that are responsible for making a natural disaster much, much worse than it otherwise would be.

We saw it with Covid.

It is evident as well with the wildfires in California.

The bottom line is that leadership matters.

The decisions and judgments of those leaders matter.

It is reason that we should all fear man-made disasters much more than natural ones.

The big question is when will the people of California start to understand the implications of their votes and the choices of their elected leaders? 

Is a reawakening on the horizon beyond the smoke, fire and devastation?

We can only hope so.

Remains of a destroyed home in the Pacific Palisades fire in Los Angeles, on Tuesday, Jan. 7, 2025. (Philip Cheung/The New York Times)

A Sugar Low

When someone mentions Cuba my guess is that most people think of three things.

Communism, old cars and sugar.

Credit: https://medium.com/@habanaps/driving-around-havana-in-a-classic-car-beyond-the-tour-416b108b01a9

Sugar has long been Cuba's most important crop.

For centuries, sugar was the centerpiece of the Cuban economy.

Exports of the popular product provided the hard currency that fueled much of the economy and provided work to hundreds of thousands of Cubans.

For many years Cuba exported more sugar than any other country in the world.

That is why I was shocked when I saw that Cuba now needs to import sugar.

It is not even producing enough to satisfy its own domestic needs.

Source: https://www.newser.com/story/350539/cuba-once-the-land-of-sugar-now-must-import-it.html

It is akin to Saudi Arabia not being able to export oil, Mexico failing to export avocados or France and Italy wine.

At one time Cuba was producing 8.5 millions metric tons of sugar per year.

Cuba has recently been producing less than 400,000 metric tons annually.

Cuba has historically consumed about 700,000 tons of sugar per year.

This has meant that sugar in Cuba today is strictly rationed and has actually become a black market item in a country that was once the world's leading exporter.

How did this happen?

In a word---COMMUNISM.

When Cuba turned to communism it turned off its largest export market---the United States.

The United States imposed sanctions which not only cut off the export revenue but it also did not allow the Cubans to obtain the technology and other necessary resources to keep its sugar facilities up to date.

At first, Cuba was able to replace the lost export revenues with sales to the Soviet Union in a communist trade pact that provided sugar to the Soviets and fuel and fertilizer to the Cubans.

However, the fall of the Soviet Union ended that trade deal along with the inflated prices the Cubans were getting from the Soviets for the sugar.

In the meantime, the government-owned mills were producing less and less.

While the Soviet trade deal was in place there was little incentive for farmers and mills to improve productivity, modernize equipment and seek cost efficiencies.

Once the communists lost control in the Soviet Union, and the trade deal was cancelled, the Cubans were exposed and vulnerable in attempting to compete in selling its sugar on the world sugar market.

Cuba simply could not compete with private sector enterprises that had emerged in other parts of the world over the preceding 25 years.

Brazil and India are among the countries that benefited and are now the two largest producers of sugar in the world.

Cuba is nowhere to be found among the leading sugar producers in the world.

Ten Largest Sugar Producing Countries in the World
Source: https://www.researchgate.net/figure/Worldwide-sugar-production-by-the-ten-leading-countries-55_fig3_354322444

Of course, what happened to the Cuban sugar industry when communism overtook Cuba is not surprising.

The story has been the same over and over again throughout history.

Once communism and socialism advances and property rights and the private profit motive is removed in an economy, productivity and prosperity in the society suffers.

Consider what has happened in Venezuela since the Marxists took over in that country.

Venezuela sits atop the world in proven oil reserves.

However, Venezuela produces only 10% of what Saudi Arabia does in annual oil production.

Oil production is down 75% since Hugo Chavez and the leftists assumed power in Venezuela and put the oil industry under government ownership and control.

Credit: https://www.axios.com/2023/06/14/us-crude-oil-prices-venezuela-production

How about China?

China had a planned socialist economy from its founding in 1949 to 1978.  In that year they first introduced the ability for farmers to grow what they wanted and sell much of it at market prices.  They opened up most of the rest of the economy to what they refer to as a "socialist market economic system" in 1984.  Since that time China's GDP per capita has increased some 44-fold in dollar terms.

Capitalism makes the pie bigger for everyone.

There was never a better test case for comparing capitalism vs. communism on this score than comparing East and West Germany and North and South Korea.

Before the Korean War most of the wealth was concentrated in the North.  The South was more agrarian.  Things have changed quite a bit in 70 years.

This chart compares the GDP of the two countries in Korean won.

It is hard to even see the small columns that represent North Korea.

