Peter L. Berger's Blog, page 208

Housing Is America’s Preferred Wealth-Creating Machine

Since the Spring of 2013, when the overhang of the housing crisis had mostly worn off, Americans have consistently seen real estate as the most productive vehicle for their savings over the long run, according to a new Gallup poll:

Since the 1940s, a central pillar of American social policy has been to make it easier for the average American family to buy a home with a small downpayment and an affordable monthly payment based on a 30-year fixed-rate mortgage. This system has been responsible for the creation of trillions of dollars in assets for middle class and lower middle class Americans, and in most American families housing represents their single greatest financial asset.

One of the causes of the continuing disparity between black and white family net worth is the lingering effect of the redlining and other discriminatory practices that largely excluded African American families from the benefits of federal housing policy for much of the postwar period.

With the large millennial generation now reaching the age of household formation, it’s vital that we make sure that the great wealth-creating machine is ready for them. There are still major obstacles: NIMBY land use policies block too many people out of the housing market. And the country lacks the necessary infrastructure to construct a Third Ring of Suburbs—that is, another wave of housing construction further out from city centers.

This shouldn’t be treated as an afterthought. It is mission critical: The millennial generation needs a seat at the table and a piece of the pie.

Housing is America’s Preferred Wealth-Creating Machine

Since the Spring of 2013, when the overhang of the housing crisis had mostly worn off, Americans have consistently seen real estate as the most productive vehicle for their savings over the long run, according to a new Gallup poll:

Since the 1940s, a central pillar of American social policy has been to make it easier for the average American family to buy a home with a small downpayment and an affordable monthly payment based on a 30-year fixed-rate mortgage. This system has been responsible for the creation of trillions of dollars in assets for middle class and lower middle class Americans, and in most American families housing represents their single greatest financial asset.

One of the causes of the continuing disparity between black and white family net worth is the lingering effect of the redlining and other discriminatory practices that largely excluded African American families from the benefits of federal housing policy for much of the postwar period.

With the large millennial generation now reaching the age of household formation, it’s vital that we make sure that the great wealth-creating machine is ready for them. There are still major obstacles: NIMBY land use policies block too many people out of the housing market. And the country lacks the necessary infrastructure to construct a Third Ring of Suburbs—that is, another wave of housing construction further out from city centers.

This shouldn’t be treated as an afterthought. It is mission critical: The millennial generation needs a seat at the table and a piece of the pie.

Turkey Close to Buying Air Defenses— from Russia

Turkey’s Defense Minister has announced that Turkey is close to buying the advanced S-400 air missile defense system from Russia. As Reuters reports:

Turkey’s talks with Russia about the purchase of the S-400 air missile defense system have reached a “final stage”, although this does not mean a deal will be signed immediately, Defense Minister Fikri Isik said on Friday.

Isik also told a news conference that NATO countries have not presented a “financially effective” offer on an alternative defense system. NATO member Turkey in 2015 canceled a $3.4 billion tender for a long-range missile defense system that had been provisionally awarded to China.

Turkey then said it would consider developing a missile system locally, but that stance later shifted. [….]

He said Turkey would not be able to integrate the S-400 into the NATO system.

Turkey’s drive to acquire an advanced air missile defense system has dragged on for years, but the announcement that they’re close to finalizing what would likely be a multi-billion dollar deal comes at a critical time in Turkey’s relationship with NATO and the West. A large-scale arms deal with the very country that has been most aggressively confronting the Western-led international status quo in recent years would be yet another symbol of a Turkey that is less and less oriented towards NATO and the EU—and the values those bodies represent—and towards what seems likely to be a more Ottomanist and Islamist government under the leadership of a newly empowered Erdogan.

Much remains to be seen about how Erdogan intends to wield his new powers on the world stage, but a move that distances Turkey from NATO while bringing it militarily closer to Russia may be a sign of things to come.

