The Trump Economy

[DC Tom]

15 minutes ago, Tiberius said:

<stupid *****>

 

 

He can have him arrested by the FBI Police.

[Tiberius]

3 minutes ago, DC Tom said:

 

He can have him arrested by the FBI Police.

Calling in the Deep State, is that the New Normal? 

[/dev/null]

2 minutes ago, Tiberius said:

Calling in the Deep State, is that the New Normal? 

 

[TPS]

On 10/15/2018 at 10:37 AM, sherpa said:

 

I don't agree at all that tax cuts put pressure on the Fed.

That isn't one of the things they look at to execute their mandate, which is clear.

Frankly, I am at a loss to understand your claim that rates could have risen slower, or that tax cuts caused the acceleration.

The Fed has been extremely slow to raise rates, and the tax cut wasn't near the stimulus that QE to infinity presented to a rate hawk.

I think your reasoning is corrupted by your politics.

In fact, I'm certain of it.

The reasoning is very straightforward, tax cuts (and spending increases) have widened the deficit, juicing the economy when it is near full employment. If they lead to overheating for an extended period, the Fed will raise rates faster and higher than expected. 

 

 

And the deficit numbers are in:

https://www.wsj.com/articles/u-s-government-debt-rises-17-in-fiscal-2018-1539626598?mod=hp_lead_pos4

 

Edited October 17, 2018 by TPS

[DC Tom]

30 minutes ago, TPS said:

The reasoning is very straightforward, tax cuts (and spending increases) have widened the deficit, juicing the economy. If they lead to overheating for an extended period, the Fed will raise rates faster and higher than expected. 

 

 

And the deficit numbers are in:

https://www.wsj.com/articles/u-s-government-debt-rises-17-in-fiscal-2018-1539626598?mod=hp_lead_pos4

 

 

Are we back to "deficits matter?"

[TPS]

5 minutes ago, DC Tom said:

 

Are we back to "deficits matter?"

Not for me. It is entertaining, however, to watch the conservatives squirm as they move back to trillion dollar territory.

[sherpa]

17 hours ago, TPS said:

The reasoning is very straightforward, tax cuts (and spending increases) have widened the deficit, juicing the economy when it is near full employment. If they lead to overheating for an extended period, the Fed will raise rates faster and higher than expected. 

 

 

I fully understand what tax cuts do.

What the Fed does is based on a number of things, the deficit not even close to being one of the criteria.

We are at a very healthy 3-4% GDP growth. 2 in some quarters, close to 4 in others.

Nobody in their right mind would state that is "overheating."

 

What the Fed needs to do is lower its balance sheet, a balance sheet expanded exponentially under QE forever.

The good news is that their recent moves have been in the right direction, and a start to getting us back to normal metrics.

 

We are not in an inflationary period. Tariffs are a damper, and the Fed is doing what it should do.

16 hours ago, DC Tom said:

 

Are we back to "deficits matter?"

 

Deficits matter when the bond market determines they matter.

On 10/16/2018 at 7:28 AM, TPS said:

Almost all business taxes are passed along as a "cost" and therefore influence the price of goods. You are conflating a demand-side collapse with tariffs. The US economy was already collapsing when S-H was passed in summer of 1930.

 

I never said a thing about "taxes." 

What I said was that tariffs are economic wet blankets.

They are not inflationary.

Of course specific industries experience price increases, but in aggregate, they are stifling.

 

Watch the Democrat strategy unfold this autumn. Quite likely they will pull the deflationary strings of farmers and anyone else who has experienced decreased prices from trade policy.

The point is that that the tariff policy mentioned was extremely important in what developed in 1930.

 

 

[TPS]

39 minutes ago, sherpa said:

 

I fully understand what tax cuts do.

What the Fed does is based on a number of things, the deficit not even close to being one of the criteria.

We are at a very healthy 3-4% GDP growth. 2 in some quarters, close to 4 in others.

Nobody in their right mind would state that is "overheating."

 

What the Fed needs to do is lower its balance sheet, a balance sheet expanded exponentially under QE forever.

The good news is that their recent moves have been in the right direction, and a start to getting us back to normal metrics.

 

We are not in an inflationary period. Tariffs are a damper, and the Fed is doing what it should do.

 

 

Expanding the deficit when we are near full employment adds fuel to the economy at the wrong time. As I said, if bigger deficits lead to overheating for an extended period, then the Fed will be forced to act more forcefully.  2018Q2 is currently the only quarter under Trump >4%, which IS a result of the tax cuts and spending increases.  I expect Q3--which comes out next week, to be close to 4% as well. The underlying problem will be the wage pressures that come with a hot economy at < 4% unemployment. 

