Tag Archives: Deficit

The White House Unveiled a Tax Reform Plan. It’s Not Really a Plan

By Alex Altman – The proposal, which the White House promised would be the “the biggest individual and corporate tax cut in American history,” was strikingly short on details, from how much the goodies President Donald Trump is dangling would cost to how his Administration plans to patch the hole it would blow in the budget.

That’s an especially pressing question given how zealous many Republican lawmakers have been in the recent past about keeping legislation revenue-neutral.

The Committee for a Responsible Federal Budget estimated the plan could cost between $3 trillion and $7 trillion. Its base-case estimate, $5.5 trillion, would be 20% of U.S. GDP. “Even if tax cuts could generate more growth than estimated,” the group wrote, “no plausible amount of economic growth would be able to pay for a substantial portion of the tax plan.”

Even if a true tax-reform package isn’t in the offing anytime soon—the last reform of the tax code took place more than 30 years ago—Trump’s party has the power to simply slash rates this year.

That would juice the U.S. economy as Republicans head into a difficult election cycle in 2018. Which, to Trump, may be as good a goal as any. more> https://goo.gl/PRuvyB

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Keynesian economics: is it time for the theory to rise from the dead?

By Larry Elliott – Imagine this. In late 1936, shortly after the publication of his classic General Theory, John Maynard Keynes is cryogenically frozen so he can return 80 years later.

Things were looking grim when Keynes went into cold storage. The Spanish civil war had just begun, Stalin’s purges were in full swing, and Hitler had flouted the Treaty of Versailles by militarizing the Rhineland. The recovery from the Great Depression was fragile.

The good news, Keynes hears, is that lessons were learned from the 1930s. Governments committed themselves to maintaining demand at a high enough level to secure full employment. They recycled the tax revenues that accrued from robust growth into higher spending on public infrastructure. They took steps to ensure that there was a narrowing of the gap between rich and poor.

The bad news was that the lessons were eventually forgotten. The period between FDR’s second win and Donald Trump’s arrival in the White House can be divided into two halves: the 40 years up until 1976 and the 40 years since.

Keynes discovers that governments deviate from his ideas. Instead of running budget surpluses in the good times and deficits in the bad times, they run deficits all the time. They fail to draw the proper distinction between day-to-day spending and investment. more> https://goo.gl/EyFn5m

Trump to follow Obama’s example on economy

By Philip Wegmann – Keynesian economics came into vogue around the time of the Great Depression. The theory teaches that market depressions are the result of a spending deficit which can be remedied by government stimulus. As if the economy was a massive engine, the theory prescribes kick starting the machine with government spending to get it moving.

It’s clear the New York businessman finds the idea, or at least the vocabulary, of the theory compelling.

And to get the huge gains he wants, Trump plans on following his predecessor’s example.

Obama brought Keynes into the Oval Office and began priming the nation’s economic pump in 2009. He quickly signed the American Recovery and Reinvestment Act, a stimulus package with a $787 billion price tag. Later that Summer, he followed up with the $3 billion Cash for Clunkers program to subsidize the purchase of more fuel efficient vehicles.

It was textbook Keynesian economics and the Trump administration appears ready to follow suit with only a few differences. more> https://goo.gl/v19ssT

Our nation can’t afford past-its-sell-date economic orthodoxy

By Paul McCulley – My disgust reached new heights Friday a week ago, when the U.S. reported “shockingly weak” or alternatively, simply “dismal” employment growth during the month of May: only 38,000 job gains, in contrast to a monthly average increase well over 200,000 over the last two years.

Rather than focus on the existential macroeconomic cause of the disappointing data, my profession’s town barkers immediately jumped to the conclusion that the Federal Reserve had “egg on its face” in the wake of its forward guidance in the weeks prior to the data’s release, rhetorically “preparing the markets” for a hike in its policy rate this summer.

It must be noted that the hike putatively being “put in play” was lifting the Fed’s policy rate by one-quarter of a percentage point, to a level still far south of even 1 percentage point. Most ordinary people would submit that as long as we’re talking about interest rates in terms of zero-point-something, we’re talking about the moral equivalent of zero.

Yet the Fed is somehow responsible for the U.S. labor market’s sudden slowdown? And should have egg on its face?

