Tag Archives: CNBC

Follow The Money

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On Friday, CNBC reported that the U.S. government has decided not to pursue further charges against FTX founder Sam Bankman-Fried.

The article reports:

  • Prosecutors have decided against pursuing a second trial against disgraced FTX founder Sam Bankman-Fried.
  • In a note to Judge Lewis Kaplan on Friday, the U.S. government said that much of the evidence that would have been presented had already been submitted during the first trial.
  • In November, following a month’s worth of testimony from nearly 20 witnesses, a jury found the former FTX chief executive guilty of all seven criminal counts against him.

The article notes:

The second trial, which had been slated to start in March, addressed an additional set of criminal counts, including conspiracy to bribe foreign officials, conspiracy to commit bank fraud, conspiracy to operate an unlicensed money transmitting business and substantive securities fraud and commodities fraud. 

Damian Williams, the U.S. attorney for the Southern District of New York, wrote in the letter to the Court that “a second trial would not affect the United States Sentencing Guidelines range for the defendant, because the Court can already consider all of this conduct as relevant conduct when sentencing him for the counts that he was found guilty of at the initial trial.”

I suppose it is just an incredible coincidence that after Sam Bankman-Fried donated $100 million in stolen customer funds to US politicians, the US Government announced they’re dropping six charges against SBF and will not prosecute him for a political campaign finance violation. Any guesses on what the second trial would reveal about campaign finance violations and the people who received funds illegally?

 

It’s Really All A Matter Of Perspective

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CNBC has posted its list of the ten best states in America to live in and its list of the ten worst states in America to live in. When you look at the lists that CNBC has compiled and compare them to how Americans are ‘voting with their feet,’ you really wonder what the people who put together the lists were thinking.

This is the list of the 10 best states to live and work in according to CNBC:

10. Connecticut

8. (tie) Massachusetts

8. (tie) Colorado

7. Washington

6. Oregon

5. Hawaii

4. Minnesota

3. New Jersey

2. Maine

1. Vermont

These are the ten worst states to live and work in according to CNBC:

10. Florida

9. Arkansas

8. Tennessee

7. Indiana

6. Missouri

4. (tie) Alabama

4. (tie) South Carolina

3. Louisiana

2. Oklahoma

1. Texas

Please note that the only state in the ‘best’ places to live that has a Republican governor is Vermont, where Phil Scott is the Governor. The rest are Democrats. Based on the states chosen as ‘best’, I don’t believe there was much consideration given to the cost of living in the ‘best’ states.

Also note that in the ten ‘worst’ states, the only one with a Democrat governor is Louisiana, where John Bel Edwards is Governor. The rest are Republicans.

It is interesting to compare the CNBC list to the relocation habits of Americans. Below is a map posted at world population review illustrating states that have gained population and states that have lost population.

Believe the mainstream media at your own risk!

Actually, The Tax Payers Are The Ones Who Paid For This

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Om Saturday, CNBC posted an article about the Silicon Valley Bank.

The article reports:

  • Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.
  • The payments were for work done in 2022 and had been in process days before the bank’s collapse, these people said.
  • On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the sources.

Who made the decision?

The article continues:

On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the people.

The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for associates to $140,000 for managing directors, according to Glassdoor.com.

SVB was the highest-paying publicly traded bank in 2018, with employees getting an average of $250,683 for that year, according to Bloomberg.

After its seizure, the FDIC offered SVB employees 45 days of employment, the people said. The bank had 8,528 employees as of December.

A spokesman for the FDIC declined to comment on the bonuses.

There are two sides to this discussion–the employees did earn their bonuses in the prior year and it was customary to pay them at this time, but essentially the taxpayers all over the country were responsible for paying those bonuses. Those are pretty generous bonuses for a business that failed.

On Monday, The New York Post noted that despite what we are being told, the taxpayers will be bailing out the Silicon Valley Bank.

The New York Post reports:

The cost of bailing out two banks that catered to the tech industry will likely be paid by average Americans in the former of more fees, less service and potentially higher taxes — despite President Biden’s pledge otherwise, experts warned Monday.

The dire predictions came as the price of regional bank stocks fell due to fears of further collapses, with trading in more than a dozen of them paused during a massive market sell-off.

The extraordinary rescue announced Sunday night will use the Federal Deposit Insurance Corp.’s Deposit Insurance Fund to make whole all customers of the Silicon Valley Bank and Manhattan’s Signature Bank, which did business with tech startups and the cryptocurrency industry, respectively.

But the fund gets its money in quarterly payments from FDIC-insured banks, which will likely make customers shoulder the burden of any added costs, said William Luther, director of the American Institute for Economic Research’s Sound Money Project.

Hold on to your wallet–President Biden is in the White House.

The Coming Increase In Gasoline Prices

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On Monday, Ed Morrissey at Hot Air reported that the Organization of the Petroleum Exporting Countries (OPEC) is planning a major decrease in oil production in order to get the price of oil back to $100 a barrel.

The article quotes a CNBC article:

An influential alliance of some of the world’s most powerful oil producers is reportedly considering their largest output cut since the start of the coronavirus pandemic this week, a historic move that energy analysts say could push oil prices back toward triple digits.

OPEC and non-OPEC producers, a group often referred to as OPEC+, will meet in Vienna, Austria, on Wednesday to decide on the next phase of production policy.

The oil cartel and its allies are considering an output cut of more than a million barrels per day, according to OPEC+ sources who spoke to Reuters.

“The OPEC ministers are not going to come to Austria for the first time in two years to do nothing. So there’s going to be a cut of some historic kind,” Dan Pickering, CIO of Pickering Energy Partners, said, referring to the group’s first in-person meeting since 2020.

This is the cost of America giving up its energy dependence. I can’t emphasize often enough that we were energy independent under President Trump and were able to help the American economy and the American consumer by the domestic production of oil. The election of Joe Biden changed all of that. Even if the Republicans take Congress this year and a Republican becomes President in 2024, it will take a while to bring American energy back to what it was under President Trump. Hopefully the American economy can hold out that long without collapsing.