 

Why does the Fed need to reduce its balance sheet? Certainly it affected markets as it accumulated assets, but by what economic rationale is it necessary to reduce it?

In fact, its BS will automatically decline as the assets are paid down (its MBS holdings, for example) and/or mature.  The size of its BS doesn't mean a hill of beans to the real economy...

 

We disagree on the impact from S-H in 1930. Economies were already declining rapidly, and would continue regardless of S-H.

[sherpa]

40 minutes ago, TPS said:

Expanding the deficit when we are near full employment adds fuel to the economy at the wrong time. As I said, if bigger deficits lead to overheating for an extended period, then the Fed will be forced to act more forcefully.  2018Q2 is currently the only quarter under Trump >4%, which IS a result of the tax cuts and spending increases.  I expect Q3--which comes out next week, to be close to 4% as well. The underlying problem will be the wage pressures that come with a hot economy at < 4% unemployment. 

 

Why does the Fed need to reduce its balance sheet? Certainly it affected markets as it accumulated assets, but by what economic rationale is it necessary to reduce it?

In fact, its BS will automatically decline as the assets are paid down (its MBS holdings, for example) and/or mature.  The size of its BS doesn't mean a hill of beans to the real economy...

 

We disagree on the impact from S-H in 1930. Economies were already declining rapidly, and would continue regardless of S-H.

 

The Fed's balance sheet has grown form 869b in 2007 to over 2 trillion.

Fed balance sheet

 

If you question the need to reduce that, there is not much I can say.

It's kind of like asking if it is OK to increase your mortgage from 500k to 2.5 billion.

Works as long as it works, but it gives the Fed little room to handle the next downturn, unless adding multiple zeros to debt doesn't matter-and it does, to those who must pay it.

 

Expanding the deficit, in and of itself, does nothing, unless it results in: 

a. decreasing the value of the dollar, or.

b. spiking interest rates.

Of course there is the moral obligation of strapping the number to our progeny, but that is beyond the scope.

 

Neither of those has happened. Interest rates are rising at a very moderate level at the gov and corporate level, and are evidence of a very healthy debt market.

that can change.

 

If your "if" suggestions are considered, you have a point.

As of now, we are not in your "if" scenarios.

[TPS]

2 hours ago, sherpa said:

 

The Fed's balance sheet has grown form 869b in 2007 to over 2 trillion.

Fed balance sheet

 

If you question the need to reduce that, there is not much I can say.

It's kind of like asking if it is OK to increase your mortgage from 500k to 2.5 billion.

Works as long as it works, but it gives the Fed little room to handle the next downturn, unless adding multiple zeros to debt doesn't matter-and it does, to those who must pay it.

 

Expanding the deficit, in and of itself, does nothing, unless it results in: 

a. decreasing the value of the dollar, or.

b. spiking interest rates.

Of course there is the moral obligation of strapping the number to our progeny, but that is beyond the scope.

 

Neither of those has happened. Interest rates are rising at a very moderate level at the gov and corporate level, and are evidence of a very healthy debt market.

that can change.

 

If your "if" suggestions are considered, you have a point.

As of now, we are not in your "if" scenarios.

The size of the BS has nothing to do with the Fed's ability to handle the next downturn.  As I once mentioned to an infamous poster here in the middle of the crisis, the Fed can never run out of "jack", to use his term. So, yes, you do need to explain why the reduction in its BS is needed.  There is NO economic rationale for what the size of its BS should be. 

 

A bigger deficit stimulates economic activity.  It is the most important reason for the 4.2% 2Q growth rate.  Faster growth leads to lower unemployment and eventually faster wage growth, which will increase inflation--the Fed's ultimate target.  This is the prediction I made (probably on this thread) back around January:

The tax cuts and spending increases create larger deficits which are juicing the economy when unemployment is near what's considered full employment; this will cause the Fed to raise rates faster and higher than anticipated, causing the next recession.

 

Btw, its BS is over $4 trillion.

Edited October 17, 2018 by TPS

[sherpa]

The size of the balance sheet has a good deal to do with the ability of the Fed to deal with the next downturn.

Of course there is no magic number, unlike an individuals credit limit, but eventually the size gets to the point where it can't be reasonably financed by any rational estimate of GDP, so it eventually causes currency problems.

See Venezuela.

 

Deficits don't cause inflation, nor, in and of themself, stimulate economic activity.

Deficits are simply spending more than one takes in.

Supply and demand imbalance causes inflation or deflation, and clearly, gov demand is part of the calculus, but a part of it. 

 

The Fed is doing what it needs to do to fulfill its dual mandate of price stability and full employment.

It is responding by incrementally raising its two rates.

It is clearly not responsible for fiscal policy, which is an entirely different issue.