Turkey Close to Buying Air Missile Defenses— From Russia

Turkey’s Defense Minister has announced that Turkey is close to buying the advanced S-400 air missile defense system from Russia. As Reuters reports:

Turkey’s talks with Russia about the purchase of the S-400 air missile defense system have reached a “final stage”, although this does not mean a deal will be signed immediately, Defense Minister Fikri Isik said on Friday.

Isik also told a news conference that NATO countries have not presented a “financially effective” offer on an alternative defense system. NATO member Turkey in 2015 canceled a $3.4 billion tender for a long-range missile defense system that had been provisionally awarded to China.

Turkey then said it would consider developing a missile system locally, but that stance later shifted. [….]

He said Turkey would not be able to integrate the S-400 into the NATO system.

Turkey’s drive to acquire an advanced air missile defense system has dragged on for years, but the announcement that they’re close to finalizing what would likely be a multi-billion dollar deal comes at a critical time in Turkey’s relationship with NATO and the West. A large-scale arms deal with the very country that has been most aggressively confronting the Western-led international status quo in recent years would be yet another symbol of a Turkey that is less and less oriented towards NATO and the EU—and the values those bodies represent—and towards what seems likely to be a more Ottomanist and Islamist government under the leadership of a newly empowered Erdogan.

Much remains to be seen about how Erdogan intends to wield his new powers on the world stage, but a move that distances Turkey from NATO while bringing it militarily closer to Russia may be a sign of things to come.

Greens Make Natural Gas Their Next Target

Now that coal has been toppled from its perch as America’s biggest source of power, environmentalists are ready to move on down the fossil fuel list and tackle what they perceive as another enemy of the planet: natural gas. Bloomberg reports:

U.S. environmentalists have vowed to go after gas-fired power plants with the same vengeance they’ve used to force the retirements of hundreds of coal facilities. Even coal miners are warning their fossil fuel kin to beware. Gas producers “will be next on the list of the industries to be destroyed,” says Robert Murray, chief executive officer of U.S. coal miner Murray Energy Corp.

This is a farce, if for no other reason than because natural gas—not environmentalist lobbying or renewables—is responsible for dethroning Old King Coal. A flood of cheap shale gas has been outcompeting coal on price, and this past year the hydrocarbon supplied 33.8 percent of America’s electricity, more than any other source. To put that in perspective, coal made up 30.4 percent of our power production, while wind and solar contributed just 5.6 and 0.9 percent, respectively.

There are several ironies here, first that greens think that somehow their targeting of coal was responsible for its recent downfall, and second that they’re eager to attack the very energy source they should be thanking for this sea change in American energy. After all, natural gas emits far fewer local pollutants and just half as much CO2 as coal, which is the primary reason why U.S. emissions fell three percent this past year.

If there’s any silver lining to this sorry example of the folly of the modern environmental movement, it’s that greens have been proven to be as ineffective as they are misguided. So even as they make natural gas their next “target,” we can rest assured that the shale boom will continue unabated, and make America greener and more energy secure in the process.

China Wants a Stake in Saudi Arabian Oil

Saudi Aramco is Riyadh’s state-owned oil company, and it’s set to go public some time next year. Estimates of its initial valuation range from $400 billion to $800 billion or, if you’re a Saudi official, $2 trillion—which, if those Riyadh optimists are right, would make Saudi Aramco the world’s most valuable company. This IPO is attracting keen interest in China, whose government is putting together a consortium bid to become a “cornerstone investor” in the Saudi firm. Reuters reports:

Half a dozen sources with knowledge of the discussions said China Investment Corporation (CIC), the country’s $800 billion sovereign wealth fund, oil majors Sinopec and PetroChina, and the country’s state-run banks were among the state-backed entities set to participate in the Chinese investment consortium. […]

“The IPO will help decide whom, or which country, can secure the crude supplies from the company and Saudi Arabia going forward,” [one person involved in discussions between Aramco and potential Chinese investors said], adding the size of each company’s stake in the Chinese consortium would depend on its current relationship with Aramco and the Saudi government.

