Trying To Level The Playing Field Has Its Challenges

Fox Business posted an article today about the devaluing of the Chinese yuan. The devaluing of the Chinese currency (currency manipulation) has been used by China for decades to grow their economy at the expense of America. It has been used to lure manufacturing away from America, impact our trade balance, and generally work against the American economy. We have needed to combat this practice for decades, but no President had the courage.

The article reports:

The onshore Chinese yuan weakened to worse than seven per U.S. dollar, hitting its lowest level since 2008, as Beijing looks to cushion the blow from Trump’s tariffs. A weaker yuan makes Chinese goods cheaper for overseas buyers, which may be necessary as China just lost its spot as the US’s biggest trading partner.

Trade data released Friday by the Department of Commerce showed U.S. imports from China fell by 12% in the first six months of the year, allowing Mexico to supplant it as the U.S.’s biggest trade partner.

“China dropped the price of their currency to an almost a historic low,” Trump tweeted Opens a New Window. on Monday. “It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

Last week, Trump said beginning Sept. 1 the U.S. would place a 10% tariff on the remaining $300 billion of Chinese goods. He went ahead with the announcement despite objections from his advisers.

The president warned he could “always do much more” with respect to tariffs, adding the 10 percent tax could go “well beyond 25 percent” if necessary. Earlier this year, the administration placed a 25% tariff on $250 billion worth of Chinese goods.

Weakening the yuan isn’t the only form of retaliation Beijing took on Monday. It also ordered state-owned enterprises to stop purchases of U.S. agricultural products, according to a Bloomberg report, citing people familiar with the situation.

That is a reversal from just last week, when Beijing said it had purchased several tons of U.S. soybeans Opens a New Window. as a gesture of a goodwill amid trade negotitations. Before the trade war began, China was the largest buyer of U.S. soybeans, accounting for 70% of all purchases, but their imports have fallen by 97% since the trade war began.

The article notes:

Over the weekened, The Trump administration pushed back against the idea the trade war was hitting the wallets of U.S. consumers.

“China has strategically gamed the tariffs by slashing their prices and by devaluing their currency,” White House trade advisor Peter Navarro told “Fox News Sunday.”

This trade dust-up with China may get ugly, but it is something that has to be done.

The Economy Continues To Move In A Positive Direction

Ed Morrissey posted an article at Hot Air today about the latest economic numbers. As usual when a Republican is President, the ‘experts’ were surprised that the numbers were better than expected.

The article reports:

It’s not great news for the White House, but it could have been a lot worse. The US economy’s growth slowed to 2.1% in the second quarter, down a full point from Q1. However, with economists predicting a recession right around the corner, the growth is still substantial enough to look positive:

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2019 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The Bureau’s second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The “second” estimate for the second quarter, based on more complete data, will be released on August 29, 2019.

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.

President Trump weighed in on Twitter:

The article at Hot Air concludes:

“Not bad” is a little bit of an understatement, actually. It’s pretty good, especially in the context of the global economy. That’s the bigger anchor, especially the trade disputes that at least for one quarter hit our exports hard.

The steady growth with low inflation should result in the Federal Reserve lowering interest rates in the near future.

How Do You Run Against This Record?

Yesterday Byron York posted an article at The Washington Examiner about the 2020 Presidential election. The title of the article is, “Byron York: Dem 2020 task: Convince voters to overlook economy.” He is right assuming that the economy continues to do as well as it has. We need to remember that the Federal Reserve is in a position to undercut our prosperity. A few key interest rate raises would definitely slow down our growth. The fed is already making noises that it might not cut rates this year as previously expected. That might also have a negative impact on our growing economy. I am not convinced that the problem the Democrats have is to convince voters to overlook the economy as much as all Americans need to make sure that political forces do not move to wreck a good economy for political gain.

The article concludes:

“Trump’s tenure is straining one of the most enduring rules in presidential politics: the conviction that a strong economy benefits the party holding the White House,” wrote analyst Ron Brownstein in The Atlantic. “Across many of the key groups in the electorate, from young people to white college graduates, Trump’s job-approval rating consistently runs at least 25 points below the share of voters who hold positive views about either the national economy or their personal financial situation.”

Of course Democrats can’t ignore the economy. So far, when they have addressed it, they haven’t been terribly creative, relying on the standard-issue Democratic critique of Republican presidents — that Trump is creating an economy that only benefits his rich friends.

“Who is this economy really working for?” asked Elizabeth Warren at the first Democratic debate. “It’s doing great for a thinner and thinner slice at the top.”