The article concludes:

Of course, Biden could put the US on a footing that would allow us to dictate not just production levels but also heavily influence oil prices to deny Vladimir Putin his excess revenue stream. Rather than choke off exploration and extraction, Biden could cancel his EO 13990 and reverse his lease-sales policies to encourage more investment in oil and natural gas production. That would unleash massive new resources for both domestic use and export, and even the initial steps would shock oil futures markets into accounting for sudden new production levels from the US. Biden won’t do it, however, because he’s more in thrall of his progressive-environmental Left than he is focused on economic and strategic national-security concerns.

So once again, we’ll be dancing to any tune that OPEC+ plays. It’s yet another reminder of Joe Biden’s 1970s revival in all the wrong ways.

I could have dealt with leisure suits and platform shoes coming back–but I can’t deal with gas lines and ultra-expensive gasoline again.

How Does Loan Forgiveness Work?

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On Wednesday, CNBC posted an article about the tax impact of the student loan forgiveness. Obviously, the loan forgiveness is a cost to the federal government, but is there any financial return?

The article reports:

If you’re poised to benefit from President Joe Biden’s up to $20,000 in student loan forgiveness, you may also be wondering if the erased debt will trigger a tax surprise come April.

The short answer is: It won’t, at least on your federal tax return. 

Biden on Wednesday announced that he will forgive $10,000 in federal student debt for most borrowers, limited to borrowers making less than $125,000 per year, or $250,000 for married couples filing together or heads of households.

He will also cancel up to $20,000 for Pell Grant recipients, Biden said in a tweet.

The article notes how actually paying their student loans has impacted their taxes in the past:

Borrowers with federal or most private student loans are usually able to subtract up to $2,500 a year in interest payments they’ve made on their loans from their gross income, reducing their tax liability.

The deduction is considered “above-the-line,” which means you don’t need to itemize to qualify for the break. 

There are income phaseouts, and individuals who earn above $85,000 and couples who make more than $175,000 in 2022 are not eligible at all. Your lender is supposed to report your interest payments to the IRS on a tax form called a 1098-E, as well as provide you with a copy. You claim the deduction on line 20 of Schedule 1.

Most borrowers haven’t been eligible for the deduction in more than two years because they haven’t been making payments on their loans.

Since March 2020, the government has allowed most borrowers to press the pause button on their payments without interest accruing. “You can claim the student loan interest deduction based only on amounts actually paid,” Kantrowitz (higher education expert Mark Kantrowitz) said.

The article concludes:

If the debt forgiveness cleared your balance entirely, you’ll no longer be able to claim the deduction. Yet you should be eligible if you’re still left with student debt and resume your payments.

More than 12 million taxpayers claimed the student loan interest deduction in 2018, with tax savings of up to $550, according to Kantrowitz.

Just for reference, this is what has happened to college tuition since the government got involved. Since this chart was posted, there have been more increases.

Prepare For Gas Lines

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In the 1970’s we had gas lines. Part of the problem was our reliance on oil from the Middle East and part of the problem was the government’s efforts to keep the cost of gasoline down. Those efforts together created the perfect storm. To put things in perspective, in 1969 a gallon of gas cost $.35 or $2.75 in today’s dollars (according to dollartimes.com). In 1978, a gallon of gas cost $.65 a gallon or $2.99 inflation adjusted (according to CNBC). By 1981, the cost was $1.35 a gallon or $4.46 inflation adjusted (CNBC). With the exception of 2011-2014, gasoline has generally stayed between $2 and $3 a gallon. Right now the price is over $4 a gallon, and obviously that impacts everything Americans buy. The Biden administration desperately wants to lower the price of gasoline before the mid-terms. However, there is some disagreement as to how to do that. The easiest way would be to open up drilling in America and bring back our energy independence, but considering who the Biden administration is beholden to, that is highly unlikely. So we are left with more risky solutions.

On Monday, The Daily Caller posted an article about one suggested solution.

The article reports:

Several economists slammed a Democratic proposal making its way through Congress that would enable energy price controls amid record high fuel costs.

Such a policy, which prohibits private companies from increasing prices regardless of market conditions, would have catastrophic consequences including energy supply shortages and increased inflation, the economists argued in a series of interviews with The Daily Caller News Foundation. Democrats have alleged in recent weeks that inflation is being driven by corporate price gouging and that Big Oil is using the Ukraine crisis as cover to raise prices and boost profits.

Oil is a commodity. It is subject to supply and demand. When America drastically decreased the amount of oil it was producing (under the Biden administration) and the amount of fossil fuel it was exporting, the supply shrank and the cost went up. The war in Ukraine did not help, but the problem was there before the war.

The article continues:

“I just can’t believe they’re dumb enough to do this,” Benjamin Zycher, an economist and senior fellow at the American Enterprise Institute, told TheDCNF in an interview.

“If prices are controlled at below-market clearing levels, then you get shortages because the quantity demanded is greater than the quantity supplied at the legal maximum price,” he continued. “And that’s why you get gasoline lines and allocation controls.”

The House Rules Committee announced that it would review the Consumer Fuel Price Gouging Prevention Act — a bill that enables the president to issue an emergency declaration banning energy prices issued in an “excessive or exploitative manner,” according to its sponsors — on Monday before reporting it to the floor. House Speaker Nancy Pelosi, who told reporters last week that oil and gas companies were exploiting consumers, promised that there would be a floor vote on the legislation this week.

The article concludes:

Economists, meanwhile, have also rebuked the argument that oil companies are price gouging amid the Ukraine crisis.

“[Retail gas stations] don’t necessarily drop their price as rapidly as what wholesale prices and oil prices are doing,” Garrett Golding, a business economist tasked with analyzing energy markets at the Federal Reserve Bank of Dallas, told TheDCNF in an interview. “Some people want to call that price gouging because it’s not in lockstep with where wholesale prices are. But the fact of the matter is, what they’re doing is making back the money that they were losing on the way up and that’s how they stay in business.”

