July 2018 – The McCullough Report

EXODUS FROM CALIFORNIA, FLEEING UNBRIDLED PROGRESSIVISM

My wife and I have had it. We recently retired, live in Southern California, and we have to get out. Ridiculous taxes, restrictive laws, crumbling infrastructure, sanctuary city status, illegal aliens everywhere, homeless wherever you look, and no end in sight for this insanity. This is not the place to live, let alone retire, and we are not the only ones that are leaving.

In the last 10 years it is estimated that over 10,000 businesses have moved on to greener pastures. Texas has been the favored destination, along with other more business friendly states like Nevada. The taxes and regulations, both increasing year to year, are driving employers out. This state is becoming next to impossible for those that want to start up a new business, with the multitudes of licenses, inspections, and taxes that are required before one can even begin operation. Needless to say, California is lagging behind replacing businesses lost with new replacements. This shows in our monthly job creation, which was at zero last month, and with California continually lagging behind the average monthly job increases seen nationally.

People are leaving. Mostly middle class people and retirees are fleeing because of the taxes, high cost of living, and job opportunities elsewhere. People that are working and earn between $50,000 and $200,000 per year are leaving fast. States like Texas and Nevada, and many more offer a better lifestyle and affordable cost of living, something that is not available in the high tax, and high cost state of California. Retirees are leaving because they cannot see staying in a state where the lifestyle is so degraded because of crime, overpopulation and over-taxation. In the last 8 years, 6 million people have fled the state, and only 5 million have emigrated to California from other states. The Americans relocating here some of the wealthiest in the country, coming from states like New York and the New England area. These are in the top 1% of earners nationwide. The middle class is evacuating, and the population of the rich is expanding.

Other sectors that have expanding populations are those of illegal aliens and homeless from other states that come here for obvious reasons. We are a sanctuary state, so illegals have little to fear here from immigration authorities. The homeless flock here because of the excellent year around weather. Both of these groups also come here because of California’s excellent welfare state programs. Illegal aliens can get on the dole right away, and they and their children also can get free education, even free college which is something that tax paying citizens cannot get for their own children.

This state is becoming one of the very rich, and the very poor. Many of those in the middle have the common sense to get while the going is good. My wife and I are part of this exodus. Next week we are taking our RV up to Idaho, and then down through Nevada to find a new home. We have had it. This state that we both loved, the one my wife was born and raised in, is not our state anymore. It has been co-opted by the wealthy in their gated communities, and the illegals and the very poor invading our neighborhoods, and a state that invites them to do it. Some say that California today is tomorrows USA. For the sake of all Americans, I pray that they are wrong.

THERE IS A REASON FOR PROFESSIONAL DIPLOMATS!

President Trump is not a diplomat. He has direction internationally, and ideas that need to be put into policy, but he is not the one to take the message to the international public. This was clearly evident with his performances at the NATO meeting and the Helsinki Summit. He does not have a diplomatic bone in his body. He obfuscates his messages in the worst way. At NATO he slammed the organization for being “freeloaders”, and subsequently slammed the EU for their unfair trade practices. This brought the relationships to new lows, and the confused messaging had NATO members wondering if the USA will live up to their obligations, and had the EU upset about a path to rectify trade differences. Whats even worst, it had the potential to give the “green light” to Russia for more aggressive behavior on the continent, sending that message to Putin right before the Helsinki Summit. This was bad messaging, bad politics, and could have been avoided.

At Helsinki after the Summit, the President gave a joint news conference with President Putin. The conference was put to shambles with the President focusing on his domestic problem with the Mueller investigation, which was not even a topic for discussion. This was initiated by a rambunctious AP reporter that asked pointed questions to both Trump and Putin about Russian interference and collusion in the 2016 election, and frankly the questions were stumbled over by Trump, and Putin’s denials were no help. One couldn’t help but to see Putin as the one in control at the news conference. The entire Summit was put into disrepair with those visuals, and once again, it did not have to happen.

