Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Economy

Moody’s Revelation: “Managed” Economies fail

This article was published by The McAlvany Intelligence Advisor on Friday, May 26, 2017:  

Perhaps without knowing it, Moody’s downgrade of China one full notch on Wednesday exposed the fallacy of managed economies: that government bureaucrats with fancy degrees from the University of Chicago, Harvard, or Yale know what they’re doing. One of those fallacies that have been promoted for years came from Yale grad Arthur Laffer as far back as the Reagan administration. On the surface it sounds eminently logical: cut taxes and the economy will grow. The fallacy is knowing just how much to cut, whose to cut, when to cut, and how long to cut.

The Laffer Curve undergirds the whole idea of “supply side economics” –

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Moody’s Credit Downgrade of China First in Almost 30 Years

This article appeared online at TheNewAmerican.com on Thursday, May 25, 2017:

China GDP

China GDP

Moody’s Investors Service, one of the big three credit-rating services in the country, downgraded China’s creditworthiness one full notch on Wednesday. It moved the world’s second-largest economy from Aa3 (“high quality [with] very low risk”) to A1 (Upper-medium grade [with] low credit risk”). It explained why:

The downgrade reflects Moody’s expectations that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to grow as potential growth slows.

That “potential growth” has been slowing since at least 2010. In that year Chinese government agencies reported growth in excess of 10 percent. By 2014, it had slowed to 7.3 percent, to 6.9 percent in 2015, and is now at a reported 6.7 percent.

Moody’s is late to the game.

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The Sausage-Making in Washington Begins

his article was published by The McAlvany Intelligence Advisor on Wednesday, May 24, 2017: 

Engraving of Otto von Bismarck

Engraving of Otto von Bismarck (Photo credit: Wikipedia)

Now that the White House has released the budget for fiscal year 2018, the quote from Otto von Bismarck becomes operative: “Laws are like sausages; it is better not to see them being made.” But that only becomes operative after the election, about which H. L. Mencken said, “Every election is a sort of advance auction sale of stolen goods.” And when those stolen goods exceed $4 trillion, everyone has a distinct interest in getting, keeping and expanding his share.

When Trump’s “blueprint” was rolled out in March, it provided the bare bones of what he hoped it might accomplish:

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Venezuela Entering Final Stages

This article appeared online at TheNewAmerican.com on Tuesday, May 23, 2017: 

After eight weeks of protests, 49 deaths, 13,000 injured, and 1,500 arrests, Venezuela’s citizens are turning violent. In the town where Hugo Chávez spent his early years, termed the “cradle” of his socialist revolution, protesters not only burned down his childhood home but also several government buildings, including the regional office of the National Electoral Council. This led one observer of the violence to remark that at least the protesters know whom to blame for their current troubles. Said Eric Farnsworth, vice president of the Council of the Americas, “It is pretty symbolic that the citizens are venting their frustrations on the author of the Bolivarian revolution.”

And well they might.

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Trump’s Budget: a Mixture of Magic, Hope, Pixie Dust, and Gimmicks

This article appeared online at TheNewAmerican.com on Tuesday, May 23, 2017:

Now that the long-awaited Trump budget for Fiscal Year 2018 has been released, it hasn’t failed to deliver what skeptics initially expected: Growth coupled with lower taxes will drive the economy to levels that will balance the budget — by 2027  — much of it based on magic, hope, pixie dust, and gimmicks.

First, the “magic.”

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Labor Department’s April Jobs Report Strong and Getting Stronger

This article appeared online at TheNewAmerican.com on Friday, May 5, 2017:  

The headline numbers from the Labor Department’s latest employment report for April were encouraging: 211,000 jobs were added last month (compared to economists’ expectations of less than 190,000), pushing the unemployment rate to 4.4 percent, the lowest seen in 10 years, while average wages grew, year-over-year, by 2.5 percent.

That’s exactly what one would expect from a healthy economy.

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OPEC Increasingly Irrelevant as Cartel Seeks to Extend Output-cut Deal

This article appeared online at TheNewAmerican.com on Wednesday, May 3, 2017: 

English: Flag of the Organization of Petroleum...

Gregory Brew’s statement from Oilprice.com on Tuesday was spot on: “OPEC Begins to Unravel.” Except that the unraveling began years ago as entrepreneurs in the United States found a way to tap underground shale profitably.

