More Republican Lawlessness--Greatest Heist in History

Financial FAQs

The Republican’s tax bill has passed, and it is the greatest theft of taxpayer monies in history; even greater than Presidents’ Reagan and Bush I and II tax cuts that began the immense transfer of wealth to the wealthiest in 1980, starving the government of much needed revenues that would keep the federal deficits under control.

It was written by the very lobbyists Republicans and the Trump administration have cultivated since his election. The stench of the DC swamp that Trump promised to drain has become overwhelming.

More than 130 lobbyists have been hired to work in the administration, and 36 of them have blatant conflicts of interest, working on the same issues they were lobbying on, in violation of Trump’s ethics rules, according to Marketwatch economist Jeff Nutting.

Graph: @clairecmc

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”

The bill will cut Medicare and Medicaid benefits by $1.5 trillion, and could add up to $1.5 trillion to the deficit in 10 years according to the CBO. That’s a $3 trillion outright theft from U.S. taxpayers that makes it the biggest heist in history.  It is why the top 1 percent of earners have garnered almost 100 percent of national income created since the end of the Great Recession. 

As I noted in an earlier column, Harold Myerson said in The American Prospect, “The United States now has the highest percentage of low-wage workers – that is workers who make less than two-thirds of the median wage- of any developed nation. Fully 25 percent of all American workers make no more than $17, 576 a year.”

We know what has happened when Republicans tried this taxpayer heist before. President Reagan and congress has to raise taxes 11 times to make up the deficits created by the first ‘trickle-down’ tax cuts in 1981. Two consecutive recessions followed as Fed Chairman Paul Volcker raised interest rates to record levels at the same time.

Then GW Bush did the same in 2001-03, when he cut taxes again while paying for the wars on terror, resulting in the largest federal deficit at the time, and the Great Recession.

This will not generate enough tax revenue to pay for the additional debt, as I noted in an earlier column, so foreign governments and individuals will become more reluctant to invest in U.S. debt as the deficit continues to grow and interest rates rise, while crowding out other, important investments.

It can happen again. It is suicidal economics. The U.S. won’t declare bankruptcy. But it will saddle future generations with an impossible debt load, and prevent much needed public and private investment that would increase productivity and boost growth.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Republican’s Tax Reform = U.S. Bankruptcy?

Popular Economics Weekly

We know most of the sordid details, by now. The Repubs’ about-to-be-approved tax bill will drive the U.S. into a defacto bankruptcy. It contains very little for the middle and lower income tax brackets that do the most to boost economic growth with their spending, and lots for the 1 percent that spend the least, including doubling the inheritance tax exemption and lowering both personal and corporate taxes.

This will not generate enough tax revenue to pay for the additional debt, so foreign governments and individuals will become more reluctant to invest in U.S. debt, as the deficit continues to grow and interest rates rise, crowding out other, important investments.

It also cuts Medicare and Medicaid benefits by approximately $1.5 trillion to pay for this huge tax cut. But that isn’t really paying for it, since this takes income away from those supported by our social programs.

How does that make sense, when financial markets are already flooded with cash, and all kinds of bubbles are popping up? Bond valuations are at all-time highs (meaning interest rates are still at historical lows), corporations are already making record profits, and stocks’ price-to earning levels resemble those of the 1929 market crash that led to the Great Depression.

Everything is already overvalued, in other words, yet the Republican congress wants to give even more money to the wealthiest, who plan to use it to boost their paychecks, and that of their stockholders.

There will be little money left to boost wages and salaries, according to CEOs that have been surveyed. And why should they boost their workers’ incomes? Most new jobs are low paying, warehouse jobs for the likes of Amazon.

Graph: Econoday

A lack of skilled workers is very likely a key factor why high levels of employment have not led to meaningful wage improvement, says Econoday. Inflation is not rising because real average hourly earnings are barely rising, which is why discounting is still prevalent.

So congress is really reducing tax revenues that are needed to pay for all that debt. This is what GW Bush tried to do in 2001-2 with his tax cuts, which led to the record budget deficit, bursting of the original housing bubble, and Great Recession. 

It fantastical thinking to believe otherwise, and the Republican Party could follow President Trump over the political cliff, once the general public understands their real motive in tax reform.  It's reverse Robin Hoodism, or robbing from the poor to give to the rich.

And it can happen again. The U.S. won’t declare bankruptcy, since it can print all the money in our own currency to pay for the inflated debt levels. But it will saddle future generations with an impossible debt load, and prevent much needed public and private investment that would increase productivity and boost growth.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Fed Raises Rates Too Soon!

Popular Economics Weekly

The Federal Reserve FOMC meeting ended with the predicted 0.25 percent rate hike; but it’s happening at the wrong time.  This is the rate that controls credit card interest and the Prime Lending Rate banks use on short term loans, which will now become more expensive, slowing consumer spending, and hence economic growth, for starters.

That is what the Fed Governors seem to want, even though growth is still weak; too weak to warrant continued tightening.

Few follow the trajectory of the so-called Treasury yield curve which graphs the difference between short and long-term interest rates. The curve is flattening at present—not a good sign for future growth, either. Instead, it’s historically a sign of slowing growth. 

Graph: FRED

DoubleLine Capital CEO Jeff Gundlach said this morning on CNBC the flattening yield curve is becoming worrisome, even with all signs pointing to no recession on the horizon. It will hurt junk bonds, for starters, especially, as well as investors that are highly leveraged.

Why? The Fed is tightening at the same time as the Repubs’ proposed tax bill will add at least $1.5 trillion to liquidity with the increased budget shortfall. So Republicans are fighting Fed policy, and we know where that will end. Federal Reserve policy always wins!

