Why Is Inflation Still a Problem?

 Financial FAQs

The Fed’s preferred inflation gauge, Personal Consumption Expenditures Index (PCE) isn’t declining because consumers continue to spend more than they earn. Why?

BEA.gov

Such spending gave a boost to retail sales and so made holiday shoppers happier. But it also highlighted the underlying problem, inflation is still too high.

The June to December BEA graph shows the difference between income (blue bar) and spending, or outlays (orange bar). It has been this way for at least one year. The declining black line in the graph measures consumers’ personal savings rate, which is back down to 3.8 percent from almost 5 percent in June 2024 because of it.

Why do consumers keep spending more than they make? One clue is that most of the spending is for housing, utilities, transportation and gasoline—necessities. It must be that consumers are not earning enough to keep up with rising prices for their basic needs.

But it also shows a bit if irrational exuberance—a form of excessive optimism that former Fed Chair Greenspan warned about in the ‘90s—and is happening in the financial markets today, which are at record highs.

“The numbers look good. Maybe even surprisingly good—and that’s not a word I throw around willy nilly,” said Barron’s Magazine’s Jack Hough recently about the financial markets.

Stubborn inflation tells us why it became the backbreaker for Democrats in this election cycle. It confirms the most basic of economic laws—the Law of Supply and Demand. The American economy as well as imports are not supplying enough goods and services to satisfy the demand for them.

Most of the inflation surge was in the service sector, as I said, and consumers want more and better services most of all. Hence personal expenditures (blue line in second graph) is hovering around 2.8 percent—too high for the Fed that wants 2 percent inflation.

Inflation in the Fed’s PCE price index for December increased 2.6 percent in one year. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.

This picture tells us the real problem—the slow recovery from the COVID-19 pandemic isn’t producing enough. World supply has not caught up with the world demand for goods and services. It is also due to so much geopolitical unrest, including the Mideast and Ukraine conflicts.

And the Trump administration wants to deport those undocumented immigrants that mostly work in the services industries, which means more worker shortages; as well as raise tariffs on many countries, which could cut GDP growth by some 1 percent, according to the Peterson Institute, a non-partisan research organization.

It will make everything that American consumers want even more expensive. And that might keep the Federal Reserve from dropping interest rates further, as they hinted in their just concluded January FOMC meeting. How about that?

There was also some good news. The U.S. economy grew at a mild 2.3% annual pace in the final three months of 2024, and the details of the report showed an economy on strong footing that was being handed over to the Trump administration. GDP grew at 3% and 3.1% in the two prior quarters.

It’s still not a good time for excessive optimism, in my opinion.

Harlan Green © 2025

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

HOUSING IN RECOVERY--PART II

 The Mortgage Corner

Existing-home sales rose 2.2% in December to a seasonally adjusted annual rate of 4.24 million, the strongest pace since February 2024 (4.38 million).

FREDexistinghomesales

The huge jump in existing-home sales on still very high mortgage rates illustrates the enormous pent-up demand for rental or owner-occupied housing, I said last month. Demand is now exceeding the existing home inventory, just a 3.8 months’ supply vs. the 8-month supply of new homes for sale that is only partially filling the housing supply shortage. Realtors believe the strong demand will continue, in spite of the high rates.

"Home sales momentum is building," said NAR Chief Economist Lawrence Yun. "More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%."

It remains to be seen how long consumers will tolerate such high mortgage rates. The 2001 Dot-com recession was the last time conforming 30-year fixed rate mortgages were above 7 percent, when existing-home sales then began the climb to a 7 million annual rate, before the long decline in interest rates. It all led to the 2007 housing bubble and Great Recession. If such demand continues, could we see another era of irrational exuberance as happened then? That’s grist for another column!

Existing-home inventory registered at the end of November was 1.33 million units, down 2.9% from October but up 17.7% from one year ago (1.13 million). Unsold inventory sits at a 3.8-month supply at the current sales pace, down from 4.2 months in October but up from 3.5 months in November 2023.

This is why building more new homes is so important. It is why builders have built up an 8-month inventory. And it is why sales of newly single-family houses in December 2024 were also so high, at a seasonally adjusted annual rate of 698,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development, above the December 2023 estimate of 654,000.

Even pending home sales jumped, another sign of an incipient housing recovery, Pending sales help to predict closings 30 to 60 days out. Pending home sales gained 2.2% in November – the fourth consecutive month of increases and the highest level since February 2023 – according to the National Association of REALTORS®.

“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” said NAR Chief Economist Lawrence Yun. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.”

Builders blame “unnecessary regulations” for much of the housing shortage. However, most of the ‘unnecessary regulations’ are at the state and local levels, such as restrictive zoning, state environmental laws, and even banking regulations.

It’s difficult to see how the outcome of national elections can affect such local changes. California is one such state that has taken on the NIMBYs (Not in my backyard) crowd as well as putting aside loan subsidies for affordable housing. That’s where the changes need to be to make up for the current housing shortage.

It’s hard for me to see that we will have another 7-million-unit sales year as happened during the housing bubble, however, no matter the mortgage rates. It was a different era, for those that can remember, since we have an ongoing labor shortage and higher construction costs (tariffs?) today.

Harlan Green © 2025

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

Trump, the Lucky Loser

 Answering Kennedy’s Call

“Born to a rich father who made him the beneficiary of his own highly lucrative investments, Trump received the equivalent of more than $500 million today via means that required no business expertise whatsoever.”

Random House

In just Donald Trump’s first week in office, it’s becoming obvious that the illusions he lives under will be no different than during his first term as president. He is counting on the American electorate to not believe what they are seeing.

For instance:

Climate change—"drill baby drill” for more fossil fuels when we are experiencing the worst climate disasters in history due to global warming—e.g., horrific wildfires, tornadoes and hurricanes.

Healthcare—Leaving WHOrg that monitors worldwide pandemics, and censoring the CDC and other government healthcare watchdogs’ research while releasing their results only after they have been vetted by his political appointees.

Military preparedness—now allowing military service members not to be vaccinated for COVID-19 and reinstating service members with full pay who were discharged for refusing vaccines.

Immigration—Saying he will deport millions of undocumented immigrants, when it will reduce badly needed workers in low-paying jobs that American citizens aren’t taking.

Tariffs—Asserting he would raise tariffs as high as 50 percent on nations with huge trade imbalances viz the U.S., when economists are saying it will be inflationary, and in Nobel Laureate Paul Krugman’s words, “make us poorer.”

Public education—Wants to abolish Department of Education that supports the 80 percent of students in public schools.

Tax cuts—Just extending his first term tax cut beyond 2025 when it is scheduled to expire and could add as much as $5trillion to the already bloated federal budget deficit, which could cause investors to lose faith in the US Dollar.

President Trump’s real intentions are already becoming clear in his second presidential term in office. He and his Oligarchs want to steal the US Government blind, as I said last week, by keeping Americans and the media as blind as possible to what he intends.

Why does Trump continue policies that will only harm more Americans while enriching himself and his oligarch supporters?

This was highlighted in Pulitzer Prize-winners Russ Buettner and Susanne Craig’s just released book, Lucky Loser that raises a bigger question in a Washington Post review by Bethany McLean about the ‘fake it ‘til you make it’ ethos of modern America. In a world that conflates the ‘trappings of wealth with expertise and ability,’ where ‘fame, detached from any other marketable talent or skill,’ is ‘a highly compensated vocation,’ does it even matter if you never actually make it?”

The outright distrust of truth is a propaganda tool used by autocrats that public media has normalized. This probably tells us best why he was able to take over the Republican Party that has drifted so far from conservative values and was once the environmental party when Republican President Nixon signed the U.S. Environmental Protection Agency into law in 1970.

So will he be more successful in passing his promises in his second term? We should ignore some of his most nonsensical executive orders, such as attempting to amend the 14^th Amendment by decree that guarantees citizenship for anyone born in the U.S. 50 states and territories, which he knows can’t be done by decree or executive order.

But the furor that it and the immediate release of 1500 January 6 Capital attackers from prison, mostly convicted felons, will generate enough attention that it will cloak his real intention; reduce or eliminate as many government programs as possible that make life better for ordinary Americans, such as Medicaid, in order to fund more tax cuts.

He has already rescinded the Biden executive order to cap Medicaid spending on drugs that would save Medicaid $billions in costs.

“In reversing the executive order Biden signed in 2022, Trump halted an effort to cap the copayment for generic medications at $2 for Medicare beneficiaries, along with another program that would see Medicare pay less for drugs that receive accelerated approval from the Food and Drug Administration,” according to MarketWatch’s Jessica Hall.

And there is also the question of what Trump will do with regard to the prescription-drug provisions in the Inflation Reduction Act, which would be substantially more consequential. Under the Inflation Reduction Act, Medicare can negotiate the prices of certain prescription drugs with the aim of making drugs more affordable for older adults and people with disabilities.

He continues to throw bombs at the public media by announcing he will seek retribution from those prosecutors that sought his indictment for the various crimes he committed during his first term, such as January 6, withholding Top Secret documents at Mar-a-Lago and elsewhere, while hoping to erase the Grand Jury indictments in some way.

And he will eventually have to settle the $500 million in awards won by women he defamed. So it’s no wonder that he will use his immense power that is meant to protect U.S. citizens to protect himself instead, at their expense?

Harlan Green © 2025

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

No Art of the Deal--Part II

 Answering Kennedy’s Call

“It’s 100 days into the Trump Presidency and looking more and more like President Trump is no more effective at running the country than his business interests. His book, The Art of the Deal was meant to tout his negotiating skills, but the results were never very successful.”

Huffington Post

I wrote this piece for Huffington Post in 2017, after President Trump’s first 100 days as president.

“And neither are his legislative efforts; with no repeal of Obamacare, or tax reform, an immigration ban, new trade policy, and sanctuary city victories in the offing anytime soon because of poorly thought out strategies. Instead, he threatens judges, sanctuary cities, Congress, and even other countries when they don’t support his various executive orders,” I said then.

President Trump’s real intentions are becoming clear on just his second day of his second term in office. He and his Oligarchs want to steal the US Government blind, as the saying goes, by keeping Americans and the media as blind as possible to what he intends.

Will he be more successful in passing his promises in his second term? We should ignore some of his most nonsensical executive orders, such as attempting to amend the 14^th Amendment by decree that guarantees citizenship for anyone born in the U.S. 50 states and territories, which he knows can’t be done by decree or executive order.

But the furor that it and the immediate release of 1500 January 6 Capital attackers from prison, mostly convicted felons, will generate enough attention that it will cloak his real intention; reduce or eliminate as many government programs as possible that make life better for ordinary Americans, such as Medicaid, in order to fund more tax cuts.

He has already rescinded the Biden executive order to cap Medicaid spending on drugs that would save Medicaid $billions in costs.

“In reversing the executive order Biden signed in 2022, Trump halted an effort to cap the copayment for generic medications at $2 for Medicare beneficiaries, along with another program that would see Medicare pay less for drugs that receive accelerated approval from the Food and Drug Administration,” according to MarketWatch’s Jessica Hall.

And there is also the question of what Trump will do with regard to the prescription-drug provisions in the Inflation Reduction Act, which would be substantially more consequential. Under the Inflation Reduction Act, Medicare can negotiate the prices of certain prescription drugs with the aim of making drugs more affordable for older adults and people with disabilities.

We can’t blame it just on Trump. Republicans have been trying to deprive Americans of affordable healthcare managed by the government for years. The efforts became serious in the more than 30 unsuccessful attempts to repeal Obamacare since it was passed during President Obama’s first two years in office. It became an obsession in Trump’s first term that I wrote about in Huffington Post at the time.

“What if conservatives succeeded in repealing Obamacare (ACA)? “Republicans' Obamacare repeal bill would leave 17 million more people uninsured next year, and 32 million more in 2026, the Congressional Budget Office said in an estimate Wednesday. It also said premiums would double by 2026. …By 2026, three quarters of the population would live in areas with no insurers participating in the non-group market, due to upward pressure on premiums and downward pressure on enrollment, the report found.”

The accrued savings in health care spending relative to their projected growth prior to the ACA are substantial: Medicare alone is now projected to spend $1 trillion less between 2010 and 2020.

The lobbies behind the Obamacare repeal effort have not succeeded in making more Americans ill. I don’t even want to imagine what the results would be if he and Republicas succeed in downsizing Medicaid benefits as well.

Harlan Green © 2025

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

Retail Sales Boost Growth

 Financial FAQs

“Advance estimates of U.S. retail and food services sales for December 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $729.2 billion, an increase of 0.4 percent (±0.5 percent)* from the previous month, and up 3.9 percent (±0.5 percent) from December 2023,”according to the US Census Bureau.