 

 

Edited October 17, 2018 by sherpa

[TPS]

11 hours ago, sherpa said:

The size of the balance sheet has a good deal to do with the ability of the Fed to deal with the next downturn.

Of course there is no magic number, unlike an individuals credit limit, but eventually the size gets to the point where it can't be reasonably financed by any rational estimate of GDP, so it eventually causes currency problems.

See Venezuela.

 

Deficits don't cause inflation, nor, in and of themself, stimulate economic activity.

Deficits are simply spending more than one takes in.

Supply and demand imbalance causes inflation or deflation, and clearly, gov demand is part of the calculus, but a part of it. 

 

The Fed is doing what it needs to do to fulfill its dual mandate of price stability and full employment.

It is responding by incrementally raising its two rates.

It is clearly not responsible for fiscal policy, which is an entirely different issue.

 

 

Here is where you have the BS issue wrong. The Fed "finances" its assets by crediting the reserve position of banks, creating a "liability" On its BS. However, it's no more a liability for the Fed than are USD, which also show up as a liability. Because of its unlimited ability to create bank reserves with a keystroke, it always has the ammunition to buy assets--it can intervene anytime and to any degree, always. We debated this issue a lot here when the Fed was in the midst of its QE to infinity, and quite a few people believed it would lead to high inflation, which it did not, as I argued. 

 

Of course it's not responsible for FP, but you also have FP's impact wrong. Deficits absolutely are expansionary, and my argument has been that Trump's FP changes are revving up demand relative to our ability to supply more output because labor is getting more and more scarce--sort of where we agree, one cause of inflation is excess demand relative to supply. 

 

Btw, trying to compare US to a country that has external debt denominated in a foreign currency (USD in V's case) is not a valid comparison. 

[Nanker]

President Trump asks his Cabinet Secretaries to trim their budgets but 5%

 

Good move?

Too little too late?

Screw that, put the pedal to the metal and spend, spend, spend?

[/dev/null]

2 hours ago, Nanker said:

President Trump asks his Cabinet Secretaries to trim their budgets but 5%

 

Good move?

Too little too late?

Screw that, put the pedal to the metal and spend, spend, spend?

 

What Trump should do is eliminate the policies that penalizes federal agencies for coming in under budget.

 

If an agency doesn't spend all of it's budget in a fiscal year, their budget is cut accordingly the following year.  So agencies go on spending sprees at the end of the FY to avoid a budget cut. 

But if an agency overspends they argue their budget is too low and are rewarded with an increased budget.

 

How about if an agency come in under budget, the following years budget is not cut.  75% of the leftover budget is returned to the Treasury to pay off principal on the Federal debt.  The remaining 25% is disbursed to workers within the agency as a bonus for coming in under budget

[TPS]

1 hour ago, /dev/null said:

 

What Trump should do is eliminate the policies that penalizes federal agencies for coming in under budget.

 

If an agency doesn't spend all of it's budget in a fiscal year, their budget is cut accordingly the following year.  So agencies go on spending sprees at the end of the FY to avoid a budget cut. 

But if an agency overspends they argue their budget is too low and are rewarded with an increased budget.

 

How about if an agency come in under budget, the following years budget is not cut.  75% of the leftover budget is returned to the Treasury to pay off principal on the Federal debt.  The remaining 25% is disbursed to workers within the agency as a bonus for coming in under budget

That's a problem with most government budget processes--there are no incentives to come in under.  I've found it's also difficult to implement changes during times of forced cuts.

 

[Foxx]

i imagine this is going over about as well as a fart in church.

 

President Trump Cabinet Meeting October 17, Challenges all Departments To Achieve Five Percent Spending Cut…

 

doh! I see this was already posted. i'll at least post the video then.

 

Edited October 18, 2018 by Foxx

[Kevbeau]

14 hours ago, TPS said:

That's a problem with most government budget processes--there are no incentives to come in under.  I've found it's also difficult to implement changes during times of forced cuts.

 

To be fair...that’s been my experience with corporate America as well. It’s a constant loop of stupid. “I know you’re going to cut my budget so I submit 20% over what I need, but you already know I was going to do that so your targets have that baked in, but I knew you were going to bake it in so I plused up a new project...just because I know you’re going to ask for 5% back so we can make our Q4 numbers.”

 

Government or business..budgets are all a shell game 

[Tiberius]

Stock market getting smashed up again today 

[Warren Zevon]

1 minute ago, Tiberius said:

Stock market getting smashed up again today 

 

As long as $$$TTNP$$$ plays well the next couple days I will be happy.

 

The market has had a rough couple of weeks in general, though. We should see some bounce back in November through the holiday season.

[Deranged Rhino]

https://mobile.twitter.com/bennyjohnson/status/1054734784595922944