Short term rates are the cost of money to banks, and longer-term interest rates are what they earn on loans. When the difference narrows, bank profits plunge and they lend less to businesses, which shrinks available credit, even with the additional liquidity.

But CEOs are saying they will return most of the increased profits from any tax cut back to their investors, rather than boosting employees’ incomes. And wages and salaries are two-thirds of product costs, which means no meaningful inflation happens if incomes don’t rise.

Where will the money come from to do some of the $2 trillion in deferred infrastructure maintenance, according to the ASCE, not to speak of modernizing our power grids, airports, and transportation network?  The huge debt increase will make it more expensive to build out the infrastructute that's needed.

Some good news is that factory orders are soaring. Econoday reports factory orders have had a respectable year, moving to roughly $480 billion per month and near a 3-year high. “Year-on-year, orders are up $17 billion or 3.7 percent. Vehicle orders have been showing recent strength and reflect the rush of hurricane-replacement sales, yet the big contributor has been capital goods where annual gains are approaching 10 percent. And investing in capital goods are needed to expand production and even labor productivity."

 

So we have the Fed wanting to slow down what they see as accelerating inflation, which is probably because they anticipate the increased federal budget deficit (and decreased tax revenues) from Republicans single-minded obsession with tax cuts that may or may not help economic growth.

But if corporate CEOs keep their profits in-house, and won’t spend a substantial amount on increasing wages and salaries, there is no inflation increase, and so no acceleration in GDP, ever.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

U.S. Taxes Not Too High!

Financial FAQs

No, our taxes are not too high, and Americans suffer for it. In fact, the non-partisan Tax Policy Center says U.S. taxes at all levels of government represented 26 percent of GDP, compared with an average of 34 percent of GDP for the 34 member countries of the Organisation for Economic Co-operation and Development (OECD) in 2015.

Graph: TPC

Then why do Americans complain so much about high taxes? It’s because we have to pay for services out-of-pocket that other developed countries’ governments provide—including universal health care, tuition free colleges; services that developed countries consider to be their citizens’ rights.

“In many European countries, taxes exceeded 40 percent of GDP. But those countries generally provide more extensive government services than the United States does,” says the TPC report. “Among OECD countries, only Korea, Chile, Mexico, and Ireland collected less than the United States as a percentage of GDP.”

Actually, the ‘other’ developed countries provide public services as well, including such mass transit conveniences as high-speed trains (in Europe, Japan, and China), and worker-friendly laws—including decent minimum wages, paid maternity leave, and at least 4 weeks paid vacations—the list goes on and on.

The best way to look at this is what typical American households pay. A 2016 PEW Charitable Trust analysis showed how financially stretched we are.

“After declining during and after the Great Recession, expenditures increased between 2013 and 2014 in particular,” said the study. “…In 2014, the typical American household spent $36,800, but median household income continued to contract. By 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent.”

Graph: PEW

In other words, declining American household incomes mean Americans are spending more out of pocket for the essential services, such as education and healthcare than other developed countries. About two-thirds of families’ spending goes to core needs: housing, food, and transportation, said PEW.

Alas, it will take an American electorate that finally wakes up to these facts to call for the benefits others enjoy. Why should we deserve less? One reason that hasn’t happened yet is our huge federal deficit—due to the fact that 60 percent of the federal budget goes to the military and defense spending.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Dear Federal Reserve--Please Don't Raise Interest Rates!

Popular Economics Weekly

The Federal Reserve FOMC meeting this week is expected to conclude with another 0.25 percent rate hike; but it’s happening at the wrong time.  This is the rate that controls credit card interest and the Prime Lending Rate that banks use on short term loans.

Few follow the trajectory of the so-called Treasury yield curve which graphs the difference between short and long term interest rates. The curve is flattening at present—not a good sign for future growth. Instead, it’s historically a sign of slowing growth.

Graph: FRED

Why? Short term rates are the cost of money to banks, and longer term interest rates are what they earn on loans. When the difference narrows, bank profits plunge and they lend less to businesses, which shrinks available credit.

So, Fed Governors, please don’t vote to raise your overnight Fed Funds rate at today’s conclusion of the FOMC meeting.

Now is not the time to be shrinking the credit, when we are in the ninth year of this very long-toothed recovery. Especially when the new Republican tax reform bill would increase taxes for anyone earning less than $70,000 per year by 2027, according to the CBO, non-partisan The Tax Policy Center and Joint Committee on Taxation—and this is most of us; more than 80 percent of consumers earning wages and salaries rather than ‘rents’ (i.e. passive income from investments).

Graph: TPC

The Fed’s Board of Governors must be focusing on the proposed corporate tax rate cut from 35 to 20 percent, which the Fed predicts will flood the markets with more cheap cash, thus raising the specter of inflation.

But what inflation? The 10-year Treasury is yielding less than 2.4 percent today, as it has been for at least the last three years; still a record low. And that means bond traders see no inflation is even on the horizon, since bond holders look at least 6 months’ ahead for any inflation tendencies.

In fact, Fed  Chair Janet Yellen once said she was more worried about disinflation, because they haven’t been able to goose the inflation rate above 2 percent since the end of the Great Recession, when it has been 3 to 4 percent when growth rates were at historical averages.

The Personal Consumption Expenditure Index (PCI) is the Fed’s preferred inflation indicator and still too low to increase demand. It came in at 1.4 percent in October, which is a sign of insufficient demand, even though corporations already are hoarding more than $4 trillion in excess cash and liquid investments.

The culprit is incomes of the 80 percent that are wage earners. Their average incomes have remained at $37,000 per year for decades with inflation factored in; which means they will continue to shop for bargains. That won’t push prices or inflation any higher.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen