Small Business Growth Was Killed Under Dodd-Frank

On Friday, Investor’s Business Daily posted an editorial about the impact of the Dodd-Frank Bill on the growth of small businesses in America.

The editorial reports:

A new study released by the National Bureau of Economic Research (NBER), the quasi-private think tank that serves as the referee for deciding U.S. upturns and downturns, shows the damage done by Dodd-Frank to small businesses was severe.

The study, “The Impact of the Dodd-Frank Act on Small Business,” by economists Michael D. Bordo and John V. Duca, goes a long way toward explaining why GDP growth under Obama was a mere 2%, a full third slower than the long-term average.

It’s based on a long-term and well-known dynamic. Small businesses grow faster than large ones, and account for over two-thirds of all U.S. jobs growth. Dodd-Frank’s damage was substantial and persistent.

The editorial explains how the regulations impacted small businesses:

Dodd-Frank made making loans to large companies far more attractive. They did so by new compliance rules that treated small and startup loans as inherently more risky than big-business loans.

In economic terms, Dodd-Frank increased the fixed cost of making a loan to smaller companies. So banks simply stopped lending to them. Overnight, businesses that once had lines of credit lost them. Many closed. Startups could get nothing.

This may sound like a wonky debate, but it isn’t. Dodd-Frank’s destructive lending restrictions destroyed millions of jobs and kept entrepreneurs from creating thousands and thousands of new, wonderful businesses.

And it also explains why, with a few deft strokes of his presidential pen, cutting both regulations and taxes sharply, President Trump has been able to offset Dodd-Frank’s growth-killing rules and restored 3% growth to the economy.

The cutting of regulations and the tax cuts created the economic atmosphere that has resulted in stunning economic growth in the past year. Now if the Federal Reserve will be very careful as it raises interest rates to reasonable levels, we should be able to come out of the slump we were in during the Obama administration smoothly.

The Positive Economic News Continues

Yahoo News is reporting today that jobless claims expectantly fell last week. (Why was it unexpected–the trend has been going downward for a while?) Because of this, the Federal Reserve is expected to raise interest rates next week to keep the economy from overheating. I have mixed emotions about this. We do have to get back to reasonable interest rates, but it seems as if the federal reserve also has a habit of overreacting and slowing down (or speeding up) the economy a little too quickly.

This is a chart of interest rates starting in approximately 2008 taken from trading economics:

As you can see, the rates were kept very low during the Obama Administration in order to avoid an economic crash. Ideally, the Federal Reserve will raise them very slowly so as to protect the economic growth we are currently seeing.

Yahoo News reports:

The dollar was trading lower against a basket of currencies. Prices for longer-dated U.S. Treasuries rose marginally and stocks on Wall Street were mixed. The labor market is considered to be close to or at full employment. Nonfarm payrolls increased by 223,000 jobs in May and the unemployment rate dropped to an 18-year low of 3.8 percent.

The jobless rate, which has declined by three-tenths of a percentage point this year, is now at a level where the Fed projected it would be by the end of this year.

The number of people receiving benefits after an initial week of aid increased 21,000 to 1.74 million in the week ended May 26. The four-week moving average of the so-called continuing claims dropped 13,250 to 1.73 million, the lowest level since December 1973.

…The strong job market conditions were also underscored by the publication on Thursday of the Labor Department’s Contingent and Alternative Employment Arrangements survey, which showed 1.3 percent of U.S. workers in May 2017 held jobs they considered temporary or did not expect to last beyond a year.

That is a decline from 1.8 percent in February 2005 when the government last conducted a similar survey.

When self-employed individuals and independent contractors were included, the share of workers was 1.6 percent in May 2017, down from 2.3 percent in February 2005. Most contingent workers were under the age of 25.

The Labor Department will publish its Contingent Worker Supplement report in September. It is expected to shed light on the so-called gig economy.

Like him or not, President Trump is a successful businessman who understands how economics works. It might be a good idea in the future to elect businessmen to the presidency instead of politicians.

Politicizing Finance

On Friday The Conservative Treehouse posted an article about a recent policy change by Citibank.