The Saudis are only selling off 5 percent of this oil company, but that could still raise as much as $100 billion (again, assuming their valuation is the correct one). China’s interest is worth noting, however, as it fits into a pattern Beijing has exhibited in recent months. China is buying record amounts of crude from West Africa, and in February it overtook Canada as the top buyer of American crude exports. We’ve also seen China snatching up greater supplies of North Sea oil.

Part of this is motivated by China’s own flagging oil production, itself a product of a global decline in crude prices that has made much of the country’s own operations unprofitable. To meet demand, Beijing is having to look abroad for supplies, and it’s doing what any smart investor does: diversifying.

The Saudi Aramco IPO will be one of the major stories of 2018, and China’s involvement adds an interesting twist.

Bread Riots in Caracas as Venezuela Protests Escalate

At least twenty people have died in Venezuela as the largest opposition protests the country has seen in several years grind the country to a halt. Reuters:

Eight people were electrocuted to death during a looting incident in Caracas, a firefighter said on Friday, amid violent protests against Venezuelan President Nicolas Maduro by opponents accusing him of seeking to create a dictatorship.

The accident occurred when a group of looters broke into a bakery in the working class neighborhood of El Valle, according the firefighter, who asked not be identified. It was not immediately possible to confirm details of the incident with hospital or other officials. [….]

Opposition leaders have promised to keep up their protests, demanding that Maduro’s government call general elections, free almost 100 jailed opposition activists and respect the autonomy of the opposition-led Congress.

Naturally, the socialist Maduro government is calling the protesters “hoodlums” and will likely try to further undermine the opposition by painting them as violent criminals. Nonetheless, bread riots that see violent pillaging of bakeries while looters scream that they’re hungry are not typically a good sign for a government.

For years, Venezuelans have dealt with chronic shortages of basic goods including milk, sugar, toilet paper, and beer. Despite having the world’s largest proven supplies of oil, production has plunged for a variety of reasons ranging from the economic viability of selling Venezuela’s heavy crude at $50 per barrel to power outages and cash shortages hampering the state-run oil company.

In the face of an economic and political crisis, the Maduro government is not only failing to face facts, it’s doubling down on Chavismo. On Thursday, the government nationalized the country’s sole GM plant despite the fact that the plant hasn’t produced a car in two years and has been selling spare parts ever since. Venezuela’s crisis has been heating up for some time, the question now is whether the protests in the coming days will bring it to a boiling point.

The Russian PM Dodges a Bullet, Sharpens His Knives

Last month, after Russian opposition leader and anti-corruption activist Alexey Navalny exposed Russian Prime Minister Dmitry Medvedev’s ill-gotten $1.1 billion fortune, which included a number of luxury properties, all formally owned and managed by his close friends and former classmates through charity organizations, all the pundits in Russia collectively held their breath to see what would happen next. How would Medvedev respond? What would Putin do?

Navalny’s report was accompanied by a slickly-produced video summarizing its findings. By the time 7.5 million Russians had seen the movie, “Dimon” was still keeping quiet. Medvedev’s only reaction was sending best wishes to one of his Instagram followers, who had complained that a “nasty planted story against the Prime Minister” was published on her birthday. Neither the growing viewership of the movie, nor the huge anti-corruption protests that broke out all across Russia on March 26 prompted the PM to pipe up.

Finally, three days after the protests, Vladimir Putin took his pal to a trip to the Arctic, and only after that did Dmitry Medvedev break his silence. He called the investigation “bullshit”—just “some documents” “sponsored by private investors” who “want to bring people to the streets” “seeking a particular political aim”. Medvedev characterized Navalny as some “character with prior convictions”.

As we’ve noted before, Navalny’s investigation is best understood as a direct attack on Medvedev, leaked by a particular group within the siloviki establishment hostile to him staying in power. For now, at least, Medvedev appears to have managed to keep Putin’s confidence. Russia’s President in general loves remote getaways—he has taken trips to Altai, to the taiga, to Valaam, where he has reportedly made important decisions. It appears Medvedev’s political future was decided on this latest Arctic excursion.

