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Jumping the Stimulus Turnstile

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Another very informative article from my good friend and strong contributor to the blog, Greg Maresca. To add to his great discussion, let me remind everyone that consumer spending makes up 70% of our country’s GDP. There many other ways to stimulate the economy and increase consumer spending at the same time i.e., tax cuts, which do not increase the deficit, but always bring in more revenue. Remember Reagan and his “Trickle Down Economics”?

 

 

 

By: G. Maresca

The COVID stimulus train has added another $1.9 trillion to its ever-growing caboose. Uncle Sam is running the nation’s treasury like a Parker Brothers’ board game. Through continuous stimulus spending, Congress, who controls the nation’s purse strings, has dismissed the burgeoning federal deficit outright.

The numbers throughout this COVID cash craze are astonishing: In just 16 months, the Federal Reserve has pumped over $9 trillion into the economy. According to Forbes, last June the U.S. accumulated more debt than in the 200-plus years from America’s founding in 1776 through 1979.

The stimulus bills have provided temporary relief but are toxic over the long-term. Nearly half of the unemployed will be paid more to stay home, while keeping unemployment artificially higher which will result in calls for more stimulus.

Economic incentives matter but handouts?

History will look back on this COVID era with disbelief that so many were bamboozled into believing that freebees were a good idea or even sustainable.

There is no real stimulus. Such semantics masks (pun intended) what is happening to the economy that resembles a Bowery wino. Government giveaways and money-printing have their inevitable effects. Stimulus checks will not grow the economy, but it will stimulate the federal debt and cause inflation.

Chetan Ahya, chief economist at Morgan Stanley, “The driving forces of inflation are already aligned, and a regime shift is underway.” Perhaps forgotten is that inflation is the most universal tax of all.

Bestowing money on those who work is scandalous because it steals from their children and grandchildren. Such fiscal policy only grows government and restricts liberty, while handcuffing small businesses – the economy’s driving force. Future generations will face burdensome taxation and cut services thanks to this intergenerational redistribution of wealth.

Stimulus spending has resulted in a higher national debt percentage of GDP than at the end of WWII and both political parties are to blame. They seem to believe that zero interest rates will last forever.

Politicians have not missed a paycheck, nor have they read the 5,600 pages of latest bill that is the handiwork of an army of aides acting on behalf of lobbyists and interest groups.

Some highlights have $750 million for border walls in Jordan, Syria, Lebanon, Egypt, Oman and Tunisia. Apparently, the only country that Congress feels should have open orders is our own. Other pork chops include $1.3 billion for the Egyptian military, $130 million for Nepal; $135 million for Burma, $34 million and $85 million for Cambodia, and $231 million to pay down the national debt of Sudan, where apparently Sudan’s debt matters more than our own.

Ten million has been allocated for gender programs in Pakistan. Rather than cash, we should send the Pakistanis the annual army of leftist gender studies graduates. Don’t forget $600 to non-American citizens and the $40 million to the closed Kennedy Center in Washington, D.C. In an insult to fiscally responsible states, $350 billion is allotted to bail out states like New York and Illinois, who run yearly deficits.

For all their self-aggrandizing rhetoric about helping those in need with additional stimulus spending, the reality is that both parties are helping themselves to excess at the expense of future Americans.

Considering what has taken place over the course of less than a year, it begs the question: Will there ever be a time when politicians won’t be “stimulating” the economy? Tax, spend, regulate, then “stimulate,” which is just another synonym for more spending.

You cannot spend yourself into prosperity.

If history tells us anything the forgotten 1920-21 economic crisis taught that sometimes the best stimulus is none at all.

Rather than expanding government, a true fiscal “stimulus” initiative would promote and support the private sector. One of the best ways of doing that would be to reduce the regulatory and tax burden on U.S. corporations and small businesses.

Paying customers are the best stimulus for any enterprise, while allowing them to keep more of the money they earn would also underscore that it is their money, not Uncle Sam’s.