This is the new policy:

[…] Today, our CEO announced Citi is instituting a new U.S. Commercial Firearms Policy. […] Under this new policy, we will require new retail sector clients or partners to adhere to these best practices: (1) they don’t sell firearms to someone who hasn’t passed a background check, (2) they restrict the sale of firearms for individuals under 21 years of age, and (3) they don’t sell bump stocks or high-capacity magazines. This policy will apply across the firm, including to small business, commercial and institutional clients, as well as credit card partners, whether co-brand or private label.

Citibank has every right to do what they are doing. However, the American public has every right to choose whether or not to do business with Citibank. Unfortunately the American public did not have any say in the $476.2 billion in cash and guarantees that Citibank received from TARP, the FDIC, and the Federal Reserve during the financial crisis .

The article notes:

However, with more and more organizations deciding to limit the use of their products and services based on political ideology; and with Citibank now openly stating their intent to create national legislation without actually applying congressional laws to their endeavors; it’s a fair request to say Citi-group should no longer be permitted any favorable benefits from the FDIC.

As a private company, Citibank has the right to a company policy about guns, but restricting the sale of firearms for individuals under 21 years of age is contrary to the Second Amendment of the U.S. Constitution.  I wonder if a retail sector client has a legal case against Citibank if he refuses to abide by these terms and his business is prohibited from using Citibank credit cards.

The idea of injecting political views into business practices can be a problem. What if a bank decides it will not grant car loans to cars that run on gasoline because they believe in the concept of electric cars? What if a bank refuses loans to homes unless they have solar power? A corporation has the right to set their own company policies, but those policies should be in line with the U.S. Constitution if they are a business based in America.

 

Move Along, Nothing To See Here

Yesterday the Washington Examiner posted an article with the headline, “Fun with the Fed: Inflation is low, but the cost of living is up.” Meanwhile, CNS News posted the following graph yesterday:

Price of Ground Beef Hits All-Time High in November

It is hard for anyone who has been in a grocery store in the past year to believe that inflation is low.

The Washington Examiner reports:

From July to August, the “Core Consumer Price Index” did not move. That means zero inflation, if you use the measure of inflation the Federal Reserve uses when setting monetary policy. But core CPI omits volatile prices like food and energy. If you have a family, you’re probably pretty aware that food and utility bills are a big factor.

The result: The inflation measure that guides Fed decisionmaking has little resemblance to the inflation measure that guides family budgetmaking.

This is another example of the government manipulating numbers to get the desired result. Any resemblance to what is actually taking place and what the government is reporting is purely coincidental.

The Washington Examiner lists some of the price increases in the last year that impact families trying to live within their budget:

Food at home is up 2.9 percent.

Electricity is up 4.1 percent and gas bills are up 5.8 percent.

Coffee is up more than 50 percent from last year.

The article reports:

The net result is that life has gotten considerably more expensive for me since this time last year. I’m not saying this ought to guide our monetary policy. I’m just saying that core CPI doesn’t track the cost of living.

Today’s Economic Numbers

Investors.com posted an article today analyzing the jobs report that was released today. It is a mixed picture.

In chart form:

The chart shows a decreasing official unemployment rate, but it also shows what the unemployment rate would be if the labor participation rate used to calculate the unemployment rate were constant. The number of people who are not currently in the labor force is extremely high.

The article reports:

To further muddle the picture, January’s employment report showed a gain of 21,000 manufacturing jobs. Construction added 48,000 workers, the most since the recession, after a sharp weather-related drop in December. Meanwhile, retailers shed 12,900 jobs and cut the average workweek to 29.7 hours.

“We shouldn’t be surprised that the job gains are not at the level that they were in October and November,” said Keith Hembre, chief economist with Nuveen Asset Management. “But I am surprised we didn’t get more of a bounceback.”

Other unexpectedly weak data in the past few weeks include sharp drops in durable goods orders as well as new- and pending home sales.

Federal Reserve policymakers noted the housing pause at their January meeting, but decided other improvements in the economy were enough to justify continuing to taper asset purchases.

Hembre said the latest data shouldn’t change that outlook.

At some point the Federal Reserve policymakers are going to have to taper their asset purchases. The longer they postpone that, the more of a shock it is going to be. Unfortunately, the Federal Reserve has propped up the dollar and the stock market to the point where there will not be a soft landing. Because of the financial policies of the Federal Reserve for the past ten or twelve years, we will probably experience a very bumpy landing some time in the next six months. I believe we will come through it, but I also believe it will be very bumpy.

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