OPEC faces an essentially insurmountable task. On May 25, oil ministers from all 13 of the cartel’s members will meet in Vienna to decide whether or not its present oil output cut agreement should be extended. Either way, OPEC’s doom as the prime determiner of world crude oil prices is likely sealed.

If they decide not to extend the output cut, the world will know that OPEC is finished. The ministers will depart Vienna and tell their governments that

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Latest GDP Report: The Good News and the Bad News

This article appeared online at TheNewAmerican.com on Friday, April 28, 2017:

Friday’s report from the Bureau of Economic Analysis (BEA) was so filled with disclaimers that one will have to wait another month to get a true picture of how the economy is performing under President Trump. In the meantime, said the BEA, real (inflation-adjusted) gross domestic product (GDP) increased at an annual rate of 0.7 percent in the first quarter of 2017.

However, last-minute retail sales data (which showed slowing) wasn’t incorporated into Friday’s report, causing the BEA to say that its estimate

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Former Heritage Economist Stephen Moore Refutes CBO’s Doom & Gloom

This article appeared online at TheNewAmerican.com on Wednesday, April 26, 2017:

Stephen Moore by David Shankbone, New York City

Stephen Moore

The Heritage Foundation’s Distinguished Visiting Fellow Stephen Moore, now a CNN economics commentator, thinks the latest report from the Congressional Budget Office (CBO) is far too pessimistic. Instead, he believes that most of the nation’s fiscal problems can be solved just by prodding the economy.

The CBO report, “The 2017 Long-Term Budget Outlook,” assumed that little would change politically over the next 10 to 30 years, despite promises from President Trump that his policies would “make America great again.” It projected that the Baby Boomers would exhaust the resources of Medicare and Social Security, and then those costs would be shifted directly to the Department of the Treasury.

If nothing changes, said the CBO, the percentage of the national debt held by the public (pension plans, mutual funds, foreign governments, and wealthy individuals) would double over the next 30 years, which would “pose substantial risks for the nation.”

The problem is exacerbated, said the CBO, not only by an aging population demanding that the government keeps its promises to them, but also

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Trump Floats Trial Balloon on Tax Reform; Wants Feedback

This article appeared online at TheNewAmerican.com on Wednesday, April 26, 2017:

Initially referred to as a statement of general principles, the one-page summary of the Trump administration’s tax reform plan looked more like a trial balloon. Said the White House, the administration “will hold listening sessions with stakeholders to receive their input … [in order to] develop the details of a plan that … can pass both chambers.”

Reiterating Trump’s goals of growing the economy, creating millions of jobs, simplifying the tax code, and providing tax relief to middle-income families, the trial balloon as summarized would

lower the corporate tax rate from 39.6 percent to 15 percent, including Subchapter S or “pass-through” corporations;

 

reduce the number of individual income tax brackets from seven to three: 10%, 25% and 35%, depending on income;

 

double the standard deduction, currently at $6,300 for individuals and $12,600 for married couples filing jointly;

 

expand tax relief to families with child and dependent care expenses;

 

eliminate various tax breaks that apply mainly to the wealthiest taxpayers;

 

keep mortgage interest and charitable deductions while eliminating deductions for state income taxes paid;

 

repeal the Alternative Minimum Tax (AMT);

 

repeal the 3.8% ObamaCare tax that hits small businesses and investment income;

 

allow a one-time “tax holiday” for international corporations holding trillions overseas; and

 

eliminate tax breaks for special interests.

Trump’s Treasury Secretary Steven Mnuchin called it “the biggest tax cut and the largest tax reform in the history of our country,” while his Chief Economic Advisor Gary Cohn said the plan represented a “once-in-a-generation opportunity to do something really big.”

What’s really big is the potential deficits Trump’s plan could cause, with at least one critic estimating that it would result in $6 trillion in deficits over the next 10 years.

The underlying goal of the administration being pushed by Trump is that by cutting these tax rates the economy would awake from its slumber and start generating three percent annual rates of growth of the nation’s GDP. Although the Laffer Curve was not mentioned by Mnuchin or economist Stephen Moore (in his recent critique of the government’s economic outlook), it’s the same principle: lower tax rates to result in higher economic growth which will (in theory) result in higher taxes collected by the government.

The increase in the standard deduction is also designed to allow an estimated 27 million Americans who file a long form listing their mortgage interest and charitable deductions to use a “big postcard” instead. This “simplification” of the tax code has long been a stated goal of Trump as candidate and his administration after he was inaugurated in January.