It’s not clear how well that will work. As the Wall Street Journal editorial board pointed out recently, under Trump, “wages are rising at the fastest rate in a decade for lower-skilled workers, and unemployment among less-educated Americans and minorities is near a record low.” The result of the president’s policies, the Journal argued, “has been faster growth and less inequality.”

Another way to say that is that millions of Americans are better off than they were four years ago. The question in 2020 will be whether that matters.

Actually, if the  Democrat debates continue at their present level of relevance, President Trump may easily cruise into another term as President.

A Positive Economic Picture

CNS News is reporting today that the economy is doing better than predicted.

The article reports:

A record 157,005,000 people were employed in June, the most since February and the 19th record of Trump’s presidency, the Bureau of Labor Statistics reported on Friday.

And the economy added a strong 224,000 jobs in June, well above the estimate of 160,000.

The unemployment rate, the lowest in 50 years, ticked up a tenth of a point to 3.7 percent.

In June, the nation’s civilian noninstitutionalized population, consisting of all people age 16 or older who were not in the military or an institution, reached 259,037,000. Of those, 162,981,000 participated in the labor force by either holding a job or actively seeking one.

The 162,981,000 who participated in the labor force equaled 62.9 percent of the 259,037,000 civilian noninstitutionalized population. That’s up a tenth of a point from May’s 62.8 percent participation rate. The payroll taxes paid by people who participate in the labor force help support those who do not participate, so the higher this number, the better.

The participation rate reached a record high of 67.3 percent in early 2000; the highest it’s been under Trump is 63.2 percent.

In December 2016, the labor force participation rate was 62.7. It has moved between 62.7 and 63.1 since President Trump took office.

I love the fact that during a Republican administration, the estimates of jobs created is always low and economists are always surprised when the real numbers come out.

The article concludes:

And wages continue rising: In June, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.90, following a 9-cent gain in May. Over the past 12 months, average hourly earnings have increased by 3.1 percent.

Federal Reserve Chairman Jerome Powell, in a June 25 speech, said the economy has performed “reasonably well” so far this year, with continued growth and strong job creation keeping the unemployment rate near historic lows.

But Powell also mentioned “some ongoing cross-currents,” including trade uncertainty and incoming data about the strength of the global economy.

He said the Fed “will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion…” That could mean lower interest rates — or not, if the employment and job numbers remain strong.

Economic policies impact the economy. It matters who is occupying the White House. President Trump has proved that.

The Economy Is Humming Along

CNBC is reporting today that the economic news for April is very good.

The article reports:

The U.S. jobs machine kept humming along in April, adding a robust 263,000 new hires while the unemployment rate fell to 3.6%, the lowest in a generation, the Labor Department reported Friday.

Nonfarm payroll growth easily beat Wall Street expectations of 190,000 and a 3.8% jobless rate.

Average hourly earnings growth held at 3.2% over the past year, a notch below Dow Jones estimates of 3.3%. The monthly gain was 0.2%, below the expected 0.3% increase, bringing the average to $27.77. The average work week also dropped 0.1 hours to 34.4 hours.

Unemployment was last this low in December 1969 when it hit 3.5%. At a time when many economists see a tight labor market, big job growth continues as the economic expansion is just a few months away from being the longest in history.

The growth in the economy is the result of economic policies put in place by President Trump–tax cuts, revised trade deals, cuts to regulations, and generally making the economy more welcoming to companies who want to do business in America.

The article concludes:

GDP increased 3.2% during the first quarter, far exceeding expectations, while productivity during the quarter jumped 3.6% for its best gain in five years. Pending home sales rose 3.8% in March, providing some hope in the real estate market so long as rates are held in check.

Earlier this week, the Federal Reserve held the line on its benchmark interest rate, characterizing economic growth as solid even as inflation remains tame. The central bank watches metrics like the nonfarm payrolls report closely for clues both on job creation and wage pressures.

Fed Chairman Jerome Powell said current indications point to a prolonged period of holding pat on increases or decreases in rates. President Donald Trump has said he wants the Fed to cut rates by a full percentage point.

The economy plays a big role in deciding elections. None of the policies espoused by the current group of Democrat Presidential candidates for 2020 will continue this economic growth.