Instead of forcing businesses and schools to close, while restricting our civil liberties and bribing the masses through federal handouts, open up the economy, tax less and invest our taxes into America.

Watch inflation, it’s like Murphy, always waiting for a misstep, which Trader Joe will certainly provide..

 

 

Originally posted 2021-01-30 10:50:45.

Current Events

Congress Read and Ask Yourself WHY?

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Good afternoon earthlings, I trust you enjoyed your day off yesterday. If you did not have off, shame on your employer, it’s a National Holiday! And for my Marine brothers I trust you enjoyed the day before. We have often been criticized by our brother service members who say 10 November is not our birthday. The say we picked that day because the next day was a holiday and we would have a day to sober up after our Birthday Ball before having to go to work. Hell, I don’t know, maybe their right, but it sure always worked out for me. LOL

Aside, I was wondering what birthday was my first to celebrate as a Marine. Have you ever asked yourself that?  So, did the math, it was the 177th. Ouch!

Now for the purpose of the post. A fellow Marine brother sent this to me and I had seen it before, but thought it had to some great ideas in it, so I decided to post it. However I first vetted it, as I follow Buffet on some economic issues — he is a good economist –and I knew it didn’t sound like the Buffet I knew.

See my comments in RED.

Warren Buffett is asking everyone to forward this email to a minimum of 20 people, and to ask each of those to do likewise. This is not true. Buffet would NEVER do thsi.

The BUFFETT Rule

Let’s see what people pressure is all about.

Salary of retired US Presidents .. . . . .. . . . . .. . $180,000 FOR LIFE. Me thinks this one is okay considering all the BS he has to pout up with for four years. Of course some deserve the BS.

,Salary of House/Senate members .. . . . .. . . . $174,000 FOR LIFE. This is stupid. OMG

Salary of Speaker of the House .. . . . .. . . . . $223,500 FOR LIFE. This is really stupid. Another OMG

Salary of Majority / Minority Leaders . . .. . . . .$193,400 FOR LIFE Stupid. A bigger OMG

Average Salary of a teacher . . .. . . . .. . . . . .. .$40,065 Well? What are teachers qualifications, I believe that should weigh heavily on salary????

Average Salary of a deployed Soldier . . .. . . .. $38,000. Shut up Jim!

Here’s where the cuts should be made!

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:

“I could end the deficit in five minutes,” he told CNBC. “You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.” Yes, he said this, BUT he was simply answering a question from the anchor. He did not recommend it, but said it was that easy to fix the deficit.

The 26th Amendment (granting the right to vote for 18 year-olds) took only three months and eight days to be ratified! Why? Simple! The people demanded it. That was in 1971 – before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took one (1) year or less to become the law of the land – all because of public pressure.

Warren Buffett is asking each addressee to forward this email to a minimum of twenty people on their address list; in turn ask each of those to do likewise.

In three days, most people in The United States of America will have the message. This is one idea that really should be passed around.

Congressional Reform Act of 2022

1. No Tenure / No Pension. A Congressman / woman collects a salary while in office and receives no pay when they’re out of office.

2. Congress (past, present, & future) participates in Social Security. I disagree with the “past” requirement, don;t grandfather it, they made that decision so make them stick with it. With no current and future influx to the fund, it will go broker over time. That’s good.

All funds in the Congressional retirement fund move to the Social Security system immediately. No, as I said let them keep their funds and slowly go broke.  All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose. Yes, absolutely, why should they not particpate in SS? They keep stealing from it, perhaps that will put an end to that!

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%. Just like the rest of us in the federal government.

5. Congress loses their current health care system and participates in the same health care system as the American people. Of course, give me one erason why not?

6. Congress must equally abide by all laws they impose on the American people. Come on folks this is a given, why are they exempt from some things?

7. All contracts with past and present Congressmen/women are void effective 3/1/22. The American people did not make this contract with Congressmen/women.

Congress made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and go back to work.

If each person contacts a minimum of twenty people, then it will only take three days for most people in the U.S. to receive the message. It’s time!