Firm evidence of the decision came this week. Two days ago, with Medvedev set do deliver his regular report to the Duma, the only lawmaker who had any intention of asking about Navalny’s investigation—Communist Party member Valery Rashkin—was expressly forbidden from doing so. The political climate had significantly shifted. Right after Navalny’s exposé was published, a number of Russian politicians, including several Duma members, had suggested the allegations should be investigated. Medvedev’s report to the Duma focused on how things are getting better in Russia (which, incidentally, irritated many of the lawmakers) and dodged the corruption allegations completely. The only question that remotely touched on the investigation was a softball: “What is stopping you from defending yourself from Navalny’s attacks?” Ask that kind of question and you will get an appropriate answer: Medvedev said, “I will not comment on the completely false allegations of political troublemakers.”

So for now Dmitry Medvedev gets to keep his job, but that doesn’t mean the struggle in the Kremlin is abating. The reason why this particular group of siloviki wants Medvedev out is that he is the only person Vladimir Putin trusts completely, the only official who has sufficiently proved his loyalty, and the only one who Putin thinks could guarantee him and his close circle personal and financial security. They know that Medvedev is likely to be Putin’s successor, especially should Putin decide to step down or not run again. (According to the Russian Constitution, the Prime Minister is the designated successor in those circumstances.)

Now that Medvedev—a man who loves power and has a taste for vengeance—knows beyond a reasonable doubt that he is being attacked, and probably knows from where the attacks are coming from, he will ruthlessly clean house when he gets his hands on the throne. His enemies know this. Thus they have to destroy him first. Which means this fight will only be getting uglier.

Japan and Australia Huddle Up

Defense and Foreign Ministers from Japan and Australia met on Wednesday and Thursday to discuss their countries’ relations, agreeing to strengthen defense ties as tensions in the region continue to grow. The Japan Times reports:

Although Japan does not have a security treaty with Australia, it nonetheless characterizes the country as a “semi-ally,” with their bilateral relationship recently bolstered anew by their shared “strong opposition to any coercive or unilateral” attempt to alter the status quo in the East China Sea, as was stated in Abe’s summit meeting with Australian Prime Minister Malcolm Turnbull in December 2015.

During Wednesday’s meeting, Inada and Payne also agreed that the two nations will conduct a joint military drill involving fighter jets in Japan next year, in what was touted as the latest initiative to further deepen their bilateral relationship.

This is yet another example of Japan wasting no time bolstering its defenses and positioning itself to become a regional security leader. Other recent examples include joint-exercises and high-level discussions with Australia, India, and South Korea, as well as fostering a partnership with the Philippines in an attempt to prevent Duterte from pivoting too much toward China.

Japan’s rise, and the reactions it provokes in capitals across the Pacific Rim is one of the key dynamics to watch as the Trump Administration gets its own footing in the region.

Cal State Can’t Explain Why It Needs So Many Bureaucrats

The California State Auditor has delivered a damning assessment of the management practices at the single largest university system in the United States. The Chronicle of Higher Education reports:

The California State University system has increased its hiring of managers at a steeper rate than its hiring of other employees over the past 10 years, according to a new state audit.

And in a report on the audit released on Thursday, the state auditor, Elaine M. Howle, wrote that the system could not sufficiently explain why it needed all the new managers, including deans, head coaches, and vice presidents, among other positions. […]

The audit also found that the system’s 23 campuses did not have policies for periodically comparing their spending levels or reviewing their budget limits.

In other words, administrators have been hiring more administrators for make-work positions and giving each other raises without sufficient accountability in a self-perpetuating cycle of bureaucratic decay that is sadly endemic to academia at large.

These findings should give pause to those who think that larger and larger state subsidies are the answer to higher education’s woes. Much of the public money spent on “free college” schemes championed by left-wing populists would end up being pocketed by the ever-expanding bureaucratic class of student services directors, Title IX coordinators, and HR managers, raising costs while steadily diluting quality.