Source: https://www.statista.com/statistics/1035390/south-korea-gdp-comparison-with-north-korea/

North Korea has GDP per capita of less than $1,500 per capita.  South Korea's is $36,000.  Same people.  Same cultural background. Very different results.

Similar comparisons could have been made between East and West Germany before they reunified in 1991.

Argentina never adopted full communism but it was governed by a string of leaders who had a socialist ideology that made up their political framework. This ideology included a large government bureaucracy that controlled many aspects of the economy, price and rent controls.

Argentina has suffered hyperinflation, a stagnant economy and bulging government budget for years.

The election of Libertarian Xavier Milei in late 2023 showed that the Argentine people were interested in radical change.

Xavier Milei campaigned on a plan to drastically cut the government bureaucracy and free the economy from government controls.

Milei often brought out a chainsaw as a prop at campaign events to show that he was serious about cutting government bureaucracy in Argentina.

Compared to that fervor, the efforts of Elon Musk and Vivek Ramaswamy to make recommendations to improve government efficiency look rather tame.

It could also be said that said that turning around the United States is also a piece of cake for Donald Trump compared to the situation that Milei inherited in Argentina.

When Milei was elected inflation was running at a 25.5% per month!

The federal budget deficit was 15% of GDP.

The economy was in recession with GDP contracting by over 25% in the previous five years.

It remains to be seen whether Milei can transform Argentina's economy which still has over 50% of its population living in poverty.

However, the early results in the first year are encouraging.

The inflation rate has been reduced to under 3% per month from the 25% it was when Milei took office.

The federal budget has been brought into balance.

Argentina's stock market was up more than any other country in the world in 2024.

Last quarter saw Argentina's GDP increase at an 8.5% annual rate.

Bloomberg is expecting that Argentina will see the largest increase in GDP growth in the world over the next 12 months.

Credit: https://x.com/unusual_whales/status/1874523736352919854

It shows once again that productivity and prosperity in any society are going to be best served with the protection of private property rights, limited government bureaucracy and controls and a system that rewards individual initiative and entrepreneurism.

These are all in contravention of the basic tenets of communist and socialist economic systems.

We are told over and over again that these systems have only failed in the past because those who were in charge did it the wrong way.

I wonder if the average Cuban, who cannot even buy sugar to put in his coffee, thinks about that these days?

The Mess That Has Been Left

This is the time of year that it is popular to make predictions about the coming year.

I do not like to make predictions for the simple reason that it is too easy to be wrong.

And I do not like to be wrong. I certainly do not want to mislead my loyal readers with a poor take.

However, there is one prediction about the coming year that I am confident in making.

We are sure to see fireworks in Washington, D.C, early this year over the federal debt ceiling limit.

You may recall that in May, 2023 a debt ceiling agreement was reached between Biden and then House Speaker Kevin McCarthy (that was then approved by both houses of Congress) to do away with the debt ceiling limit until January 1, 2025. In other words, the Treasury Department had free reign to borrow as much as it desired until that date without any limit.

However, whatever the outstanding debt turned out to be on January 1, 2025 would be the new debt limit ceiling amount going forward after that date.

We are two days past this date so the debt ceiling limit has now been established going forward until the debt ceiling limit is modified.

The debt ceiling limit is established at the $36.2 trillion it was on December 31, 2024.

Source: https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny

When the debt ceiling deal was brokered 19 months ago total federal debt was $31.4 trillion.

Almost $5 trillion in federal debt has been added in just over a year and a half.

This is the trajectory of the federal debt since Biden took office.

That pause in early 2023 is when the last debt ceiling deal was being negotiated and the Treasury was using "extraordinary measures" to keep the paying the bills without adding new debt.

I wrote at the time that this open-ended debt ceiling limit was put in place in May, 2023 between Joe Biden and GOP House Speaker Kevin McCarthy that it was one of the crazier compromise deals I had ever seen.

It was almost impossible to understand why McCarthy agreed to it.

It was guaranteed to create havoc in the future and we will soon see its consequences.

Donald Trump clearly understands the consequences.

He is inheriting a gigantic mess that Biden and McCarthy have left for him,

That is why Trump  was so vocal about the debt ceiling debacle earlier this week and pointed the blame squarely on former Speaker McCarthy.

It now falls on Trump and the Republicans in the next Congress to fix the mess.

You can be sure the Democrats are not going to be as accommodating as McCarthy was.

They will exact a pound of flesh and who knows how many other concessions on their favorite issues to agree to a debt limit deal.