THIS IS HOW YOU FIX CONGRESS!

 

Now, I shall say it, if you agree, pass it on.

Semper Fi, Jim

PS If you are wondering how I feel reference the election ….. like shit! But I have not given up. Trump should take Hillary the snake’s advice and not concede. I think you can bet he won’t!

Originally posted 2020-11-12 15:45:21.

Current Events

$1.00 = $0.95

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This post may be too hard for some to swallow without some Economics background, but I consider it important enough for my followers to be prepared. I received the following from a trusted Marine brother who runs an investment business in NC. Rik and I are usually on the same page on everything “Economic” because we are both “supply siders” and also “Monetarists.” Won’t get into any Economics BS to explain what that means in layman’s terms as it would only confuse the issue more than it already is. Having said that I totally agree with the article; we are already seeing the start of it. As of this instant, my total portfolio has lost 3.56% in the last month, and I firmly believe it will continue, while inflation is sits and waits for the right time to make itself known to every American. Keep it up Joey  and we will be a bankrupt country while the FED, most of whom are not supply siders fiddle.

 

 

 

 

Your cash will lose at least 5% of its purchasing power in the next year

Posted: 24 Sep 2021 05:03 PM PDT

Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next 12 months. Yes, your cash balances will lose at least 5% of their purchasing power over the next year, and that’s virtually guaranteed. So what are you—and others—going to do about it?

Assumptions: This forecast of mine optimistically assumes that 1) the first Fed rate hike of 25 bps comes, as the market now expects, about a year from now, and 2) the rate of inflation slows over the next 12 months to 5% from its year-to-date rate of 5.9%. Personally, I think inflation next year likely will be higher, if only because of the delayed effect of soaring home prices on Owner’s Equivalent Rent (about one-third of the CPI), the recent end of the eviction moratorium on rents, and the continued, unprecedented expansion of the M2 money supply.

I’m a supply-sider, and that means I believe in the power of incentives. Tax something less and you will get more of it. Tax something more and you will get less of it. Erode the value of the dollar at a 5% annual rate and people will almost certainly want to hold fewer dollars than they do today.

I’m also a monetarist, and that means I believe that if the supply of dollars (e.g., M2) increases by more than the demand for dollars, higher inflation will be the result. We’ve already seen this play out over the past year: the M2 money supply has grown by more than 25% (by far an all-time record) and inflation has accelerated from less than 2% to 6-8%. Massive fiscal deficits have played an important role in this, but so has an accommodative Fed. Between the Fed and the banking system, 3 to 4 trillion dollars of extra cash were created over the past 18 months. At first that was necessary to supply the huge demand for cash the followed in the wake of the Covid shutdowns. But now that things are returning to normal, people don’t need or want that much cash. Yet the Fed continues to expand its balance sheet, and they won’t finish “tapering” their purchases of notes and bonds until the middle of next year. That means that there will be trillions of dollars of cash sitting in retail bank accounts (checking, demand deposits and savings accounts) that people will be trying to unload.

If we’re lucky, the inept and feckless Biden administration will be unable to pass its $1.5 trillion infrastructure and $3.5 trillion reconciliation bills in the next several weeks. This will lessen the pressure on the Fed to remain accommodative, but it’s not clear at all whether it will encourage the Fed to reverse course before we have a huge inflation problem on our hands. Non-supply-siders (like Powell) view an additional $5 trillion of deficit-financed spending as an unalloyed stimulus for the economy. Supply-siders view it as a virtually guaranteed way to increase government control over the economy and thereby destroy growth incentives and productivity.

Amidst all this potential gloom, there are some very encouraging signs, believe it or not. Chief among them: household net worth has soared to a new high in nominal, real, and per capita terms. Also, believe it or not, the soaring federal debt has not outpaced the rise in the wealth of the private sector.