Sad News For The American Economy

One entity that controls the American economy is the Federal Reserve (which is not controlled by the government). It’s board members are nominated by the President and approved by Congress, but it is a private entity. Unfortunately it is part of the globalist cabal that seeks to undermine American sovereignty. President Trump has attempted to put two skilled businessmen on the Federal Reserve recently. The globalists in Congress have caused both men to withdraw their nominations. In the coming year, you can expect the Federal Reserve to subtly move to make the re-election of President Trump more difficult. I expect rate hikes leading up to the election to counter a healthy economy that is rapidly expanding. President Trump is not a globalist, and the globalists really want him gone. Globalists in Congress include both Democrats and Republicans (that is why it is so difficult to secure our borders).

The Gateway Pundit is reporting today that Stephen Moore has withdrawn his nomination to the Federal Reserve Board.

The article reports:

Stephen Moore has a distinguished career in leadership roles at Heritage and The Wall Street Journal. Stephen Moore is a founder at the Club for Growth. Moore was an early Trump campaign supporter and wrote the book Trumponomics.

Moore is a presidential adviser and friend and is an architect of the greatest economic boom since Ronald Reagan.

In September Stephen Moore spoke at the Gateway Eagle Council in St. Louis, Missouri.

And in December Steve criticized Federal Reserve Chairman Jerome Powell for his irresponsible and dangerous rate hikes and threats of rate hikes. Powell was able to unilaterally stall the US economic boom in its tracks and cost the US economy hundreds of billions of dollars.

Moore wrote that it was time for Powell to resign. Moore was right.

The article includes excerpts from a World Net Daily article explaining why Jerome Powell should resign:

The Fed had already reduced the monetary thrust that it provides to the economy eight times since Dec. 15, 2015, by raising its federal funds interest rate from 0.25 percent to 2.25 percent. Each time, the Fed claimed that it needed to guard our economic airliner from inflationary “overheating” – as if its job is to prevent too many people from working and to make sure that paychecks aren’t rising too quickly.

Unfortunately, if you cut engine power too far on a jetliner, it will stall and drop out of the sky.

On Wednesday, Dec. 19, despite the numerous market-based alarms that were sounding in the cockpit, Federal Reserve Chairman Jerome Powell and his co-pilots on the Federal Open Market Committee – a committee within the Federal Reserve System charged under the United States law with overseeing the nation’s open market operations and which makes key decisions about interest rates and the growth of the U.S. money supply – voted to raise the funds rate to 2.50 percent. This sucks more dollars out of the economy at a time when the world is demanding more dollars – thanks to Trump’s tax-cutting and deregulation policies.

Powell has been entirely tone-deaf to the financial markets he seeks to protect. The Dow Jones Industrial average, which had risen by 382 points on hopes that the Fed would listen to Trump and stop cutting power, plunged by 895 points after the 2 p.m. announcement, and closed the day down 352 points (1.49 percent). Poof. Trillions of dollars of wealth vanished.

The article at The Gateway Pundit concludes:

The Democrats and Deep State apparatus does not want Stephen Moore on the board of the Federal Reserve. Stephen is the perfect pick for the job. Now the deep state is attacking Steve and his family.

Republican Senators Joni Ernst (R-IA), Shelley Moore Capito (R-WV), Lisa Murkowsky (R-AL) and anti-Trumper Mitt Romney (R-UT) expressed reservations this week. The Republican senators effectively killed Steve Moore’s nomination.

The Republicans voiced concerns over Moore’s nomination for comments he made nearly 20 years ago about women earning as much as men in fields like women’s sports.

On Thursday Steve Moore withdrew his nomination for the Federal Reserve Board.

It was a victory for anti-Trump globalists everywhere.

Stephen Moore’s withdrawal of his nomination is America’s loss.

Trying To Drive A Stake Through The Establishment

On March 22, President Trump nominated Stephen Moore to serve on the Board of the Federal Reserve. The establishment began their attack almost immediately. Why? Because Stephen Moore is a respected economist who will rock the boat of the establishment. He supports the economic policies of President Trump (which incidentally have been successful in reviving a struggling economy). The negative reports and personal attacks are all through the mainstream media–very little is being said about the accomplishments of Stephen Moore.

In December 2018, World Net Daily posted an article by Stephen Moore titled, “Fire the Fed.” Stephen Moore called on Chairman Powell to resign in wake of interest-rate hike.

In the article, Stephen Moore states:

In one of the most remarkable Abbott and Costello routines in modern times, the economic wizards at the Fed again raised interest rates on Tuesday. Their crackerjack logic for doing so is to steer America on a course toward recession so they have the tools in hand to end the recession they themselves created. Can anyone tell us who’s on first?

Worse, this Fed move doubles down on its blunderous interest rate rise in September. President Donald Trump turned out to be exactly right: The central bank pullback on money would slow growth and crush the stock market in order to combat nonexistent inflation.