President Trump has no talent for diplomacy. He most likely will never acquire that talent. He has many initiatives on the international front that he wants to implement, many good ideas to share with both our allies and our competitors, but he is not the one that should be singularly communicating these initiatives. That is what professional diplomats are for. These are people that have been in the international system for awhile, and know how to express themselves succinctly and without any perceived animus. These are people that understand the motivations of their target audiences, and tailor their presentations for maximum effect. They are good at it. Our President is not.

Mike Pompeo has an impressive resume. He is a veteran, a businessman, lawyer, congressman, and CIA director. At the CIA he proved himself to be adept at dealing with international leaders, and subsequently was appointed to be Secretary of State. He has a team of diplomatic veterans that work with him, and is very capable of representing the President and the USA in the diplomatic field. This is the man that should control how the messages are communicated. Mr. Trump should use Secretary Pompeo and his team to his benefit. If he does so in the future, these embarrassments will not again rear their ugly head.

KEEP YOUR FRIENDS CLOSE, KEEP YOUR ENEMIES CLOSER OR THE UNREALISTIC EXPECTATIONS OF THE HELSINKI MEETING

Today Vladimir Putin and Donald Trump spent the day in Helsinki, having a discussion on world politics. Points were made, and counterpoints were offered. Nothing much other than starting an open dialog was accomplished, and by all measures that was our President’s goal and from that standpoint the meeting was successful.

They met for several hours alone. That was purposeful, because the conversation would revolve around stark differences in world view, and that I’m sure was contentious. Syria, Crimea and the Ukraine, Russian election meddling were a few of the subjects that were discussed. Harsh words were most likely used, and Mr. Putin would deny meddling, and rationalize Crimea and the Ukraine, Syria and other points of difference. The point is he was called out in private, which is the diplomatic way to handle differences. That meeting was purposefully private, and will never be aired in public discourse.

Afterwards, there was a more public working lunch meeting, where Russian and American staff members were given a chance to discuss these same issues. As expected, the tone would be more conciliatory, given the fact that both Putin and Trump do want to establish a working relationship, and their respective staff’s honored their leaders positions.

In short, with the exception of establishing the beginnings of a working relationship, there was nothing else that could be honestly reported. The news conference showed that each man showed great deference and respect for each other, and a harsh word was not uttered by either. The Q&A with reporters was more contentious, with questions asked about collusion, Russian interference, and an AP reporter bluntly asked Mr. Putin about “what evidence do you have about Mr. Trump’s visit to Russia years ago”? These questions were never to be answered in this forum, the reporters knew it, but they were searching for headlines and a narrative they could post with their respective MSM’s.

The MSM’s are now in full tilt, reporting on what they hope is the confirmation of our President in full collusion with Russia. They are speculating that Mr. Trump has been in the pocket of Mr. Putin all along and that the press conference proves that. It does not, they know it, but it would not be a story without their creative narratives.

Back to Mr. Mueller’s investigation. Interesting that he releases 12 indictments of Russian Agents in regard to election meddling right before the President arrives at Helsinki. One has to wonder if this was a favor to the President, or more fodder for the media? Sealed indictments would be more effective to actually capture those indicted if that were a goal of the special prosecutor. Mr. Mueller’s team has actually done a great job digging through evidence to find Russia meddling. I don’t think anyone doubts that the Russians were bad players in the 2016 election, and most everyone knows that then President Obama and his Justice department did nothing to stop it. Right now the media is using the 12 indictments as evidence of Trump collusion with the Russians, voicing that in spite of this evidence, the President still publicly “looked the other way” at Russian election meddling. It is not in the best interest of the President’s goal of establishing a working relationship by publicly outing Putin, but that point has been lost on most reporting.

In our era of 24/7 media coverage, the expectations of citizens were much higher than that of either Presidents Trump or Putin. They came to create the beginnings of a relationship. The media was reporting how President Trump should be very harsh with Putin, letting him know we will not stand for his behavior and election meddling needs to end now. Not the best way to accomplish the singular goal of establishing a relationship, is it? Setting the expectations so high with their prior reporting gave them the ability to develop a more believable narrative of collusion, and that is the story that they are weaving right now. It seems that the MSM’s are neither truthful or honorable when it comes to reporting on our President. All that seems to matter is discrediting the President, and they will use any method to do so. Incredibly dishonest, but also effective in the never-ending news cycle.