This is what I wrote in my blog post 19 months ago. ("Debt Deal Disappointment") about all of this.

I foresaw the impending mess.

Now that I see what Speaker McCarthy and his GOP team "got" in these negotiations I can't help but wonder...

"What were they thinking?"

It appears that they were only thinking of their survival in power.

I don't say that lightly as I understand the need to compromise and I stressed in my earlier blog post that the Republicans should remember that "discretion is the better part of valor" considering the slim majority they have in the House of Representatives.

However, when I look at the specifics of what they got in this "deal", it is not easy justifying a vote for this package.

Let's look at some of those specifics that the House is scheduled to vote on today.

The House-passed bill to raise the debt limit provided for a $1.5 trillion increase in the debt ceiling limit.

At current rates of spending, this would have probably meant that the debt ceiling would have had to be reconsidered again next Spring. This would have given the GOP additional leverage next year for other parts of their agenda.

However, the McCarthy-Biden proposal has no dollar-denominated debt ceiling limit.

Instead, it allows the federal government to borrow as much as it needs or wants until January 1, 2025.

This will mean that the debt ceiling could go up another $2 trillion, $3 trillion, $4 trillion or higher without  requiring additional Congressional approval.

If we were to face a recession in the next 18 months there is no telling what the debt limit might end up being.

Notice as well that the debt ceiling limit will expire after the 2024 elections but before a new Congress will be sworn in during the first few days of January, 2025.

This means the next debt limit ceiling discussions will occur during a lame duck session of Congress and what could also involve a lame duck President.

You also have to wonder what would stop the Biden administration Secretary of Treasury from issuing as many debt obligations as they could right before the January 1, 2025 deadline?

None of this is conducive to being in the best interests of the American people.

On the other hand, it is all rather convenient for the politicians involved don't you think?

A couple things stand out in looking back at what I wrote in May, 2023.

I speculated that we might see the debt ceiling going up $2 trillion, $3 trillion, $4 trillion or higher by January, 2025.

I was low. We are almost $5 trillion higher.

And that is with no official recession having occurred.

I also wondered what would stop the Biden administration from issuing as many debt obligations as they could right before the January 1, 2025 deadline.

You can be sure that this would have been the case had Kamala Harris been elected.

However, Janet Yellen and the Treasury Department appear to have done the exact opposite now that Donald Trump and the GOP won in November.

The Treasury was actually reducing the debt level right before the January 1, 2025 deadline in order to exacerbate the situation and cause the federal government to reach its borrowing limit sooner.

They were taking cash reserves and using it to pay down the debt in the days before the January 1 debt ceiling date.

Between December 16 and December 26 federal debt held by the public was actually reduced by over $100 billion through actions of the Treasury Department.

That is why Trump made the reference to "1929" above.

The Democrats seem to be more interested in making Trump look bad than doing what is right and responsible for the country.

The federal government will not shut down immediately because of an inability to borrow after January 1.

The Treasury currently has around $600 billion in cash reserves on hand to meet obligations.

However, when Biden took office in 2021 he had $1.6 trillion in cash reserves sitting there.

The final record of the four years of Biden will show an additional $8.5 trillion in debt that was taken on in addition to burning through another $1 trillion in cash reserves.

Almost $10 trillion was spent beyond what the federal government took in from revenues in the last four years.

Nothing like leaving the cupboard bare when you check out!

We are unlikely to see the Treasury run out of money for at least a month or two at the earliest.

There is time for Congress to get their act together.

The federal government receives a higher than average amount of cash inflows during January as estimated tax payments are due that month.

If they can make it to April there will be large inflows from payments due with 2024 tax return filings.

During the 2023 debt ceiling negotiations the Treasury actually relied on accounting measures and extraordinary measures for 135 days without causing a delay or default on any federal obligations.

However, the important point here is that Trump will not be able to accomplish any of his objectives (extension of tax cuts, etc) until the debt limit issue is resolved.

At the same time, the clock is ticking and history shows that the first 100 days of any new Presidential administration is critical to its success. That is when enthusiasm for its agenda is highest and the public is most supportive of seeing those things they voted for to be enacted.

Losing that early momentum seriously jeopardizes the President's agenda.

That is where Trump finds himself.

That is also why he is fuming about the mess that has been left for him to dig out of.

Keep all of this in mind as you watch events unfold  in Washington, D.C. after Trump takes office.

And also know that there will be nothing more important to the Trump agenda in the first 100 days than how the resolution of the debt ceiling limit turns out.