…Since its peak on Oct. 3, which, not coincidentally, was right after Powell gave a speech suggesting that the Fed might be through tightening money, the Dow has fallen by more than 3,500 points. Market fears about his bad judgment have cut the value of all U.S. stocks by about $4.5 trillion, which is enough to buy 16,000 Boeing 787 Dreamliners.

The Fed economists use twisted logic that the economy is “strong enough” to absorb the rate hikes – which is simply an admission that their policy will slow growth.

Stephen Moore needs to be on the Board of the Federal Reserve. His presence might prevent the Federal Reserve from raising rates just before the 2020 election in order to cause a recession. Just as the Federal Reserve kept rates low during the Obama administration to give the appearance of a healthy economy, they may raise those rates in the coming year to give the impression that President Trump’s economic policies are not working. They need a watchdog.

Six Major Challenges In 2019

On December 28th, Investor’s Business Daily posted an editorial listing what their editors considered would be the top six issues of 2019. The title of the editorial is, “Will 2019 Be Happy? It Depends On How Washington Handles These 6 Challenges.” I suspect that is true.

The editorial lists the six items:

1. The Federal Reserve

2. Trade

3. Immigration

4. The Coming Budget Battle

5. Slaying The Regulatory Dragon

6. Fixing Health Care ‘Reform’

Here are some of the observations from the editorial on each item:

The Fed has raised its benchmark funds rate eight times over two years in pursuit of a “neutral” rate. Its most recent rate hike, coming about a week before Christmas, was followed by a steep decline in stocks and growing concerns that the economy might fall into recession next year if the central bank follows through on its plan to raise rates at least twice more.

It’s of more than academic interest that all 11 of the U.S. recessions since World War II were preceded by a sharp run up in Fed rates. Every one of them. It’s not a record of which to be proud.

…Despite bitter criticisms, President Trump successfully concluded a “new Nafta” deal with both Canada and Mexico covering $1.3 trillion in trade. The deal closes a number of holes in the old Nafta, increasing U.S. access to Canadian dairy markets, for instance, while also making cars tariff-free if 75% of their parts are made in the U.S., Canada or Mexico. All three countries signed off on the deal. The only question is, will it ever go into effect?

With Democrats controlling Congress and just six months for the trade deal to go into effect, some worry that major changes will be requested. President Trump has asked that either the new U.S.-Mexico-Canada Agreement be approved outright, or revert to the pre-Nafta trading rules. Congressional Democrats may even challenge Trump’s right to make a deal, putting the so-called USMCA in limbo. Stay tuned.

…With Americans eager to control immigration, as polls repeatedly show, Democrats may decide that negotiation rather than confrontation is a better tactic. That could mean a deal for a pathway to citizenship for the millennial illegal immigrant “dreamers,” many of whom have lived in the U.S. for most of their lives despite not having citizenship. With an estimated 22 million illegals in the U.S., many states are eager to gain some stability in our immigration policy.

…This year’s budget battle over funding the wall will likely pale in comparison to next year’s. The continued growth in entitlements, compounded by the sharp rise in interest payments, thanks to the Fed’s rate hikes, will balloon the deficit. The Congressional Budget Office’s last official projection pegged the deficit for 2019 at $981 billion. It will likely end up topping $1 trillion.

…But as we’ve pointed out many times, the problem isn’t tax cuts, it’s the unwillingness of anyone in Washington — including Trump — to deal with entitlement programs that have swamped the federal budget. Trump and the GOP will have to stand firm on taxes next year, while grappling with a rising tide of debt that will soon surpass $21 trillion.

…ObamaCare limped along for another year, with premiums for 2019 falling, overall, after years of massive double-digit increases. Trump took several steps to improve ObamaCare. The most important fix was to breathe life back into the short-term insurance market that President Obama tried to snuff out to protect the ObamaCare exchanges. Unfortunately, since Republicans blew their chance at repeal, the best we can hope for is that Trump will continue to tweak the law where he can. But he shouldn’t shy away from fighting for more free-market reforms. Should Democrats resist, or start pushing for socialized “Medicare for all,” it will create an opportunity for Trump to paint Democrats as big-government extremists.

The article concludes:

The coming year will be eventful, with many of Trump’s main initiatives set for action by Congress — a Congress, as we noted, that won’t be as friendly to Trump as the last one. Whether Trump and the Democrats can, as the bumper sticker says, coexist, or whether the Trump agenda founders on a never-ending stream of congressional investigations and hearings on the White House, remains to be seen. We guarantee it won’t be boring.