Golding and fellow Dallas Fed economist Lutz Kilian published a May 10 paper laying out why gasoline prices haven’t risen and fallen in lockstep with oil prices over the last few months. They said pump prices are also affected by operating expenses such as rent, delivery charges and credit card fees, and that prices are set by retail gas stations, not oil drillers.

Democratic Reps. Kim Schrier and Katie Porter, the sponsors of the Sponsors of the Consumer Fuel Price Gouging Prevention Act, and Pelosi didn’t immediately respond to requests for comment from TheDCNF.

Democratic Massachusetts Sen. Elizabeth Warren introduced similar legislation Thursday that would implement a federal ban on “unconscionably excessive price increases.” House Democrats, led by Illinois Rep. Jan Schakowsky, unveiled a companion to Warren’s legislation.

Democrats are not likely to let facts get in the way of increasing federal control over our lives.

Does Your Government Work For You?

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Yesterday The Washington Times posted an article about President Biden’s $1.75 trillion expansion of the federal safety net.

The article reports:

An analysis by the Tax Foundation, a nonpartisan fiscal watchdog, estimates that President Biden’s $1.75 trillion expansion of the federal safety net could kill more than 103,000 jobs over the next decade and add $750 billion to the federal deficit.

The estimate is based on a thorough analysis of the White House’s spending “framework” and the corresponding 1,684-page bill text released by House Speaker Nancy Pelosi, California Democrat. Experts from the Tax Foundation say the proposal would fall far short of White House promises.

“We estimate that the House bill would reduce long-run economic output by nearly 0.4% and eliminate about 103,000 full-time equivalent jobs in the United States,” the experts wrote. “It would also reduce average after-tax incomes for the top 80 percent of taxpayers over the long run.”

It should be shouted everywhere that according to a CNBC article posted in August 2021, more than 100 million U.S. households, or 61% of all taxpayers, paid no federal income taxes last year, according to a report from the Tax Policy Center. Think about that for a minute. If you are not paying taxes, why should you care how much the government is spending or how much the government is planning to raise taxes? This is not a good situation.

The article at The Washington Times concludes:

Mr. Biden is backing a 5% “wealth tax” on those with adjusted gross income above $10 million. The figure jumps to 8% on adjusted gross income over $25 million.

“I can’t think of a single time when the middle class has done well but the wealthy haven’t done very well,” Mr. Biden said. “I can think of many times, including now, when the wealthy and the superwealthy do very well and the middle class doesn’t do well.”

Despite the rhetoric, Tax Foundation economists say, the provisions would affect all workers by killing more than 29,000 jobs.

The White House did not immediately respond to requests for comment. 

The report was released one day after Sen. Joe Manchin III, West Virginia Democrat, accused his colleagues of engaging in “budget gimmicks” to hide the true cost of the spending package.

“As more of the real details outlined … what I see are shell games and budget gimmicks that make the real cost of this so-called $1.75 trillion bill estimated to be twice as high,” he said. “That is a recipe for economic crisis. None of us should ever misrepresent to the American people what the real cost of legislation is.”

Actually, the middle class did very well during the Trump administration. Trump administration policies helped increase the number of Americans in the middle class.

Does anyone remember the Luxury Tax of 1990.

On September 10, 2011, The American Enterprise Institute posted the following:

Flashback:Wall Street Journal editorial on January 6, 2003

“Most Americans celebrated as the ball fell in Times Square New Year’s Eve. But for auto dealers this new year is especially sweet. January 1 marked the expiration of the federal luxury tax on cars, the last vestige of the destructive luxury tax package in the infamous 1990 budget deal.

Starting in 1991, Washington levied a 10% luxury tax on cars valued above $30,000, boats above $100,000, jewelry and furs above $10,000 and private planes above $250,000. Democrats like Ted Kennedy and then-Senate Majority Leader George Mitchell crowed publicly about how the rich would finally be paying their fair share and privately about convincing President George H.W. Bush to renounce his “no new taxes” pledge.

But it wasn’t long before even these die-hard class warriors noticed they’d badly missed their mark. The taxes took in $97 million less in their first year than had been projected — for the simple reason that people were buying a lot fewer of these goods. Boat building, a key industry in Messrs. Mitchell and Kennedy’s home states of Maine and Massachusetts, was particularly hard hit. Yacht retailers reported a 77% drop in sales that year, while boat builders estimated layoffs at 25,000. With bipartisan support, all but the car tax was repealed in 1993, and in 1996 Congress voted to phase that out too. January 1 was disappearance day.

The end of any federal tax is such a rarity that it’s well worth celebrating. And the luxury tax lesson of economic damage is worth keeping in mind as politicians begin to wail that President Bush’s new tax proposals aren’t punitive enough on the rich.”

HT: Pete Friedlander

The recession that followed the 1990 luxury tax cost President George H.W. Bush re-election. The Democrats might want to keep that in mind.

 

Not So Good Economic News

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It’s interesting to me that when a Democrat is President, the media paints a very rosy picture in its predictions about job growth and general economic growth. They always seem surprised when the facts don’t live up to their predictions.  When a Republican is President, the media is always surprised when the job numbers are better than the predictions.

CNBC is reporting today that job growth in August was well short of the estimates.

The article reports:

U.S. companies created far fewer jobs than expected in August as the Covid resurgence coincided with cutbacks in hiring, according to a report Wednesday from payroll services firm ADP.

Private payrolls rose just 374,000 for the month, well below the Dow Jones estimate of 600,000 though above July’s 326,000, which was revised downward slightly from initial 330,000 reading.

Most of the new jobs came from leisure and hospitality, which added 201,000 positions in a somewhat hopeful sign that an industry beset by a labor shortage continues to recover.

Education and health services combined to add 59,000 for the month as hospitals in some parts of the country were swamped with virus cases and schools begin to reopen.