Wednesday’s announcement is just the opening salvo in what promises to be a long war before anything reaches Trump’s desk. Senate Minority Leader Chuck Schumer is calling it a gift for the already-wealthy Americans who don’t need any more tax breaks. And Mnuchin referred to the Senate strategy of “reconciliation” that is likely to be needed to pass the Senate without Democrat votes. He noted that he hoped that the bill that finally passes Congress and is signed into law by the president will be permanent, but “if we have them for [just] 10 years, that’s better than nothing.”

Reconciliation would allow Republicans to pass it without a single Democrat vote, but would also cause the plan to expire in 10 years if it generates deficits. This is what happened to the tax cuts enacted under President George W. Bush. When the projected revenue growth didn’t meet expectations, his tax cuts for the most part were automatically ended.

The obstacles are substantial, including determined if futile resistance from Democrats and complaints from the energy industry which might see its depletion allowance deductions cut or removed in Trump’s final bill. Those details will be revealed in June and could also negatively impact heavily-indebted public utilities and cable companies that might see some loss of their interest deductions.

On the other hand, winners could include companies that are currently most negatively impacted by high corporate rates in force, including engineering and construction companies, food wholesalers, publishers, and retailers.

The old proverb applies as Trump’s trial balloon gets translated into specific language in the tax reform bill in June: “There’s many a slip ‘twixt the cup and the lip.” A newer one is this from Isaac Boltansky, an analyst at Compass Point Research and Trading, who has been following these events closely:

The sugar high of tax cut headlines could turn into a nagging headache once stakeholders return to the painstaking consideration of process and pay-fors.

Three Stock Market Indicators Spell Trouble for Pension Fund Managers

This article was published by The McAlvany Intelligence Advisor on Monday, April 24, 2017:

Warren Buffett speaking to a group of students...

Warren Buffett

Michael Lombardi is a bear. Canadian-born, Lombardi has been dishing out investment advice for decades. He is getting nervous. And so should pension fund managers trying to make up for lost time.

In his March newsletter, Lombardi looked at the Warren Buffett Indicator:

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An Inside Look at Venezuela’s Collapse

This article was published by The McAlvany Intelligence Advisor on Friday, April 21, 2017: 

Português: Brasília - O chanceler da Venezuela...

Marxist Nicolas Maduro

Andres Malave grew up in Caracas until Chavez took over. Then he and his family were able to escape – barely – to the US. Wrote Malave, “It was a hard choice, but in hindsight, we were the lucky ones.”

Now he laments the blind eye many Americans turn towards the rioting, the deaths, the crime, the economic devastation, and the ravages of inflation that Venezuela is suffering:

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GM Ceases Operations in Venezuela Following Government Seizure of its Plant

This article appeared online at TheNewAmerican.com on Thursday, April 20, 2017:  

English: Logo of General Motors Corporation. S...

Following the government’s confiscation of its parts plant, General Motors announced on Wednesday it was ceasing all operations in Venezuela. The company said the seizure was illegal and that it would seek legal remedies.

The announcement puts 2,700 workers making replacement parts in the plant out of work, with small comfort coming from GM, which said it would make “separation payments” to those employees.

But what then? Another 3,900 people will likely find their jobs in jeopardy as the 79 car dealers that employ them will also shortly disappear in the aftermath of GM’s decision.

GM joins an ever-growing list of companies that can’t operate in the socialist paradise run by Marxist dictator Nicolás Maduro, including

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Trump Picks Neocon to Head Council of Economic Advisors

This article appeared online at TheNewAmerican.com on Monday, April 10, 2017:

President Donald Trump announced on Friday that he would nominate Kevin Hassett as chairman of his Council of Economic Advisors. Immediately, Glenn Hubbard, a neocon serving as a visiting scholar at the “conservative” American Enterprise Institute (AEI), piped up to laud Hassett’s nomination and Trump’s wisdom in selecting him for the position: “He’s not just a standard-issue really good economist, [Hassett is] someone who knows how policy works. The tax changes being considered are really aimed at boosting investment, so I think Kevin is exactly the right person.”

He’s the right person if Trump wants someone whose resumé includes stints at the

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Trump Stumbles Again: Appoints Interventionist to head his Council of Economic Advisors

This article was published by The McAlvany Intelligence Advisor on Monday, April 10, 2017:

Cover of "DOW 36,000 : The New Strategy f...