FREDretailsales

Retail sales make up one-third of spending, and during good times such as after the last two recessions, soared above 8 percent annually. But the current 3.9 percent annual spending rise is not adjusted for inflation, so the sales rate is mostly due to inflation that is stuck in the 2 to 3 percent range.

But stocks and some bonds are rallying as consumers keep spending because they are fully employed and continue to have savings left over from the government’s post-pandemic aid programs.

It’s also the reason Federal Reserve Banks, such as the Atlanta Fed’s GDPNow estimate, are predicting 3 percent GDP growth again in the fourth quarter as seen in their graph. This will be the third consecutive quarter of 3 percent GDP growth.

AtlantaFed

And if consumers continue to shop as they have been, inflation won’t get any better in 2025. In fact, if Trump follows through on his tariff promises, inflation may get worse and maybe even cause the US Fed to raise interest rates again. It’s going to be an interesting battle between the Trump administration wanting to push rates lower and the Fed wanting to push inflation lower. They aren’t compatible, needless to say.

We should probably call this another era of irrational exuberance, as former Fed Chair Alan Greenspan foresaw in 1996 preceding the 2000 Dot-com bubble. It really means investors tend to follow the herd because most of their information isn’t based on research, but “hearsay and word-of-mouth”, in the words of Nobel Laureate Robert Shiller.

Irrational exuberance can be a terrible thing and has been studied by more than one Nobel Laureate. We are still recovering from the Great Recession and consequent housing shortage because of it.

So the moral should be: “Don’t believe in all the misinformation you hear,” and will be hearing this year!

Harlan Green © 2025

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

Why So Much Inflation?

 Popular Economics Weekly

“For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS). Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. It is time for that to change. I am today announcing that I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources.” @realDonaldTrump (cited by Paul Krugman)

This is just another insane fantasy Trump seems to believe—or is practicing his politics of diversion—to mask the fact that tariffs are a tax that we pay on what is imported, just as foreign citizens pay taxes on what enters their countries, which boosts the prices of those products.

Trump collected more than $400 billion in tariffs during his first term, some of which he had to pay out to subsidize American farmers who had lost their soybean and wheat exports when China retaliated in kind.

But such a fantasy can reassure his loyal supporters that there is a way to escape their overriding fear of inflation. And the latest inflation news was good news for the financial markets as well.

FREDcpi

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis in December, after rising 0.3 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

Stock and bond investors were so hungry for good inflation news when the Consumer Price Index surprised on the downside that financial markets rallied. Core inflation without food and energy prices factored in rose just 0.2 percent, which was below expectations.

The DOW immediately rallied +744 points, the S&P Index +140 pts., in the first 10 minutes of trading. They are now betting that the Fed will continue to ease credit by lowering interest rates further this year.

It’s a relief rally because Consumer Price Index (CPI) inflation of retail goods and services has been increasing since it went slightly negative in June of last year (see graph). This raised fears that the Fed might not cut interest rates further this year at all.

The next day’s wholesale Producer Price Index report was also good news. U.S. producer prices (PPI) that are the major part of retail costs rose less than expected in December, as the higher costs for goods were partially offset by stable services prices, suggesting inflation remained on a downward course.

Trump, of course, would like to abolish income taxes as do most Oligarchs. Wouldn’t it be nice to return America to the pre-income tax, Gilded Age of President William McKinley and the Robber Barons! Americans didn’t tolerate the Robber Barons taking so much of their wealth for long, however, which was the reason for creating the personal income tax with the 16th Amendment.

Trump’s misinformation is just one propaganda diversion that Trump will use to hide the fact that tariffs on imports, like all taxes, will be inflationary. As every successful investor knows, it’s better to focus on facts instead of the fiction that we can avoid paying taxes on what we buy, if we want a government that works for the many rather than the few.

Harlan Green © 2025

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

No Art of the Deal

 Answering Kennedy’s Call

'Insanity is doing the same thing over and over again and expecting different results,’ Einstein?

Huffington Post

Insane behavior could describe the actions that President-elect Trump is promising to implement after January 20. He has said he wants to deport millions of immigrants, impose higher tariffs on many countries (especially China), cut taxes, expand cryptocurrency, reduce wind powered energy, and “Drill baby Drill” for more fossil fuels.