“The delta variant of COVID-19 appears to have dented the job market recovery,” said Mark Zandi, chief economist at Moody’s Analytics, which works with ADP on the report. “Job growth remains strong, but well off the pace of recent months. Job growth remains inextricably tied to the path of the pandemic.”

The apparent letdown comes at a pivotal time.

The article notes that recent economic growth has been disappointing, blaming the low growth on the Delta variant of Covid. Somehow they fail to mention that President Biden almost instantly reversed the economic policies of the Trump administration which had fueled the recovery from the Covid recession.

Why Economics Needs To Be Taught In School

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Yesterday Newsbusters posted an article about some comments recently made on mainstream media about inflation. The comments indicated that economics is not universally taught in our colleges.

The article notes:

Did CNBC get its understanding of economics from the back of a cereal box? The outlet is arguing that the silver lining to skyrocketing inflation is — “rising wages.”

The liberal outlet noted how “[a]s the economy picks up in the wake of the Covid pandemic, concerns about inflation are also gaining steam.” After conceding that prices of goods are rising, CNBC took a nosedive into ineptitude: “Companies facing a labor shortage are also paying more to get workers to walk in the door.” Did CNBC even consider that rising prices of goods are eating into American pay? Bloomberg News just reported that American pay boosts “are failing to keep pace with surging prices for everyday goods.” CNBC seemed to only figure that out after the story was originally published. Its original headline was “The upside to inflation: rising wages.” The headline has since been changed to alter the entire context of the story: “It’s not certain rising wages will be enough to outpace inflation.”

Rising wages are a good thing when they are part of a strong economy.

On November 2, 2020, The Federalist reported:

Many on the left refuse to admit President Trump’s populist policies have provided massive benefits to working-class Americans. Matthew Yglesias argued at Vox that Trump’s refusal to endorse a federal $15 per hour minimum wage proves Trump has abandoned populist ideals. Progressives claim the Trump economy helps billionaires, not workers, and snidely dismiss his outreach to minorities.

Yet, during the first three years of the Trump presidency, wage growth was off the charts, especially for low-income workers and African Americans. The third-quarter economic data released Thursday confirm once again that Trump is on the job for U.S. workers.

The Biden campaign has tried to tie COVID-linked economic devastation to Trump’s leadership. The new third-quarter economic data once again shows that’s wrong. The total number of U.S. wage earners increased more than 5 percent in that period, and the third-quarter rebound for African Americans occurred at a 17 percent faster rate than for wage earners as a whole.

During the Trump administration, inflation remained at about 2 percent.

On May 18, 2021, The Post Millennial reported:

It’s not just anecdotal evidence, the Consumer Price Index released last week shows that prices are up across the board by .8 percent for April. That’s after a .3 increase for January, .4 increase for February, and a .6 increase for March. In contrast, the last few months of the Trump administration had increases as well, albeit much lower. October showed a .1 percent increase, while November and December both showed increases of .2 percent.

Newsbusters also notes:

CNBC’s “Key Points” section also contradicted itself by admitting that prices of goods were increasing while lauding how pay was increasing at the same time. Newsflash, CNBC: rising costs of living takes away from the benefit of a pay increase.

    • “Although consumers may be paying more for everyday items, it’s not all bad news.”
    • “As inflation takes hold, wages may increase, too.”

CNBC must have realized this contradiction and changed its “Key Points” section to reflect new points entirely:

    • “As inflation takes hold, wages may increase, too.”
    • “The question is, will it be enough to outpace the rise in prices.”

CNBC couldn’t stop contradicting its points. It even warned that economists were saying rapid increase in wages could in fact cause inflation, further undercutting the entire story:

And still, some economists fear a too-rapid increase in wages could prompt companies to raise prices and create the very phenomenon of inflation, causing more harm than good.

No kidding. Elections have consequences, but at least President Biden doesn’t do mean tweets.

The Economic Cost Of Giving Up Energy Independence

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One of the accomplishments of the Trump administration was bringing America to a place of energy independence. The policies that led to energy independence were immediately reversed (via executive order) by the Biden administration. Americans have seen the results of that reversal in the form of higher gasoline prices at the pump and an increase in the cost of heating and cooling our homes.

Yesterday CNBC reported that U.S. oil benchmark West Texas Intermediate crude futures traded as high as $76.98, a price not seen since November 2014.

The article notes:

Oil jumped to its highest level in six years after talks between OPEC and its oil-producing allies were postponed indefinitely, with the group failing to reach an agreement on production policy for August and beyond.

On Tuesday, U.S. oil benchmark West Texas Intermediate crude futures traded as high as $76.98, a price not seen since November 2014. But by 11 a.m. on Wall Street those gains were erased, and the contract for August delivery dipped $1.60, or 2.1%, to trade at $73.56 per barrel. Brent crude hit its highest level since late 2018 before also reversing gains, and last traded 3.1% lower at $74.77 per barrel.

The article concludes:

Oil’s blistering rally this year — WTI has gained 57% during 2021 — meant that ahead of last week’s meeting many Wall Street analysts expected the group to boost production in an effort to curb the spike in prices.

“With no increase in production, the forthcoming growth in demand should see global energy markets tighten up at an even faster pace than anticipated,” analysts at TD Securities wrote in a note to clients.

“This impasse will lead to a temporary and significantly larger-than-anticipated deficit, which should fuel even higher prices for the time being. The summer breakout in oil prices is set to gather steam at a fast clip,” the firm added.

Wouldn’t it be nice if we were not dependent on the whims of OPEC.

 

California Charities Do Not Have To Reveal Their Donors

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CNBC is reporting today that the Supreme Court has ruled 6-3 that California charities do not have to reveal a list of their donors.

The article reports:

The Supreme Court on Thursday struck down a California rule requiring nonprofits to disclose the names and addresses of their largest donors, delivering a victory to a pair of conservative groups that had challenged the requirement as unconstitutional.

The 6-3 decision, which divided the nine justices along ideological lines, reversed a 2018 appeals court ruling siding with California’s attorney general.