Get out the popcorn.

The Law Of Unintended Consequences

It’s hard to defend the actions of the Federal Reserve right now. The people who propped up the economy under President Obama seem determined to destroy the economy under President Trump. But we know that the Federal Reserve is apolitical. Sure we do. However, there may be some unintended consequences of the current Federal Reserve actions.

The Gateway Pundit posted an article today which explains some of those consequences.

The article reports:

The Chinese were relentless in their efforts to obtain Western technology and grow their economy.  They set up trade barriers and manipulated their currency in ways that helped China. The US was at a disadvantage in trade resulting in massive deficits into the billions.

Along comes the Trump Administration, the first administration to address China’s unfair trade advantage.  President Trump is a shrewd negotiator and he obviously believes now is the time to encourage China to make changes to their trade barriers with the US.  China may have no choice but to go with what the US offers to keep its economy afloat.

The more pressing issues for China surround real estate, in a manner similar to the US in 2008.  As China grew, it invested in its infrastructure and in addition it invested in large housing projects throughout the country.  These efforts helped bolster China’s already fast growing economy.

The problem is that China over invested in these random properties all over China and these properties today remain empty.

…Now to add to China’s misery, the Fed is doing all it can to kill the US economy.  China is dependent on the US economy to stay afloat.

…The US debt now stands at $21.8 trillion. A 2.25% interest increase on this amount of debt is an annual increase in debt interest payments of $500 billion!!!

The Fed is doing all it can to destroy President Trump’s economy. What the Fed doesn’t realize is that a flat US economy means disaster to the Chinese.

China’s financial crash may make the 2008 crash in the US look small.  The implications will no doubt impact the entire world.  Jerome Powell at the Fed has no idea what he is doing!

Hang on to your hat, if the Federal Reserve continues on its current path, this may be a very bumpy ride.

Exactly What Is The Federal Reserve Trying To Accomplish?

The Gateway Pundit posted an article today that included Economist Stephen Moore’s comments on the recent rate hike by the Federal Reserve. Mr. Moore does not pull his punches.

Mr. Moore states:

In one of the most remarkable Abbott and Costello routines in modern times, the economic wizards at the Fed again raised interest rates on Tuesday. Their cracker jack logic for doing so is to steer America on a course toward recession so they have the tools in hand to end the recession that THEY themselves created. Can anyone tell us who’s on first?

Worse, this Fed move doubles down on its blunderous interest rate rise in September. President Trump turned out to be exactly right: the central bank pull back on money would slow growth and crush the stock market in order to combat nonexistent inflation.

The Fed had already reduced the monetary thrust that it provides to the economy 8 times since December 15, 2015, by raising its Fed Funds interest rate from 0.25% to 2.25%. Each time, the Fed claimed that it needed to guard our economic airliner from inflationary “overheating” – as if its job is to prevent too many people from working and making sure that pay checks aren’t rising too quickly.

Unfortunately, if you cut engine power too far on a jetliner, it will stall and drop out of the sky.

On Wednesday, December 19, despite the numerous market-based alarms that were sounding in the cockpit, Chairman Powell and his co-pilots on the FOMC voted to raise the Fed Funds rate to 2.50%. This sucks more dollars out of the economy at a time when the world demanding more dollars – thanks to Trump’s Tax cutting and deregulation policies.

Chairman Powell has been entirely tone deaf to the financial markets he seeks to protect. The Dow Jones Industrial average, which had risen by 382 points on hopes that the Fed would listen to President Trump and stop cutting power, plunged by 895 points after the 2:00 PM announcement, and closed the day down 352 points (1.49%). Poof, trillions of dollars of wealth vanished.

Since its peak on October 3, which, not coincidentally, was right after Chairman Powell gave a speech suggesting that the Fed might be through tightening money, the Dow has fallen by more than 3,500 points [now 4,500]. Market fears about his bad judgment have cut the value of all U.S. stocks by about $4.5 trillion, which is enough to buy 16,000 Boeing 787 Dreamliners.

The Fed economists use twisted logic that the economy is “strong enough” to absorb the rate hikes – which is simply an admission that their policy will slow growth.

And for what purpose?   Since the last rate hike the economy has slipped into an anti-growth deflationary cycle with commodity prices – oil, copper, cotton, lead, steel, silver among others – falling by about 10 percent. The new Fed policy is sure to accelerate the deflation and farmers, ranchers, coal miners, oil and gas drillers will get further crunched by the dollar shortage.