These policies would damage economic growth at the least, maybe even cause a recession, with no change in the outcome, as happened in his first term. Trump has nominated his cabinet picks on the basis of extreme loyalty to him rather than their abilities, which added to Trump’s own limited intelligence will not be able to implement his goals. 

Wanting to restrict wind and solar power investment will increase global warming, for starters, which has caused the LA fires.

So why do he and his supporters keep expecting different results? Because it would enhance his wealth and that of his main financial supporters led by Elon Musk, the world’s wealthiest Oligarch.

And, even partially implemented would keep red states from receiving the benefits blue states receive, such as higher minimum wages, better healthcare, laws protecting labor unions and collective bargaining by reducing regulations and cutting taxes that benefit their ruling elites.

His supporters still believe in a win-lose world that ceased to exist when the industrial revolution and new technologies began to produce more than could be consumed. It took the progressive movement that culminated in Roosevelt’s New Deal to prove that there were enough resources to benefit working Americans as well as the holders of the wealth created by workers.

His supporters have been willing to give up such benefits in return for cultural values they still believe in such as banning new immigrants and most abortions, as well as censoring libraries in red states so that their followers only have access to propaganda instead of facts.

President-Elect Trump and Republicans’ singular success in his first term has been another tax cut that has continued the transfer of wealth from working Americans to the wealthiest since the Reagan administration.

He may fail in implementing most of his agenda, but we can be sure he will be as vindictive in seeking revenge in Trump 2.0 for his perceived slights as in his first term, now that he is a convicted felon.

“Fortune Magazine reported in 2016 on candidate Trump’s negotiating tactics: “The legal actions provide clues to the leadership style the billionaire businessman would bring to bear as commander in chief. He sometimes responds to even small disputes with overwhelming legal force. He doesn’t hesitate to deploy his wealth and legal firepower against adversaries with limited resources, such as homeowners. He sometimes refuses to pay real estate brokers, lawyers and other vendors.”

And what about reducing the size of government that Republicans promise will reduce graft and waste? Who does it really help?

"Pretty much the whole Republican Party--and, if we're going to be honest, too many Democrats--talked about the evils of 'big government' and called for deregulation," Senator Elizabeth Warren said in 2016 at a AFL-CIO National Summit on Raising Wages. "It sounded good, but it was really about tying the hands of regulators and turning loose big banks and giant international corporations to do whatever they wanted to do."

"These families are working harder than ever, but they can't get ahead. Opportunity is slipping away. Many feel like the game is rigged against them--and they are right," Warren said. "The game is rigged against them.... The world has changed beneath the feet of America's working families."

Many did listen to this warning and elected President Biden because of it. But the message was lost because many Americans thought Democrats were no longer up to the task of protecting them.

Yet we already know who Republicans intend to protect.

Harlan Green © 2025

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

Americans Still Fully Employed!

 Popular Economics Weekly

Total nonfarm payroll employment increased by 256,000 in December, and the unemployment rate changed little at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment trended up in health care, government, and social assistance. Retail trade added jobs in December, following a job loss in November.

FREDunemployment

It was a tremendous employment report. Then why did stock and bond values tank on Friday? December’s unemployment report was certainly good for workers. Employment is maxed out, with employers unable to hire new workers other than replacements for those retiring or changing jobs. The Labor Department’s JOLTS report showed that employers reported 8.1 million open job positions in December.

The strong employment report has reignited fears that the Fed will halt their rates reductions because of inflation fears. Almost everyone is currently predicting strong fourth quarter economic growth and continued full employment that has prevailed since January 2022.

The inflation ‘culprit’ (f you want to call it that) is strong government spending for all the construction and climate change projects being funded from the various Bidenomics’ bills.

In fact, it is Bidonomics, the $5 trillion plus investments in the US economy over this decade, that is keeping Americans fully employed. And it is boosting employee wages, as well, which is why inflation is proving so difficult to tame.

We are joined in the age-old battle of workers vs. owners, employees vs. employers, over how to divide our national wealth. Wall Street investors want lower inflation because it doesn’t dilute their wealth, while workers want full employment because it increases their wages.