The rule had forced nonprofits to give the state their so-called Schedule B forms, which include the personal information of all donors nationwide who had contributed more than $5,000 in a given tax year. The state had argued that it needed that information to help it police misconduct by charities.

“We do not doubt that California has an important interest in preventing wrongdoing by charitable organizations,” wrote Chief Justice John Roberts in the majority opinion.

But “there is a dramatic mismatch” between “the interest that the Attorney General seeks to promote and the disclosure regime that he has implemented in service of that end,” Roberts wrote.

The conservative chief justice noted that about 60,000 charities renew their registration each year, and that virtually all of them were required to provide a Schedule B form.

“This information includes donors’ names and the total contributions they have made to the charity, as well as their addresses. Given the amount and sensitivity of this information harvested by the State, one would expect Schedule B collection to form an integral part of California’s fraud detection efforts. It does not,” Roberts wrote.

As much as I believe in transparency in donations, the Supreme Court was right to protect the names of the donors. A number of years ago, donors who supported a ballot referendum were harassed because of their donations. Unfortunately, that is not an unusual event. Americans need to be free to give to the charities of their choice without being harassed for their donations.

Something We Need To Pay Attention To

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On Monday CNBC posted an article about a recent statement put out by Deutsche Bank economists.

The article reports:

In a forecast that is well outside the consensus from policymakers and Wall Street, Deutsche issued a dire warning that focusing on stimulus while dismissing inflation fears will prove to be a mistake if not in the near term then in 2023 and beyond.

The analysis especially points the finger at the Federal Reserve and its new framework in which it will tolerate higher inflation for the sake of a full and inclusive recovery. The firm contends that the Fed’s intention not to tighten policy until inflation shows a sustained rise will have dire impacts.

“The consequence of delay will be greater disruption of economic and financial activity than would be otherwise be the case when the Fed does finally act,” Deutsche’s chief economist, David Folkerts-Landau, and others wrote. “In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets.”

As part of its approach to inflation, the Fed won’t raise interest rates or curtail its asset purchase program until it sees “substantial further progress” toward its inclusive goals. Multiple central bank officials have said they are not near those objectives.

In the meantime, indicators such as the consumer price and personal consumption expenditures price indices are well above the Fed’s 2% inflation goal. Policymakers say the current rise in inflation is temporary and will abate once supply disruptions and base effects from the early months of the coronavirus pandemic crisis wear off.

The Deutsche team disagrees, saying that aggressive stimulus and fundamental economic changes will present inflation ahead that the Fed will be ill-prepared to address.

“It may take a year longer until 2023 but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed’s priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb,” Folkerts-Landau said. “The effects could be devastating, particularly for the most vulnerable in society.”

I realize that the Deutsche team’s conclusions may not be the majority opinion, but based on what I am currently seeing, I tend to think they are correct. Endless deficit spending has never led a nation into continued prosperity.

After All, It’s Only Taxpayers’ Money

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CNBC is reporting today that President Biden will issue an executive order to raise the minimum pay for federal contract workers to $15 an hour by March of next year. The current minimum is $10.95. Future increases will be tied to inflation. (Has it occurred to him that such a rapid increase in wages will fuel inflation?

The article reports:

President Joe Biden on Tuesday will continue his push for a national $15 minimum wage with an executive order that raises pay to at least that level for hundreds of thousands of federal contract workers, according to senior White House officials.

The move will increase the current minimum wage of $10.95 by nearly 37% by March of next year and continue to tie future increases to inflation.

It will apply to federal workers from cleaning and maintenance staff to food service contractors and laborers, sweeping in tipped workers who were previously left out of the last increase under former President Barack Obama.

White House officials insist it won’t increase costs for taxpayers because of benefits including increased worker productivity.

Biden has expressed his belief that strong unions and higher wages can resurrect America’s middle class while helping bridge economic and racial inequities, and the executive order is his latest step in support of the organized labor movement.

So what happens when the minimum wage is raised? First of all, it provides a bargaining chip for unions in their wage negotiations. This creates higher wages across the board which leads to inflation. There is no evidenced that increasing wages increases worker productivity. The people who will actually be financially impacted by this move in a negative way are senior citizens and those in the middle and lower economic classes–the inflation that will follow will be much more difficult to manage for those two groups than for the wealthy.

Getting a significant wage increase is useless if the price of everything you need also increases significantly.

Policies Have Consequences

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So far the Biden administration has not been kind to American workers. If you work in the energy sector of the economy, you are in danger of losing your job–if you haven’t lost it already. Now there is another policy idea that will increase unemployment in America.

CNBC reported the following yesterday:

Raising the federal minimum wage to $15 an hour, as President Joe Biden has proposed, would cost 1.4 million jobs over the next four years while lifting 900,000 people out of poverty, according to a Congressional Budget Office report Monday.

The impact on the employment rolls is slightly higher than the 1.3 million employment estimate from a 2019 report from the CBO, a nonpartisan agency that provides budgetary analysis to Congress.

The number has been disputed by employment advocates who cite the benefits from the raise and say businesses will be able to handle the costs.

Biden has acknowledged that the plan to phase in the new federal wage floor likely won’t make it through the $1.9 trillion spending plan he is pushing through Congress, though he remains committed to the increase.

The CBO report estimates that the employment reduction would happen by 2025 and come as employers cut payroll to compensate for the increased costs.

Along with the reduction in employment, the federal budget deficit would increase by $54 billion over the next 10 years, a fairly negligible level considering the fiscal 2020 shortfall totaled more than $3 trillion.

There are a few facts being left out in this discussion. The minimum wage exists to allow new unskilled workers to enter the workplace. It exists for high school students looking for part-time jobs. It allows new unskilled workers to learn some basic skills that are applicable in any job–showing up on time, dressing appropriately, being reliable, taking responsibility, etc. Jobs that pay the minimum wage are not supposed to be career jobs–the people in those jobs are expected to increase their marketable skills and move up the employment ladder. Raising the minimum wage will result in a lot of high school students not being able to get jobs and learn the skills they need to succeed in the business world. Although raising the minimum wage sounds like a wonderful idea, the consequences will not be wonderful.

