September Songs
Jude Wanniski
September 28, 1993

SONG OF RUSSIA: The call for simultaneous presidential and parliamentary elections has been gaining overwhelming support throughout Russia. As this would be a victory for the parliament, the swelling support is pushing Boris Yeltsin toward a dangerous course of confrontation sooner than he'd imagined. Among supporters of the compromise: the country's third branch of government the Supreme Court, the influential Patriarch of the Russian Orthodox Church, most provincial authorities, and the industrialists' association ~ the Civic Union. According to today's Financial Times, "nearly all associations of enterprises, unions, political groups and academic bodies have spoken for simultaneous elections." Mikhail Gorbachev's warning to western leaders (Yeltsin's main supporters) "to keep out of Russia's internal affairs," as reported in today's Wall Street Journal should be viewed in this context. Yeltsin's backers at The New York Times this morning opposed the idea of simultaneous elections with incomprehensible logic, probably dictated by Harvard's Jeffrey Sachs or Treasury's Larry Summers. The Times, though, clearly seems unnerved about the possibility Yeltsin will choose action over temporizing. If Yeltsin gives his private security forces the word to clean out the parliamentarians tomorrow morning at 4 a.m. [EOT], as threatened, I believe he will quickly lose all internal support and force an embarrassed President Clinton to retreat as well. If he delays, the swelling voices of compromise will signal his defeat. Having exercised dictatorial powers in isolating the parliamentarians and taking control of the mass media, Yeltsin now looks like a cornered, desperate man, which means he could do just about anything. To deal with an obstreperous parliament in a similar situation in 1933, Adolf Hitler burned down the Reichstag. Since there is no reasonable explanation why Yeltsin will not go for simultaneous elections, we are forced to speculate that he has to keep the central bank out of parliament's grasp to satisfy his U.S. backers in order to get his hands on the $2.5 billion in cash the U.S. Congress has just voted in aid. Into what black hole the cash would disappear is beyond our speculative powers.

WE SING OF STOCKS & BONDS: Do we have to remind you again that you should not be spooked by the bears? The New York Times , which has been out in front in predicting an end to the bond market rally, ran a terrifying chart this past Sunday that covered half the front page of its Business Section. It practically screamed "SELL," as it traced a steep slope of the S&P 500 over the last quarter century to a point which previously has signaled a sell-off. P/E ratios and dividend payouts are the usual suspects. It does not correct for inflation, which is why the slope is so steep, and it does not factor in the record price for the 30-year bond. Greenspan & Co. at the Federal Reserve have been systematically taking the monetary risk out of capital. This is squeezing out the potential for inflationary capital gains in both stocks and bonds. The S&P 500, at 461 or so, is now pointing to snappier economic growth than it was August 12, at 450. It still has a few hundred points to go to anticipate the kind of dynamic economic growth that would solve most of the nation's fiscal problems. Some of that can come from monetary policies that squeeze practically all the monetary risk out of capital -- which would mean a legal fixing of the dollar/gold price at $350 -- the price at which the market would like to fix. Most of the S&P gains, though, would come from cleaning up the tax system. At the moment, there's nothing in the wind on that score, but we don't see anything that might jeopardize the Fed's freedom of action in nibbling away at the monetary risk to capital.

A NEW TUNE ON HOUSING: The experts are perplexed as to why sales of existing homes seem sluggish, given the extremely attractive mortgage interest rates these days. My guess is that prospective buyers are finding rental prices have still not equilibrated with sale prices. One reason people bought and retained homes in the high interest rate era, which is now being put behind us, is the tax advantage of an interest-rate deduction. As the value of the deduction falls, buyers will rent, shifting savings that would have been down payments into equities, where the monetary risk has fallen. Rents will eventually move up, pushing up the demand for housing stock as an asset.

MEDICAL MELODIES: There is no longer quite the sense of inevitability surrounding the idea of compulsory national health insurance as we found last week. The turning point came Sunday morning on NEC's Brinkley show, with David Brinkley himself obviously horrified throughout at the bureaucratic monster being proposed by Biliary. For almost half the show, Dr. Bernadine Healy debated Sen. Jay Rockefeller [D-WV], who, like his various uncles and brothers, gets dewy-eyed with compassion whenever he thinks of taxing away middle-class income (never his family's wealth) to finance do-good bureaucratic monsters. It is no exaggeration to say Dr. Healy mopped the floor with Rocky, who practically insisted that both Dr. Healy and David Brinkley refrain from discussing the federal government in disparaging tones. Next up was Senate Minority Leader Bob Dole, who a week ago appeared to be capitulating to the conventional wisdom even before he knew what it was. As he did a few days earlier on "Larry King Live," Dole clearly put daylight between himself and inevitability, announcing that as 99% of Kansas employers employ fewer than 250 people, he is not likely to sign on to any scheme that does damage to small business, and that the Clinton plan is a "big business" scheme. What's happened, I think, is that Dole and other Republicans have been spooked by scoundrels, public-opinion pollsters who ask questions that elicit predictable answers. A huge majority of Americans want health care available for everyone, and most say they are willing to pay up for government reform. The key word that turns them off is "compulsory." The American people want their government to take responsibility for dealing with the health care problem, but as soon as they hear the government is going to compel everyone to do this or that, support evaporates. William Safire's Monday morning column hit Washington like a bucket of cold water. He'd watched the Brinkley show and put inevitability in perspective, suggesting a two-hour national TV debate between Dr. Healy and Hillary Clinton before Congress votes on anything. His closing line lit the fuse of the issue that in the end will thwart the Clinton Plan: "Let's not also pay in our personal freedom by lurching toward a command economy."