CLINTON: As a matter of strategy, the President is pretending as if his scandal problems were behind him now that the Paula Jones charges have been dismissed. His decision to capitalize on the Jonesboro killings by signing an executive order banning a new series of assault weapons is typical of the new, muscular chief executive, acting as if the right-wing conspiracy against him has been put down and he is now able to reward his left-wing base of support. It has been a long time since we’ve seen Clinton barking, but that’s how he came across in demanding action on his health and education proposals. The chief White House spinmeister, Rahm Emmanuel, now is suggesting that the Republicans will be punished in November if they do anything even remotely critical of the President’s personal life. The barrage against Special Prosecutor Ken Starr continues apace. My suspicion is that there will be congressional hearings this summer that will have little effect on the November elections, no matter how embarrassing they are to the President. The risk to the President is with the bones he has to throw to his party’s base -- as with the assault-weapons order -- in order to keep it in line. If the Republicans can get their act together on policy issues, with a fresh focus on tax cutting to expand the economy without inflation, they could replicate their victory in the last mid-term elections of 1994 and increase their margins in House and Senate. Republicans lose if they allow themselves to be frightened by the President’s barking and show no signs of life moving toward 1999.
ARMEY vs the IMF: The House Majority Leader is showing signs of life after spending the last year in suspended animation, since denying the role he played in the attempted GOP coup against House Speaker Newt Gingrich. His “dear colleague” letter last Friday, urging opposition to the International Monetary Fund’s request for an $18 billion replenishment, was the most exciting event of this year’s soporific Congress. There is actually close to zero chance that Armey will succeed in denying the funds to the Evil Empire. Only half the Republicans and a handful of the Democrats would vote with him today. The Wall Street and corporate political establishment has dutifully lined up behind this IMF excretion. The Clinton Treasury has persuaded the lobbies of the farmers and the cowmen that they had better support the IMF or they won’t sell any soybeans and cattle. This of course is nonsense. The farmers and cowmen routinely have their markets abroad destroyed by IMF policies, but their bureaucrats don’t know any better and are easily bulldozed by the banking establishment. In the New World Order, Michel Camdessus will report directly to Citigroup instead of the Treasury Secretary. Armey is at least making some noise and may be able to stretch the vote into May. Jack Kemp’s April 3 letter in the WSJournal Monday was as rough as he’s ever been on the IMF. Except for Armey, though, the top GOP congressional leadership is in the pocket of the corporate elites. The WSJournal Monday asked “What’s an IMF For?” which we read thinking it might draw blood. It didn’t.
JAPAN: It’s remarkable how much discussion there is in Washington about the state of the Japanese economy. Even President Clinton has been drawn into badgering Tokyo about “stimulating” its economy. So far, all the helpful hints have been Keynesian, urging tax cuts to put bundles of yen into people’s pockets so they will spend themselves back to prosperity, and bond finance of more public works projects -- paving over that part of the country still under grass. The Tokyo stock market has perked up a tad with rumors there may be a cut in the income tax, which gets pretty lofty when national, state, and local rates are bundled. We’ve been advising Treasury and members of Congress who ask that the Japanese government need only eliminate the capital gains tax on real estate -- which won’t cost the Finance Ministry more than a few yen on a static analysis -- and the Nikkei would add 500 points in a jiffy. That’s too easy, though.
SOCIAL SECURITY: The President opens the “Great Social Security Debate” in Kansas City today. Don’t expect much of a debate. Here, the WSJournal is absolutely correct in pointing out that the event is sponsored by two status quo groups: the Concord Coalition, which wants to cut benefits and raise taxes, and the AARP, which wants to raise taxes. “The experts invited -- Gary Burtless of Brookings and Marilyn Moon of the Urban Institute -- are of the same cloth.” Indeed, a WSJ news story on the back page quotes Burtless: “This notion that there’s some pixie out there, and this won’t cost anything, ought to be the first casualty of any public education effort. We’re going to have to have some reduction in benefits and some ramping up of contributions whether we privatize or don’t privatize.” Not so fast, Mr. Expert. The Journal recently noted in an editorial that if the economy had been growing at the same rate for the last 30 years that it grew in the previous 30, it would be 37% bigger. That’s an extra $2.5 trillion a year, which buys a lot of retirement and health care, with money to spare. As far as we can tell, there is nobody in any branch of the government, in either party, trying to figure out how economic growth can solve the problem. [We, though, are working on some numbers and will have a report for you shortly.] Of course, if Fed Chairman Alan Greenspan is going to stop the economy from growing faster than 2.5% and the elected Democrats and Republicans are going to hide behind their pork barrels and agree on that number, then of course we will have to “ramp up” the contributions.
DOW AT 9000: It has gotten to this level more quickly than we anticipated at the start of the year. The one reason we’d not factored in was the Roth IRA, which essentially provides for a zero capital gains tax on the appreciation of the amount invested. We can’t say how much it’s worth, although it would come at the beginning of the year. We’d counted on some kind of tax cut with supply-side effects as part of this year’s budget, and that has become an iffy prospect. A lowering of the holding period on capital gains, to 12 months from 18, was supposed to be in the bag. We’ll have to wait until after the Easter recess to get a better handle on these elements. They will surely get bound up in the President’s legal/political stratagems, one way or the other.
Y2K: In our report last week on the year 2000 computer problem, we noted the Office of Management and Budget had raised the estimate of what it will take just for the federal government to fix its computers. The new number was $4.7 billion. Now we hear that Treasury has informed OMB that its cost alone will be $1.7 billion, which does not even include IRS. Chairman Robert Bennett [R-UT] of the Senate Select Committee on Y2K, set up by Senate Majority Leader Trent Lott to ride herd on the problem, says he would not be surprised if the number hits $10 billion. “There goes the surplus,” he quips. In the March 29 Times of London, a senior executive at Barclays “warns people to sell their homes, stockpile their cash and buy gold in case of a global economic collapse caused by the millennium computer bug...The average man or woman does not appreciate what is going to happen. I'm going to plan for the absolute worst -- I am talking about the need to start buying candles, tinned food and bottled water from mid-1999 onwards. People think that I am mad, but a company director I met last week is intending to set up a commune and buy a shotgun because the potential for looting is also quite high." The price of gold is up $10 an ounce since the story appeared. Hmmmm.