Good News On The Economic Front

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CNBC reported the following yesterday:

  • Nonfarm payrolls increased by 638,000 in October and the unemployment rate fell to 6.9%.
  • Economists surveyed by Dow Jones had forecast 530,000 and 7.7%, respectively.
  • Hospitality and professional and business services showed the biggest gains. Government job losses subtracted from the total.

Meanwhile, the Bureau of Labor Statistics reported that the Workforce Participation Rate went from 61.4 in September to 61.7 in October.

CNBC reports:

Employment growth was better than expected in October and the unemployment rate fell sharply even as the U.S. faces the challenge of surging coronavirus cases and the impact they could have on the nascent economic recovery.

The Labor Department reported Friday that nonfarm payrolls increased by 638,000 and the unemployment rate was at 6.9%. Economists surveyed by Dow Jones had been looking for a payroll gain of 530,000 and an unemployment rate of 7.7%, a touch lower than the September level of 7.9%.

October’s gain was just slightly off the September pace of 672,000.

I have asked this questions before. Why is growth always better than expected when a Republican is in the White House?

We are in an economic recovery. That recovery will continue if President Trump continues in office. That recovery will come to a screeching halt if Joe Biden becomes President.

 

Good Economic News

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CNBC is reporting today that America’s Gross Domestic Product grew at a rate of 33.1% annualized during the third quarter. It was anticipated that the growth rate would be 32 %.

The article reports:

Coming off the worst quarter in history, the U.S. economy grew at its fastest pace ever in the third quarter as a nation battered by an unprecedented pandemic started to put itself back together, the Commerce Department reported Thursday.

Third-quarter gross domestic product, a measure of the total goods and services produced in the July-to-September period, expanded at a 33.1% annualized pace, according to the department’s initial estimate for the period.

The gain came after a 31.4% plunge in the second quarter and was better than the 32% estimate from economists surveyed by Dow Jones. The previous post-World War II record was the 16.7% burst in the first quarter of 1950.

Markets reacted positively to the news, with Wall Street erasing a loss at the open and turning mostly positive.

The article includes two Tweets that provide insight into the election:

Please note that Joe Biden gives no facts to back up his claims. We are not out of the woods yet with the coronavirus, but we are moving forward. The Democrats in the House of Representatives have chosen to hold the stimulus package hostage to their pet projects to prevent the help to those who need it from being disbursed. I suspect that the funds will be allocated after the election.

Economic Policies Have Consequences

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Yesterday CNBC posted an article detailing some of what former Vice-President Joe Biden’s financial policies would be if he were elected President.

The article reports:

  • Democratic presidential nominee Joe Biden’s plan to increase the capital gains tax could lead to a large-scale sell-off of stocks, according to economic analyses.
  • Biden has proposed increasing the top tax rate for capital gains for the highest earners to 39.6% from 23.8%, the largest real increase in capital gains rates in history.
  • Yet economists say the stock market as a whole wouldn’t necessarily fall just because of the tax increase.

…A research paper by Tim Dowd, a senior economist at the U.S. Congress Joint Committee on Taxation, and Robert McClelland, a senior fellow at the Urban-Brookings Tax Policy Center, found that the two previous hikes in capital gains taxes lead to a wave of selling.

In 1986, as part of the Reagan tax plan, the top rate for capital gains jumped from 20% in 1986 to 28% in 1987. In the months before the increase, capital gains realizations — or sales of stocks and other assets — surged by 60%. In 2012, as part of the fiscal cliff negotiations, the top rate went from 15% to 23.8%. Again, in the months leading before the change, capital gains realizations and sales jumped, by 40%.

Dowd and McClelland say that just ahead of a tax increase, investors sell stocks or other assets that have gained value before the higher tax rate becomes effective.

A sell-off adversely effects working Americans with 401k accounts. The rich can easily move assets around to avoid the tax. Workers with 401k accounts pay penalties if they sell stocks in those accounts before retirement age. Those accounts also lose value in a stock market sell-off.

If the Democrats want to be considered the party of the working man, they need to re-evaluate this idea.

Experts Amazed–Again

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CNBC is reporting the following today:

Employment stunningly rose by 2.5 million in May and the jobless rate declined to 13.3%, according to data Friday from the Labor Department that was far better than economists had been expecting and indicated that an economic turnaround could be close at hand.

Economists surveyed by Dow Jones had been expecting payrolls to drop by 8.33 million and the unemployment rate to rise to 19.5% from April’s 14.7%. If Wall Street expectations had been accurate, it would have been the worst figure since the Great Depression.

As it turned out, May’s numbers showed the U.S. may well be on the road to recovery after its fastest plunge in history.

Experts are shocked. The mainstream media is disappointed. The Democrats are disheartened.

The workforce participation rate for May was 60.8. In April, it was 60.2. In March, it was 62.7, and in February it was 63.4. You can see the impact of the shutdown in that rate, and you can also see the hope for the future in that rate.

The current riots will not help anyone. However, oddly enough, where people choose to rebuild when the riots end, there will be jobs. Hopefully those jobs will go to the people in the neighborhood (who generally are not responsible for the rioting and looting). We will recover from the shutdown and the riots. Hopefully it will happen more quickly than the experts seem willing to believe.

A Very Mixed Blessing

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CNBC posted an article yesterday (updated today) that because OPEC has not been able to reach an agreement about oil prices with its allies (led by Russia), Saudi Arabia has cut its oil prices and increased its production. A price war is expected to follow. This is great news for consumers, but horrible news for American oil production.

The article reports:

U.S. West Texas Intermediate (WTI) crude and international benchmark Brent crude are both pacing for their worst day since 1991.