No, the egg belongs on the face of my profession, which refuses to openly acknowledge that the economy’s existential woe is a deficiency of aggregate spending, for which fiscal policy expansion — read dramatically larger fiscal deficits — is the solution, not near-zero Fed policy rates. more> http://goo.gl/j3lMJP

What Comes After Putin Could Be Worse

Bloomberg – The Russian president is taking his country straight down a path that could lead to a regime much worse than his.

The sanctions to some extent play into his hands, allowing him to cast economic suffering as a necessary consequence of standing up to the West, rather than a result of his own mismanagement. In one stroke, Putin has rewritten Russia’s social compact, justifying the Kremlin’s grip on power not with the promise of prosperity but with an appeal to nationalist pride.

The longer Russia’s economic malaise lasts, the greater the chances that the opposition to Putin will turn into something more virulent. more> http://tinyurl.com/lggzx5q

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Why America needs a debt ‘default’

By Anthony Mirhaydari – It’s clear the fiscal fight in Washington isn’t going to end anytime soon.

The causes of this mess are manifold.

At the core, the country abused its privilege as the issuer of the world’s reserve currency. The global demand for dollars enabled our debt dependence. It allowed households to leverage up with cheap mortgages. It allowed banks to play hedge fund and load up on asset-backed bonds sheltered in off-balance-sheet vehicles. And it allowed the government to promise low taxes, ample benefits, and plenty of bailout cash when it all went wrong in 2008. more> http://tinyurl.com/n9jn3nx

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The Summers or Geithner nightmare

By James Saft – I can think of no-one, with the possible exceptions of Robert Rubin and Alan Greenspan, who are more closely identified than Summers and Geithner with the errors of financial leadership of the past 15 years. And should either get the top job it would send a clear signal that efforts to properly regulate finance will come to very little, and that the chances of yet another in the long succession of crises are getting larger. more> http://tinyurl.com/lg66jcw

Banks Need ‘Push’ to Avoid Prolonging Crisis, BIS Says

English: A model that describes the competitiv...

English: A model that describes the competitive environment of a company’s business model.
(Photo credit: Wikipedia)

By Boris Groendahl – Lenders, almost four years after the collapse of Lehman Brothers Holdings Inc., still hold overvalued assets and are postponing necessary recapitalizations while relying on official funding, especially in Europe, the BIS said in its annual report released yesterday. Banks are also returning to risks akin to those that led to the crisis.

“Public policy must move banks to adopt business models that are less risky, more sustainable and more clearly in the public interest,” the BIS said in the report. more> http://tinyurl.com/6v8hw7p

Can the Eurozone Survive?

By Mortimer B. Zuckerman – The facts of the eurozone showdown are brutally simple. Growth is stalled, even in the most successful member, Germany, and in many countries it is contracting. Unemployment is high and soaring; today Spain’s unemployment rate is some 24 percent. Banks are collapsing, and over-indebted governments are running out of both money and credit.

Germany wants Greece to stay in the eurozone but it seeks to enforce an internal devaluation through reductions in Greek wages and benefits. But this is difficult for democratically elected leaders. For example, labor costs in Spain are still rising although almost one in four workers do not have jobs. How deep would unemployment have to be for wages to start to fall?

It would amount to a cut in the average Greek family’s standard of living by 20 percent or more. That severe a shock is probably beyond the democratic limits as to how far any individual government can go without a political upheaval of unpredictable consequences. more> http://tinyurl.com/cdsu52k

Europe After the Crisis

Various Euro bills.

Various Euro bills.
(Photo credit: Wikipedia)

By Andrew Moravcsik – From the start, the euro has rested on a gamble. When European leaders opted for monetary union in 1992, they wagered that European economies would converge toward one another: the deficit-prone countries of southern Europe would adopt German economic standards — lower price inflation and wage growth, more saving, and less spending — and Germany would become a little more like them, by accepting more government and private spending and higher wage and price inflation. This did not occur. Now, with the euro in crisis, the true implications of this gamble are becoming clear.

No country has issued a serious challenge to any of the EU’s core activities. Nor has a single prominent European politician advocated withdrawal from the EU, as that would amount to economic suicide. Brussels continues to manage about ten percent of national policies, from business regulation to European migration, under a unified legal system. The union has recently expanded, from 12 members at the time of the Maastricht Treaty to 27 today, leaving lasting movement toward open markets, democracy, and the rule of law in its wake. more> http://tinyurl.com/cm5plsl