So who is really complaining about our fully employed economy? Elon Musk, the world’s wealthiest Oligarch, for one. It is those that don’t like any inflation because it dilutes the value of their assets. Therefore the so-called efficiency experts led by Elon Musk want to shrink government spending without admitting it is the only thing keeping Americans fully employed.

Renown economist Mohamed El-Erian recently stated on CNBC’s After the Bell that the U.S. economy’s spectacular growth is the only thing keeping the world’s economies afloat, so why should we worry too much about higher inflation at this stage?

Well, it is triggering consumer worries about rising prices and has provided the propaganda tools that re-elected the party of oligarchs wanting to slash government programs that benefit wage earners most.

Expectations in the University of Michigan sentiment survey for inflation over the next year jumped to 3.3% in January from 2.8% in the prior month. It is the highest rate since May. Expectations for inflation over the next five years surged to 3.3% this month from 3% in December. That’s the highest since June 2008.

But consumers know how to adapt, especially with wages that are keeping ahead of inflation. They tend to look for more bargains when they see rising prices. So, shouldn’t our government main job be to keep workers fully employed and healthy rather than benefiting Elon Musk’s efficiency experts and Wall Street financiers?

Harlan Green © 2025

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

Greater Threats = Slower Growth

 Answering Kennedy’s Call

“Fostering a culture of fear and ignorance is not the way to run a political party, or country, if it would ever come to that.” Popular Economics

Reuters/January 6

I said in 2014 when writing in Huffington Post “Not all Republicans are bullies, and not all Democrats enlightened progressives, of course. But the bully mentality of House Speaker John Boehner’s “no compromise” tactics, or Senator Mitch McConnell’s filibustering of even the most innocuous Obama administration appointments have been the reason recovery from the Great Recession hasn’t been stronger.”

Fear and intimidation seem to be the main negotiating tools in the second Trump administration to achieve their goals, as well. President-elect Trump seems to believe that by threatening tariffs, he can force Denmark to give up Greenland and Panama the Panama Canal to strengthen our national security.

It didn’t work in his first term when shutting down government and mismanaging the COVID-19 pandemic created such a backlash that Nancy Pelosi and Democrats took back the House in 2018.

Why are tariffs an inflationary tax on imports? In the words of Nobel Laureate Paul Krugman: “What the tariffs would do is shrink our economy. They would cause us to sell less of the goods we currently export — that is, stuff we’re relatively good at producing — and more stuff we aren’t that good at producing. The effect would be to make the economy less efficient and poorer.”

FREDpce

And the level of inflation will determine what kind of growth we will see this year. Several Fed Governors have spoken about what inflation might do to the prospect of further rate cuts. Fed Governor Michelle Bowman and Kansas City Fed President Jeff Schmid both said the 100 basis points in rate cuts since September has brought the Fed’s benchmark rate down to “neutral,” where it neither dampens or boosts demand, according to MarketWatch’s Greg Robb.

Whereas Federal Reserve governor Christopher Waller said Wednesday that he supported more interest-rate cuts this year and didn’t think that proposed import tariffs from the incoming Trump administration will lead to upward pressure on inflation, also per MarketWatch.

We won’t know until higher tariffs are enacted, and which countries will be affected. But we know that the tactics of fear and intimidation haven’t worked in the past without damaging our economy as well as those countries targeted.

Harlan Green © 2024

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

Bidenomics Works--Part II

 Financial FAQs

A large fraction of voters do suffer from economic illiteracy. Indeed, it is fair to say that an ample majority do not understand the basics of how markets work. They are especially confused about labor and international markets. Voters also have severe misconceptions about how government spends their tax dollars, and are extraordinarily pessimistic about long-run economic conditions.” Professor Bryan Caplan of George Mason University, citing a recent Washington Post/ Henry J. Kaiser Family Foundation/ Harvard University Survey Project.

CalculatedRisk

“Job openings in the U.S. rose to a six-month high of 8.1 million in November from 7.8 million in the prior month, helped in part by a rebound in employment after two major hurricanes and the start of the holiday shopping season,” Jeffry Bartash, MarketWatch

Surveys such as the US Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) report as portrayed in the above graph are saying that consumers’ jobs are still safe. Then why so much angst that things might get worse? Polls seem to be buffeted by the latest political winds, especially with Trump’s repeated assertions that our economy is in terrible shape.

“Our Country is a disaster, a laughing stock all over the World!” he declared on social media last week, per NYTimes Peter Baker.