Today’s interest rates are relative to inflation. Terribly low! In normal times, a 4-5% inflation rate would call for 5-yr Treasury yields to be at least 4-5%. yet today they are not even 1%. The incentives this creates are pernicious: holding cash and/or Treasuries implies steep losses in terms of purchasing power. That in turn erodes the demand for cash and that fuels more spending and higher inflation.

The growth of the non-currency portion of M2 (currency today is about 10% of M2). Currency in circulation—currently about $2.1 trillion—is not an inflation threat, because no one holds currency that they don’t want. The rest of M2, just over $18 trillion, is held by the public (not institutions) in banks, in the form of checking, savings, and various types of demand deposits. For many, many years M2 has grown at an annual rate of 6-7%. But beginning in March of last year, M2 growth broke all prior growth records. The non-currency portion of M2 is about 25% higher than it would have been had historical trends persisted. That means there is almost $4 trillion of “extra” money in the nation’s banks. This extra money has been created by the same banks that are holding it: banks, it should be noted, are the only ones that can create cash money. The Fed can only create bank reserves, which banks must hold to collateralize their deposits. Today banks hold far more reserves than they need, so that means they have a virtually unlimited ability to create more deposits. And they have been very busy doing this over the past 18 months.

For most of the past year I have been predicting that this huge expansion of the money supply would result in rising inflation, and so far that looks exactly like what has happened. People don’t need to hold so much of their wealth in the form of cash, so they are trying to spend it. But if the Fed and the banks don’t take steps to reduce the amount of cash, then the public’s attempts to get rid of unwanted cash can only result in higher prices, and perhaps some extra spending-related growth. It’s a classic case of too much money chasing too few goods and services. And Fed Chair Powell has just added some incentives for people to try to reduce their cash balances. He’s fanning the flames of inflation at a time when there is plenty of dry fuel lying around.

Now for some good news. The evolution of household balance sheets in the form of four major categories. The one thing that is not soaring is debt, which has increased by a mere 20% since just prior to the 2008-09 Great Recession.

With private sector debt having grown far less than total assets, households’ leverage has declined by 45% from its all-time peak in mid-2008. The public hasn’t had such a healthy balance sheet since the early 1970s (which was about the time that inflation started accelerating). Hmmm….

In inflation-adjusted terms, household net worth is at another all-time high: $142 trillion.

On a per capita and inflation-adjusted basis, the story is the same. We’ve never been richer as a society.

Total federal debt owed to the public is now about $22 trillion, or about the same as annual GDP. It hasn’t been that high since WWII. So it’s amazing that federal debt has not exploded relative to the net worth of the private sector. As I’ve shown in previous posts, the burden of all that debt is historically quite low, thanks to extraordinarily low interest rates.

Gold prices are weak today because the market is anticipating higher short-term interest rates. Gold peaked when forward interest rate expectations were at an all-time low. Why? Because super-low interest rates pose the risk of higher inflation. With the Fed now talking about raising rates (albeit sometime next year, and very slowly thereafter), gold doesn’t make as much sense because forward-looking investors are judging the risk of future inflation to be somewhat less than it was a few years ago.

 

S/F

Rik
Current Events

Making America 1979 Again

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Good Morning Gang, it’s Saturday, the day before the traditional Memorial Day, initially referred to as Decorations Day by MajGen Logan after the Civil War. Personally, I celebrate on the traditional Day, 30 May. So, I will lower my flag tomorrow morning and raise it back up at noon. Changing the day so federal workers could get another day off with pay didn’t impress me since my experience with those snakes in the grass (in the Corps, we called them “Sand Crabs”) has been  most don’t earn a day’s pay anyway. But then that’s my personal opinion and preference.

So what are the swamp creatures up to as they begin their long weekend cook out? Well, the big talking point this week has been inflation. What is that? Well simply, it is the rising cost of goods and services.  There is cost-push inflation where the cost of goods is caused by a rise in the cost of production e.g., gas. Then there is demand-pull inflation where the rise in prices is caused by an increasing demand and firms push up prices due to the shortage of goods e.g., toilet paper. LOL.