Can someone at the Fed Temple please explain how falling commodity prices indicates inflation? Inflation is too many dollars chasing too few goods.

The commodities index is about the only read-out that a monetary pilot truly needs. And, right now, the CRB Index is blaring “Pull up!  Pull up!”

Mr. Powell warned of a slowing economy in 2019 – but he failed to acknowledge that the headwinds the economy is facing are the drag the Fed is itself creating. It was almost as if the Fed believes there is some weird Puritan-like virtue to slowing down the investment, employment and wage-growth spurt Trump policies have created.

What is to be done now? Trump wants to fire the Fed chairman though it is doubtful he has the authority to do that. Much better for Mr. Powell to do the honorable thing and admit that his policies have had disastrous economic and financial consequences and resign.

If not this, at least Mr. Powell should hold an emergency meeting of the Federal Reserve Board and immediately cancel the rate hikes. Better yet, the Fed should announce ways to inject money into the dollar-starved economy.

For much of the past two decades, America’s economic problems of slow growth and flat wages were due to the drag of fiscal and regulatory mistakes. Now at the very moment in time when we FINALLY have a president who is slashing tax rates and regulations and is making America a much more business-friendly nation, the Fed’s monetary policy has come unhinged.

Cockpit warnings have been sounding for months, not only from the markets, but from President Trump and many other growth economists – including ourselves. We are now suffering the financial ramifications of this “pilot error” on the part of Chairman Powell.

The article includes the following chart:

It’s time either to get rid of the Federal Reserve or put someone in charge without a political agenda. Crashing the economy is the only way the Democrats can take the presidency in 2020, and political insiders know that. The recent drastic rate increase are not done without purpose.

Raising Interest Rates Is Not The Right Move

Interest rates were kept artificially low during the Obama administration. This resulted in lower interest payments on the national debt, which increased from $7.27 trillion in 2009 when President Obama took office to $14 trillion at the end of fiscal 2016. The current national debt is $16 trillion. Increasing interest rates from 2.25 percent to 2.50 percent increases the amount of money all taxpayers will have to pay as interest on that debt.

Breitbart reported today:

“In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2‑1/2 percent,” the Federal Reserve announced. The Fed indicated the possibility of just two rate hikes in 2019.

The Dow Jones industrial average rose leading up to the announcement.

Predictions looked toward a likely rate hike ahead of the announcement and possible signaling to a slowing of potential future rate hikes. USA Today reported ahead of the announcement, “Most Wall Street pros expect the Fed, as it has signaled, to hike its key rate another quarter point to a range of 2.25 percent to 2.50 percent. This would be the fourth increase this year and ninth since late 2015.”

The Federal Reserve is not a government agency. They are supposed to be apolitical, but their actions in recent years bring that into question. Lower interest rates during the Obama administration kept the stock market high, paid dividends to those on Wall Street and any well-connected politicians. It provided the appearance of an okay economy despite decreases in the Workforce Participation Rate and the rapidly shrinking middle class. Since President Trump took office, the middle class is growing, and the Workforce Participation Rate is slowly climbing. This rate increase will increase the amount of money needed to pay interest on the national debt and will be a drag on the economy. I don’t mean to be cynical, but I believe that is by design. The Federal Reserve is part of the political establishment that does not want to see the economic success of President Trump’s economic policies. President Trump is not a member of the political establishment, and it will be more difficult to get rid of him in 2020 if the economy is growing. The rate hikes announced today will put a damper on economic growth. The question will be how much of a damper.

 

The Economy Under President Trump

I am not an economist, but I have learned over the years to listen to the people with the best track records on analysis. One of those people is Stephen Moore, who posted an article at The Wall Street Journal yesterday.

The article reports:

Liberals are tripping over themselves to explain why the economy has performed so much better under Donald Trump than it did under Barack Obama. The economy has grown by nearly 4% over the past six months, and the final number for 2018 is expected to come in at between 3% and 3.5%. The U.S. growth rate has doubled since Mr. Obama’s last year in office.

When Mr. Trump was elected, many Democratic pundits predicted an economic and stock-market meltdown. Then the economy started surging and they abruptly changed their tune, arguing that Mr. Trump was simply riding a global growth wave. That narrative was shattered when U.S. growth kept steaming ahead even as global growth—especially in China and Germany—stalled.

The people who predicted an economic crash if President Trump was elected are now saying that the tax cuts have given us a ‘sugar high’, and the market will crash when the sugar wears off. That makes about as much sense as President Obama taking credit for the move toward American energy independence.