WTI plunged 18%, or $7.36, to trade at $33.92 per barrel. WTI is on pace for its second worst day on record. International benchmark Brent crude was down $8.44, or 18.7%, to trade at $36.80 per barrel. Earlier in the session WTI dropped to $30 while Brent traded as low as $31.02, both of which are the lowest levels since Feb. 2016. 

“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” Again Capital’s John Kilduff said. “The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch.”

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

The article concludes:

“$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement.

“The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal,” analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%.

Vital Knowledge founder Adam Crisafulli said Sunday that oil “has become a bigger problem for markets than the coronavirus,” but also said that he does not foresee prices falling to the Jan. 2016 lows.

“Saudi Arabia can’t tolerate an oil depression – the country’s fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS’s grip on power isn’t yet absolute. As a result, the [government] won’t be so cavalier in sending oil back into the $30s (or even lower),” he said in a note to clients Sunday.

OPEC has played this game before. In the 1970’s oil crisis, OPEC boycotted America because of our support of Israel. When American energy companies responded by drilling wells to meet the need, OPEC dropped the boycott and lowered the price to put those companies out of business. I suspect there may be an attempt to do that again, but I am not sure we are as vulnerable as we were then. If America continues on the path to energy independence, our oil prices will be less vulnerable to foreign manipulation. We may have to pay a little more than the price the Saudis will drop to for our oil, but it would be worth it in the long run. Hopefully we have people currently in charge that are looking long term rather than short term.

Common Sense In Immigration Policy

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On Monday CNBC posted an article about a Supreme Court decision regarding President Trump’s immigration policy.

The article reports:

The Supreme Court said Monday that it will allow the Trump administration’s “public charge” rule to take effect after the immigration policy had been blocked by lower courts.

The 5-4 vote was divided along partisan lines, with the court’s four Democratic appointees indicating that they would not have allowed the policy to be enforced.

The court’s five conservatives, including Chief Justice John Roberts, formed the majority siding with the administration. The decision came as Roberts was presiding over President Donald Trump’s impeachment trial in the Senate.

The rule, which was proposed in August, will make it more difficult for immigrants to obtain permanent residency, or green cards, if they have used or are likely to use public benefits like food stamps and Medicaid.

Under previous federal rules, a more narrow universe of public benefits, such as cash assistance and long-term hospitalization, were considered in determining whether an immigrant was likely to become a “public charge.”

The following statistics are from the Center for Immigration Studies:

  • No single program explains non-citizens’ higher overall welfare use. For example, not counting school lunch and breakfast, welfare use is still 61 percent for non-citizen households compared to 33 percent for natives. Not counting Medicaid, welfare use is 55 percent for immigrants compared to 30 percent for natives.
  • Welfare use tends to be high for both newer arrivals and long-time residents. Of households headed by non-citizens in the United States for fewer than 10 years, 50 percent use one or more welfare programs; for those here more than 10 years, the rate is 70 percent.
  • Welfare receipt by working households is very common. Of non-citizen households receiving welfare, 93 percent have at least one worker, as do 76 percent of native households receiving welfare. In fact, non-citizen households are more likely overall to have a worker than are native households.1
  • The primary reason welfare use is so high among non-citizens is that a much larger share of non-citizens have modest levels of education and, as a result, they often earn low wages and qualify for welfare at higher rates than natives.
  • Of all non-citizen households, 58 percent are headed by immigrants who have no more than a high school education, compared to 36 percent of native households.
  • Of households headed by non-citizens with no more than a high school education, 81 percent access one or more welfare programs. In contrast, 28 percent of non-citizen households headed by a college graduate use one or more welfare programs.
  • Like non-citizens, welfare use also varies significantly for natives by educational attainment, with the least educated having much higher welfare use than the most educated.
  • Using education levels and likely future income to determine the probability of welfare use among new green card applicants — and denying permanent residency to those likely to utilize such programs — would almost certainly reduce welfare use among future permanent residents.
  • Of households headed by naturalized immigrants (U.S. citizens), 50 percent used one or more welfare programs. Naturalized-citizen households tend to have lower welfare use than non-citizen households for most types of programs, but higher use rates than native households for virtually every major program.
  • Welfare use is significantly higher for non-citizens than for natives in all four top immigrant-receiving states. In California, 72 percent of non-citizen-headed households use one or more welfare programs, compared to 35 percent for native-headed households. In Texas, the figures are 69 percent vs. 35 percent; in New York they are 53 percent vs. 38 percent; and in Florida, 56 percent of non-citizen-headed households use at least welfare program, compared to 35 percent of native households.

At this point I need to say that I am not against helping people in need, but we do need to get our priorities in order. Our Veterans’ Administration health system is horrible. It is underfunded and does not have the facilities necessary to meet the needs of our returning veterans. We have been at war for eighteen years, and we have broken faith with those who have fought those wars. Shouldn’t taking care of those veterans be a higher priority than taking care of people who are not American citizens? Look at the budget deficits we are running–we can’t afford to do both.

I applaud the Supreme Court for upholding a common-sense approach to immigration.

The Good Economic News Continues

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CNBC posted an article today about housing starts in December.

The article reports:

U.S. homebuilding surged to a 13-year high in December as activity increased across the board, suggesting the housing market recovery was back on track amid low mortgage rates, and could help support the longest economic expansion on record.

Housing starts jumped 16.9% to a seasonally adjusted annual rate of 1.608 million units last month, the highest level since December 2006. The percentage gain was the largest since October 2016. Data for November was revised higher to show homebuilding rising to a pace of 1.375 million units, instead of advancing to a rate of 1.365 million units as previously reported.

Economists polled by Reuters had forecast housing starts would increase to a pace of 1.375 million units in December.

Housing starts soared 40.8% on a year-on-year basis in December. An estimated 1.290 million housing units were started in 2019, up 3.2% compared to 2018.

Building permits fell 3.9% to a rate of 1.416 million units in December after hitting their highest level in more than 12-1/2 years in November.

…Single-family homebuilding, which accounts for the largest share of the housing market, jumped 11.2% to a rate of 1.055 units in December, the highest level since June 2007. Single-family housing starts rose in the Midwest and the populous South. They, however, fell in the Northeast and West.