The swamp doesn’t fear inflation, just like Peanut Jimmy didn’t in the 70s, but beware folks, the signs are there, they are just being ignored.

By: G. Maresca

You do not have to be a scholar with a dollar to notice how prices are increasing. The Consumer Price Index that measures costs for goods and services increased 4.2% in April. Gas jumped 9%, while housing prices rose 17%.

The Powerball Lottery jackpot is now a tank of gas, a bag of groceries and a sheet of plywood.

A late seventies ambiance has returned with the cyber-attack on the Colonial pipeline cyber-attack and its resulting gas lines. Add to it emboldened Iranian Ayatollahs in a cooking Middle East; an increasing U.S. crime rate; a refugee crisis at the southern border, and a simmering Cold War II. The recent visit Joe and Jill Biden had with Jimmy and Roslyn Carter makes it official that the torch has been finally passed. Their photo op, if you have not seen it, is one for Ripley’s Believe it or Not.

The Carter’s even gifted to Hunter Biden their home-brewing recipe to Billy Beer.

It is time travel Democrat style and for those 41 and younger, welcome to 1979.

At least back then the music was better, and you didn’t need a second mortgage to attend a major league baseball game. Kids went to school and actually played outside, and mask wearing was strictly for Halloween.

It was also in the summer of ‘79 that Carter gave his infamous “malaise speech” about “the erosion of our confidence.” Today, Biden successfully dismantles the myth of white privilege and primacy every time he comes in contact with a microphone.

The Labor Department’s latest jobs report had employers adding only one-quarter of an anticipated one million jobs, while unemployment claims actually increased. Many are choosing not to work since being paid to stay home is now an option. Such a major disincentive to work is unprecedented and brings with it the predictable consequence of labor’s availability. With jobs plentiful combined with escalating unemployment benefits only serves to grease the rails for socialism.

Former Treasury Secretary under Bill Clinton and former head of the National Economic Council for Barack Obama, Larry Summers spoke truth to power when he warned against too much stimulus.

There is no true stimulus, only irrational leftist reasoning that justifies increased deficit spending that is endorsed by bogus good intentions that leads down a path to fiscal ruin.

No one on either side of the aisle gave Summer’s reasoning a second thought.

Biden and his Treasury Secretary Janet Yellen actually claimed, “there is no significant inflation.” Record-low interest rates coupled with a rise in prices is what happens when central banks have a surplus of money that outstrips demand. As we stifle the supply side with handouts, while printing dollars by the trillions the result is Inflation. Prudent advice to any weather forecaster is to look out the window first. Perhaps this dynamic economic duo needs to go grocery shopping and fill the gas tank before making their next inflation forecast.

In a recent press conference, Vice President Kamala Harris ignored a question about inflation with her infamous laughing crackle as she quickly walked away. Perhaps she was on her way to the southern border?

The fear of inflation is why the 10-year U.S. Treasury yield is up 80%, and the 5-year U.S. Treasury yield is up 123%.  Spending and printing comes with consequences as you cannot print your way to prosperity.

Perhaps Biden should consider surrounding the White House with an orchard since he and his economic team believe money grows on trees. The only problem would be when Biden ends up chopping down all the trees for the paper to print even more money.

When the Federal Reserve finally admits that there is too much inflation, interest rates will rise and polarize the economy followed by a toxic bout of stagflation. Such economic malaise hurts the same people that the spend and tax Biden Democrats say they want to help.

Moreover, any stock market gains will be deceiving thanks to inflation where any capital gains taxes will be a direct result of the dollar’s decline.

In 1979, the Carter coast-to-coast malaise paved the way for Ronald Reagan’s conservative reform.

History would do well to not only rhyme but repeat itself.

 

Happy Memorial Day everyone. While cooking steaks, burgers, dogs, and drinking your favorite libation, please remember the nearly 1.1 million Americans who gave their lives  so we could celebrate this day! And remember to lower you flag to half mast on which ever day you traditionally celebrate and raise it back to full staff at noon.. Semper Fi, Jim