One way to test a hypothesis is to apply it to the real world. Two renowned, highly-regarded, and elite-college trained economists did just that. In 1999 James Glassman, the founding executive director of the George W. Bush Institute (Harvard-trained with a BA in government), and Kevin Hassett, BA in Economics from Swarthmore and Ph.D. in Economics from the University of Pennsylvania, wrote Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market. So sure were they about their prediction they went on the road to promote it, claiming that “stocks are now in the midst of a one-time-only rise to much higher ground – to the neighborhood of 36,000 on the Dow Jones Industrial Average.”

On December 31, 1999 the Dow stood at 11,497. A little over three years later the Dow closed (on March 6, 2003) at 7,673, a drop of 3,823 points, costing those who bought the book and took their advice one-third of their investment.

But both persisted,

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U.S. Trade Gap With China Narrowed in January and February

This article appeared online at TheNewAmerican.com on Thursday, April 6, 2017:

Xi Jinping 习近平

Xi Jinping, the Chinese communist dictator

When the Wall Street Journal reported that, according to the U.S. Department of Commerce, America’s “trade gap” shrank in January and February, it intoned that while this was allegedly good news, over the last 10 years it’s been bad news: the trade gap “remains far higher than a decade ago.” The Journal called it a “mixed trade outlook” that bodes ill for the upcoming talks between U.S. President Donald Trump and China’s communist leader, Xi Jinping.

Josh Mitchell, writing for the Journal, tried to explain why this was bad:

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Jobs Numbers Come in Higher Once Again, Supporting Trump’s Policies

This article appeared online at TheNewAmerican.com on Thursday, April 6, 2017:

Reporters used adjectives such as “torrid,” “solid,” “unexpected,” and “strong” to characterize March jobs growth of 263,000, as reported by ADP/Moody’s on Wednesday, which far exceeded professional economists’ estimates of 170,000 new jobs for the month.

Last month Mark Zandi was uncharacteristically buoyant when commenting on February’s jobs numbers: “February was a very good month for workers. Powering job growth were the construction, mining and manufacturing industries.… Near record high job openings and record low layoffs underpin the entire market.”

Today Zandi extended his comments as the jobs market continues its recovery: “Job growth is off to a strong start in 2017. The gains are broad-based but most notable in the goods-producing side of the economy, including construction, manufacturing and mining.”

During the past eight years economists such as Zandi had much less to be excited about as jobs growth under the previous administration was

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Trump Uses CRA to Roll Back Obama Rules

This article appeared online at TheNewAmerican.com on Thursday, April 6, 2017:

President Donald Trump will be signing legislation to overturn a rule that the previous administration put in place prohibiting states from blocking federal grant money to abortion providers, including Planned Parenthood. The announcement was made during Wednesday morning’s press conference and will affect some $300 million of federal money this year.

The president has already signed legislation repealing or neutering 11 such rules left over from the Obama administration, with two more pending and a couple more working their way through Congress. There’s a time clock running: the Congressional Review Act (CRA), which allows a 60-day “lookback” on the previous administration’s rules, runs out on April 28.

The leftist DailyKos celebrated the collapse of RyanCare but warned its progressive audience that these small victories using the CRA are mounting up:

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U.S. Rig Count Up, OPEC Influence Down

This article appeared online at TheNewAmerican.com on Monday, April 3, 2017:

An announcement on Friday by Baker Hughes, one of the world’s largest oil-field services companies, put one more nail in OPEC’s coffin. Despite the cartel’s attempt to manipulate world crude-oil prices to its benefit, the oil and gas rig count in the United States jumped by 15 last week and now sits at 824, an increase of 374 in just the last year.

Two days earlier, another nail had been pounded into place:

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Harry Dent, Meet Chris Hamilton

This article was published by The McAlvany Intelligence Advisor on Wednesday, March 29, 2017:

For years Harry Dent (shown) has attempted to turn his demographic analyses into investment advice, with middling performance. It seems that when his advice doesn’t turn out well, he writes another book.

Take, for example, his The Demographic Cliff: How to Survive and Prosper During the Great Deflation Ahead. He contends that the economy can be traced and tracked using the behavior of consumers as they grow, mature and age. Young people marry, have families, buy homes, automobiles, and gadgets. Their acquisitions peak at around age 45 or so, and then decline over time into retirement.

His “waves” are like seasons: 

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.