NATO, HELSINKI AND RUSSIAN EXPANSIONIST POLICIES

Donald Trump made an effort to “wake up” NATO members to the danger that they face with the “Russian Bear”. The President pointed out the folly of becoming too entrenched with Russia for energy needs. He pointed out that the Russians are very interested in re-creating their lost empire. They have defined themselves as a land-based military, and have structured their military smartly with that in mind. They are highly capable from a land-based perspective and NATO border states are in jeopardy. This is especially true for Latvia, Estonia, and Lithuania, all of which have large Russian minorities in their populations. Remember the Ukraine, and what is happening there. The Russians have armed Ukraine’s Ethnic Russian minority and supplanted their leadership with Russian Special Operations troops, have taken Crimea and are making a play to take the whole region back bit by bit. This may be the same fate for these 3 Baltic states, especially if NATO does not have the strength or the will to invoke Article 5 of the Washington treaty, which states that an attack on one member is an attack on all NATO members, and a collective response is required. With most NATO members currently contributing little to the military alliance, it is doubtful that any response could happen unless the USA fully commits with little help from other NATO members. Our President insists that each member commits at least 2% of their GDP to their respective military’s, and the commitment should be more an upgrade to fighting materials rather that just wages for soldiers. After some hand wringing, there seems to be an agreement to his request.

This is an important first step before meeting with Mr. Putin next Monday. Nothing would make Putin happier than to negotiate with President Trump alongside a destabilized NATO. With an agreement to invest in NATO’S military capability in his pocket, that is one item that is technically “off the table”. Our President comes in to the meeting with a very strong hand. For one, Russia’s economy is small, roughly only 8% of our own. We invest strongly in defense, with a defense budget over ten times that of the Russians. That doesn’t mean that Russia is holding bad cards. Russia has invested in their military wisely, with new weapons that compliment a land-based military. They have more tanks, artillery, and more trained personnel on the ground than we do. Their naval force is strongest with submarines, with a strategy of denying enemy combatants access to trade routes. They also have a big interest in re-inventing their lost empire, as we can see with their actions in the Ukraine and Syria. A direct war with the USA would be a big mistake for Putin, but if NATO sits it out as he takes back the Baltic states and the USA disengages from the organization, his dream of empire could well come true. He is also looking at the Middle East with lust in his eyes, and Syria has given him a foothold in that area, strengthened by our lack of future commitment in that region.

Donald Trump is hoping that he can establish a working relationship with Vladimir Putin. He is going to try to work with him using mutual respect as the basis for this mini-summit in Helsinki. He would like to get Russia to step back from the Ukraine, leave Syria, and back off from fortifying the border with the Baltic states. He also will be discussing Russian interference in our elections, and Russian hacking in general. The point he will make is that if we can live in peace, the international sanctions on Russia can be eventually lifted. Putin wants those sanctions lifted in the worst way. His economy is virtually on the ropes, and needs trade to diversify from an oil based economy to one that can compete with the rest of the world with manufacturing and technology. Although that may be his main goal for meeting with Trump, it is not the only one.

Mr. Putin wants the President to validate his incursion into Syria and subsequent establishment of permanent military bases there. He is in the process of replacing the USA as the chief power broker in the Mideast, and he wants US troops out of the area. He knows that Trump has stated in the past that he wants all of our troops home. He will dangle a proposition of working with the President on containing Iran, although it is doubtful that Putin actually has any leverage over the Mullah’s.

He also wants the prestige that this meeting presents. He wants desperately to be seen as the leader of a superpower, resurrecting the leverage that the Soviets once had. This is important to him on many levels. He needs to prop up his own standing at home, because as a dictator he does not enjoy the legitimacy of being an elected leader. He also wants to prop up his image on the world stage. Since his invasion of Ukraine and annexation of the Crimea, he has been persona non grata in Europe and elsewhere, and he wants that isolation to end.