Yet we know that President Biden’s Bidenomics legislation has made us the fastest growing developed country in the world after the COVID-19 pandemic. We have been fully employed for more than two years, and inflation is back down to the 2 percent range.

Peter Baker added, “New data reported in the past few days indicate that murders are way down, illegal immigration at the southern border has fallen even below where it was when Mr. Trump left office and roaring stock markets finished their best two years in a quarter-century.

Polls have shown that this is because it’s easier to blame than understand what is happening to ordinary people’s financial circumstances. PEW Research has shown that although voters like their own situation, many believe the overall US economy is in the dumps; some even believing we are in a recession.

There are plenty of horror stories to encourage such a view, such as our national debt has ballooned to 121 percent of GDP, and we may soon lose our last Aaa bond rating.

But the latest economic facts are that both the service sector and manufacturing sectors of our economy are doing very well. Consumers are still powering travel, leisure activities, healthcare, and construction industries per the most recent Institute for Supply Management Service Sector survey. It’s headlines touted:

• Sharpest growth of output and new orders since March 2022
• Employment increases for first time in five months
• Business confidence at 18-month high

The ISM manufacturing survey showed similar but slower growth. “The overall economy continued in expansion for the 56th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.)

Because Americans get most of their news from public media that doesn’t make much of an effort to differentiate facts from fiction, truth from lies, it requires an effort to ferret out the difference. Propagandists know this as well, hence their nonstop efforts to repeat the fictions.

Harlan Green © 2024

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

Record Inequality = Record Debt

 Answering Kennedy’s Call

“Never spend money before you have earned it.” Thomas Jefferson

Thomas Jefferson may not be the best person to quote on the dangers of debt—His slaves weren’t freed upon his death because his estate owed too many debts. And my Italian economics history professor lectured on the cause of the fall of the Roman Empire. Its empire collapsed when it was bankrupted because its armies had run out of territories to invade and loot.

Might our American empire might end up in a similar situation? We have transferred as much of our national wealth as possible to the top 10 percent of American households by lowering their taxes. The other 90 percent of American households are tapped out, having accumulated massive debts as household incomes have stagnated since the 1970s.

FREDdebt/gdp

The FRED graph dating from 1980 shows when our debt-to-gdp ratio began to bulge—in 1980 from 31% to 51% of GDP creating the first $400 billion national debt total.

Our national debt has now ballooned to 121 percent of GDP since because we can’t agree on how to pay for it. We may soon lose our last Aaa rating from Moody’s Investors Services who has already warned it is in danger because “Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” as quoted by Barron’s Randall Forsyth.

Graph: Last Tech Age

But the real debt culprit is what the political polarization has led to—our record income inequality, worst in the developed world and many of the developing countries. It is mainly because majority Republican congresses have managed to push through successive tax cuts without the means to pay for them.

The U.S. was in 106th place of the 149 countries in income inequality as ranked by the CIA’s World Factbook with a Gini inequality index of developing countries like Peru and Cameroon when I first wrote about it. Whereas Finland and the Scandinavian countries are at the top of equality rankings, Germany and France are 12th and 20th, respectively. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

Is our bankruptcy immanent? It is becoming increasingly difficult to pay our bills with increasing deficits, since much of the deficit is funded by other countries investing in U.S. Treasuries because the US Dollar is a world currency. But it will become increasingly expensive as foreign investors in US Treasuries will demand higher bond yields for the increased risk of default, as Moody’s Investor Services has warned.

Defaults happened in 1932, when national markets collapsed causing the Great Depression. Americans had borrowed too much and in the words of Roosevelt’s Federal Reserve Chairman Marriner Eccles, “The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”

Part of the solution would be to restore the tax rates for the highest income earners that prevailed before President Reagan cut them to downsize government and enrich his Big Business supporters. The first tax cut (Economic Recovery Tax Act of 1981), cut the highest personal income tax rate from 70% to 50% and in the second tax cut (Tax Reform Act of 1986) to 38.5% among other things, per Wikipedia.

But most of the taxes would have to be paid by those he enriched, maybe even a tax on the wealth they had accumulated, i.e., the wealthiest 10 percent that benefited from all those tax cuts since 1980. Is that possible when the incoming administration wants even more tax cuts?

Harlan Green © 2024

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