The article continues:

The real contradiction in the “sugar high” argument is that it ignores the slow growth of the Obama years, which featured an avalanche of debt spending. Deficits as a share of GDP were 9.8% in 2009, 8.6% in 2010, 8.3% in 2011 and 6.7% in 2012. Where was the sugar high then? Instead of the expected burst in output coming out of the 2008-09 recession, borrowing more than $1 trillion a year for four years yielded the worst recovery since the Great Depression. Even excluding 2009, Mr. Obama’s deficits averaged more than 5% of GDP throughout the rest of his presidency but produced less growth than Mr. Trump has with lower deficits.

This wasn’t what Keynesians expected. Mr. Obama’s economic team predicted 4% growth every year coming out of the recession. Instead the “sugar high” from record peacetime deficits produced measly 2% growth. By 2016 GDP was running about $2 trillion below the trend line of a normal recovery.

The fastest growth rate over the past three decades was recorded in Bill Clinton’s second term, when federal government spending fell from 21.5% to 18% of GDP and deficits disappeared into surpluses. So much for the idea that deficit spending is a stimulant.

Mr. Trump’s fiscal policies have produced more growth than Mr. Obama’s because they were designed to incentivize businesses to invest, hire and produce more here at home. The Obama “stimulus,” by contrast, went for food stamps, unemployment benefits, ObamaCare subsidies, “cash for clunkers” and failed green energy handouts.

The article concludes:

Those pushing the “sugar high” fallacy also don’t realize that the Trump tax cuts aren’t going away soon. The 2017 business tax cuts can’t cause a recession in 2019 or 2020 because they don’t expire until 2025. They aren’t sugar pills.

The biggest threats to the economic boom and financial markets today are a deflationary Federal Reserve and the specter of a global trade war. Solve those problems and the American economy can keep flying high on its own power. And Mr. Trump’s critics will be proved wrong again.

When you decrease taxes and regulations on businesses, we all gain. That combination, if allowed to continue, will bring us continued economic growth.

The Economic Numbers From October

First of all, the following chart is found at the Bureau of Labor Statistics website. It shows the Workforce Participation Rate in recent years.

The number 62.9 is not a great number, but it is a step in the right direction.

Below is a chart posted at the Bureau of Labor Statistics website showing the unemployment rate for October.

The fact that the unemployment rate remained steady as the labor participation rate increased is good news for Americans. It means that there is continued growth in the job market.

Today The Wall Street Journal posted more good economic news:

Strong hiring and low unemployment are delivering U.S. workers their best pay raises in nearly a decade.

Employers shook off a September slowdown to add 250,000 jobs to their payrolls in October, above monthly averages in recent years, the Labor Department said Friday. With unemployment holding at 3.7%, a 49-year low, and employers competing for scarce workers, wages increased 3.1% from a year earlier, the biggest year-over-year gain for average hourly earnings since 2009.

…The share of Americans in their prime working years, between 25 and 54, who are working or looking for work rose to the highest rate since 2010 last month, at 82.3%.

President Trump touted the figures in a tweet Friday, just days before midterm elections that will decide control of Congress. “Wages UP! These are incredible numbers,” Mr. Trump said.

Employers have added to their payrolls for a record 97 straight months.

This is the Trump economy. The Federal Reserve is beginning to raise interest levels to more normal levels, which may slow down the growth of the economy, but keeping interest rates at artificially low levels is not a good long-term strategy. We still have a need to control our spending and get the national debt under control, but strong economic growth and a lessening of the need for welfare programs should begin that process. There will be some adjustments along the way–low interest rates will no longer be keeping the stock market artificially high and rising interest rates may slow the housing market, but raising interest rates will also help bring us back to a more balanced economy.

If the Republicans hold Congress, the economic growth will continue. If the Democrats gain control of the House of Representatives, we will be in for a very bumpy economic ride.

Who Holds Our Debt?

CNS News is reporting today:

Chinese holdings of U.S. Treasury securities are 11.5 percent below their peak level which was attained in November 2013, according to data published by the U.S. Treasury.

U.S. government debt held by entities in the People’s Republic of China peaked at $1,316,700,000,000 in November 2013, according to the Treasury. As of August 2018, according to the latest date released by the Treasury this month, China held $1,165,100,000,000 in U.S. Treasury.

That is a drop of $151,600,000,000 from the November 2013 peak.

We are still carrying way too much national debt, and that will be a more serious problem as the federal reserve raises interest rates. However, although China is holding less of our debt, it is still the the top foreign holder of U.S. Treasury securities.