Putin also wants our President to bless his annexation of the Crimea. He will dangle an agreement for Russia to disengage from their military and political activity in the remainder of the Ukraine. He will also ask Trump to stop arming the Ukraine army, on the pretense that weapons are not needed if Russia is truly disengaged from the area.

Putin will also probably throw in some kind of arms control agreement to sweeten the pot. He will bank on Trumps ego being so big that he won’t be able to pass up a “win” on an agreement to incrementally de-nuclearize. The Pentagon, however has already informed the President that the Russians are cheating on the 1987 INF treaty. Most likely Putin will bank that won’t have much of an effect on Trump, because he has in the past stated he believes that he can change Putin’s behavior through his power of persuasion.

Once again, our President is going to a meeting with an adversary. His hopes are high. He believes he can change this despot’s behavior. Putin also believes he can change Trumps behavior, get sanctions eliminated, and use the invigorated economy to build a more powerful war machine to realize his dream of empire. Trump believes that his power of negotiation will win. Putin believes his understanding of what makes Trump tick, exploiting character flaws to get what he wants will win. I for one will put my money on a stalemate.

One thing that we all look forward to is what the left will spin this into, regardless of the outcome. They may say “Putin won, and no wonder, Trump is in his back pocket”! Articles are probably already written on his failure before the meeting starts. Creative writers on staff at newspapers like the New York Times and magazines like the New Republic most likely already have stories ready to go. Editorial articles written where they only have to “fill in the blanks”. I wouldn’t surprise me if somehow the new nominee for the Supreme Court, Brett Kavanaugh, will somehow be tied to the supposed failure, with his notion that sitting Presidents cannot be charged with a crime, and yes, of course, all of this has to be tied to Trump/Russian collusion. The creativity is endless!

TARIFFS, AND THE CHAOS PRESIDENT

25 billion dollars worth of tariffs went into effect on China today, and many people are worried about the effect it will have on our booming economy. China is retaliating in kind, focusing their tariffs mostly on farm goods in order to put pressure on the President before the mid-term elections. The farm belt was where he has the most support, and China’s tactic is to hit him back hard with their political calculation, with the hope that he will fold and end this burgeoning trade war.

Trump does not fold. If anything he will double down on his original bet. His calculation is that eventually China will come to the negotiating table and a deal, eliminating tariffs and establishing a rule of law there that precludes intellectual property theft and open markets will eventually be agreed upon. It is a gamble, but our President believes that it is a war that we can win. It is a war that has never been fought before, a war to increase trade, not restrict it!

Mexico, Canada, and the EU are also in Trump’s sights. He see’s the restrictions put on trade coming in from the USA with all these nations as being unfair trading practices that need to stop. He has repeatedly stated that “we are no longer going to be the world’s piggy-bank”, and he is serious about this contention. No longer will we give free access to our markets while there is no reciprocity.

There is now a lot of economic sabre-rattling going on. China, Canada, Mexico and the EU are all making a lot of noise about retaliation. Everything from playing cards to Harley-Davidson motorcycles are being targeted with restrictive tariffs, and so far not one of these countries is willing to discuss lowering or eliminating their traditional trade barriers. They all seem to be very happy with the previous trade status-quo with America, and consider it “unfair” for us to complain about it, let alone set up our own trade barriers to their goods.

Trump is betting on the fact that all of these countries need us more than we need them. His bet revolves around the assumption that we are the largest market for goods in the world, and these countries will suffer more from the present situation than we will. The thought is that they will eventually come to us for a deal, and he very well might be right. The big question is will this take place next month, 2 months from now, a year or two down the road, or maybe never? This is truly a high stakes game of chicken!

In the meantime, there is political and economic danger from this decision. Will be mid-term elections be adversely effected? Will there be a backlash with American consumers when prices go up because of these tariffs? Will this situation result in a slowing of the economy and a premature economic correction? Will certain sectors of the economy be crippled by the effects of tariffs? There are a lot of unanswered questions, and only time will tell if Trump’s decision to “wake up” our trading partners with tariffs is the right decision, or simply a superhighway to recession.