The increase in housing starts is an indication of a healthy economy. The fact that single-housing starts rose in the Midwest and the South and declined in the Northeast and West is a further indication that Americans are voting with their feet.

Beginning To Level The Playing Field In Trade

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CNBC reported yesterday that China will lower tariffs on products ranging from frozen pork and avocado to some types of semiconductors next year.  The Chinese economy is slowing down, and lowering tariffs is seen as a way to bring back previous growth.

The article also notes:

 

  • Next year, China will implement temporary import tariffs, which are lower than the most-favored-nation tariffs, on more than 850 products, the finance ministry said on Monday.
  • That compared with 706 products that were taxed at temporary rates in 2019.

The article cites a few significant tariff cuts:

The finance ministry said the tariff rate for frozen pork will be cut to 8% from the most-favored-nation duty of 12%, as China copes to plug a huge supply gap after a severe pig disease decimated its hog herd.

…China will also lower temporary import tariffs for ferroniobium — used as an additive to high strength low alloy steel and stainless steel for oil and gas pipelines, cars and trucks — from 1% to zero in 2020 to support its high-tech development.

…The tariff rate for frozen avocado was cut to 7% from the most-favored-nation duty of 30%, the ministry said.

…Tariffs for some asthma and diabetes medications will be set at zero, the ministry said, while duties on some wood and paper products will be lowered too.

Import tariffs on multi-component semiconductors will be cut to zero.

China will also further lower most-favored-nation import tariffs on some information technology products from July 1, the ministry said.

China has long been an unfair trading partner–manipulating their currency, disregarding intellectual property, and generally behaving badly. Hopefully President Trump’s ‘trade war’ will bring some balance into our trade relationship with China.

 

The Numbers Are In

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CNBC is reporting today that nonfarm payrolls rose by 128,000 in October, exceeding the estimate of 75,000 from economists surveyed by Dow Jones.

The article notes:

There were big revisions of past numbers as well. August’s initial 168,000 payrolls addition was revised up to 219,000, while September’s jumped from 136,000 to 180,000.

The unemployment rate ticked slightly higher to 3.6% from 3.5%, still near the lowest in 50 years.

The pace of average hourly earnings picked up a bit, rising 0.1% to a year-over-year 3% gain.

The article also reports:

Central bank leaders have largely praised the state of the U.S. economy, particularly compared with its global peers. The Fed earlier this week lowered its benchmark interest rate a quarter point, the third such move this year, but Chairman Jerome Powell clearly indicated that this likely will be the last cut for some time unless conditions change significantly.

“The October jobs report is unambiguously positive for the US economic outlook,” said Citigroup economist Andrew Hollenhorst. “Above-consensus hiring in October, together with upward revisions to prior months, is consistent with our view that job growth, while clearly slower in 2019 than in 2018, will maintain a pace of 130-150K per month. Wage growth remaining at 3.0% should further support incomes and consumption-led growth.”

The economic policies of President Trump have resulted in significant economic growth for America. American workers at all levels are enjoying the benefits of these policies. The decision for the voters in 2020 will be whether or not they choose to continue this economic growth.

Would You Really Trust This Person Out On Bail?

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Yesterday CNBC posted an article about Jeffrey Epstein’s lawyers negotiating bail for their client. Jeffrey Epstein is willing to post bail as high as $100 million. Would you take that deal?

The article notes a few things that might cause someone to hesitate before agreeing to the deal:

“We know they have found photos of young women in his home,” Farmer (Annie Farmer, one of his accusers) noted, referring to what prosecutors have said was a “vast trove” of lewd photos of young women or girls that investigators discovered in Epstein’s New York residence.

Before the accusers spoke, Assistant U.S. Attorney Alex Rossmiller said that a number of other witnesses contacted authorities after Epstein was recently indicted, and that prosecutors are trying to corroborate their allegations against him.

Rossmiller also revealed that investigators found in Epstein’s $77 million Manhattan townhouse a locked safe containing “piles of cash” and “dozens of diamonds,” as well as an expired passport dating to the 1980s from another country that has Epstein’s photograph on it — but with a different name and a stated residence of Saudi Arabia.

Rossmiller also said that “many, many photographs” of young-looking girls were found in the safe, and that the prosecutors have identified at least one person among them who claims to be a victim of Epstein’s.

Fake passports, diamonds, piles of cash…would you trust this person out on bail?

The Trump Economy Is Doing Very Well

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CNBC posted an article yesterday about the economy under President Trump.

The article reports:

The total number of workers hired rose to a new high in April, according to Labor Department data released Monday. But despite this, the amount of available jobs still vastly outnumbers unemployed workers.

Hirings increased to 5.9 million for the month, a gain of 240,000 from March, the Job Openings and Labor Turnover Survey (JOLTS) indicated. The hiring rate rose to 3.9%, an increase of one-tenth of a percentage point. The total hirings was the most recorded in the data series’ history going back to December 2000.

On the openings front, the gap between vacancies and available workers continued to be huge.

The article explains:

“In sum, the labor market remains strong and poised for continued solid job growth,” Ward McCarthy, chief financial U.S. economist at Jefferies, said in a note. “Despite the 21.4 [million] private sector jobs that have been generated to-date this cycle, the private business sector continues to generate a very strong demand for labor that is evidenced by the very large number of job openings that business wants to fill. The biggest threat to job growth is available supply, not demand for labor.”

Separations increased by 70,000 to 5.58 million, a rate of 3.7%, which was unchanged from March.

The JOLTS data lags other employment indicators by a month but is nonetheless watched closely by the White House and the Federal Reserve as an indicator of labor market slack. A large number of available workers compared with job openings would indicate a tight market in which wages should be rising.

The current economy has created wage increases and job opportunities for the middle class, which languished under President Obama. Unemployment among minorities is lower than it has ever been and wages are increasing for minorities. This is a success story the media is working very hard to ignore.