The article concludes:

While China remains the top foreign owner of U.S. government debt—despite its declining holdings—the Federal Reserve still owns far more. As of the end of November, according to the Federal Reserve, it owned $2,324,589,000,000 in U.S. Treasury securities.

China’s $1,165,100,000,000 in U.S. Treasury securities was only 50.1 percent of the Fed’s holdings.

It’s time to cut government spending and get out of debt!

 

 

Things To Notice

On October 15, The Wall Street Journal noted:

The U.S. government ran its largest budget deficit in six years during the fiscal year that ended last month, an unusual development in a fast-growing economy and a sign that—so far at least—tax cuts have restrained government revenue gains.

The deficit totaled $779 billion in the fiscal year that ended Sept. 30, up 17% from $666 billion in fiscal 2017, the Treasury Department said Monday. The deficit is headed toward $1 trillion in the current fiscal year, the White House and Congressional Budget Office said.

Deficits usually shrink during economic booms because strong growth leads to increased tax revenue as household income, corporate profits and capital gains all rise. Meantime, spending on safety-net programs like unemployment insurance and food stamps tends to be restrained.

In the last fiscal year, a different set of forces was at play as economic growth sped up. Interest payments on the federal debt and military spending rose rapidly, while tax revenue failed to keep pace as the Republican tax cuts for both individuals and corporations kicked in.

What you just read is totally misleading. The statement that ‘ tax revenue failed to keep pace as the Republican tax cuts for both individuals and corporations kicked in” is absolutely false. The two major parts of the problem are Congress’ lack of ability or willingness to cut spending and the fact that when the federal reserve raises interest rates, it increases the interest the government pays on the current debt, thus increasing the deficit. As far as the tax cuts are concerned, the facts are quite different from what The Wall Street Journal reported.

On October 16, Investor’s Business Daily reported:

Critics of the Trump tax cuts said they would blow a hole in the deficit. Yet individual income taxes climbed 6% in the just-ended fiscal year 2018, as the economy grew faster and created more jobs than expected.

The Treasury Department reported this week that individual income tax collections for FY 2018 totaled $1.7 trillion. That’s up $14 billion from fiscal 2017, and an all-time high. And that’s despite the fact that individual income tax rates got a significant cut this year as part of President Donald Trump’s tax reform plan.

True, the first three months of the fiscal year were before the tax cuts kicked in. But if you limit the accounting to this calendar year, individual income tax revenues are up by 5% through September.

Other major sources of revenue climbed as well, as the overall economy revived. FICA tax collections rose by more than 3%. Excise taxes jumped 13%.

The only category that was down? Corporate income taxes, which dropped by 31%.

Overall, federal revenues came in slightly higher in FY 2018 — up 0.5%.

Spending, on the other hand, was $127 billion higher in fiscal 2018. As a result, deficits for 2018 climbed $113 billion.

The underline is mine.

It’s the spending, stupid! We need a Congress that will curb spending and a Federal Reserve that will move slowly.

Charts Tell The Story

John Hinderaker posted an article at Power Line today about the impact the economic policies of President Trump have had on the State of Minnesota. The focus of the article is the economic impact of the tax cuts.

The article includes the two following graphs:

The article also includes the following news from the Labor Department:

American wages unexpectedly…

Unexpectedly!

…climbed in August by the most since the recession ended in 2009 and hiring rose by more than forecast, keeping the Federal Reserve on track to lift interest rates this month and making another hike in December more likely.
Average hourly earnings for private workers increased 2.9 percent from a year earlier, a Labor Department report showed Friday, exceeding all estimates in a Bloomberg survey and the median projection for 2.7 percent. Nonfarm payrolls rose 201,000 from the prior month, topping the median forecast for 190,000 jobs.

As I have previously stated, why is good economic news unexpected during a Republican administration and expected by the media during a Democrat administration?

The conclusion of the article reminds us what will happen in the Democrats take control of Congress:

A Democratic Congress never would have passed the Tax Cuts and Jobs Act. In fact, not a single Democrat voted for it. And Hillary Clinton never would have signed it. The progress the U.S. economy has made since Donald Trump took the helm from the hapless Barack Obama is an ongoing rebuke to the Democrats’ anti-growth policies. This is one reason the Democrats are so anxious to regain control over the House in November. With the House in Democrat hands, they won’t be able to repeal the Tax Cuts and Jobs Act, but they will be able to guarantee that no more pro-growth, pro-worker legislation will be enacted. They will focus on impeaching President Trump instead.

If you don’t like the current economic growth, vote Democrat and it will stop.

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.

Enhanced by Zemanta