Monday Reads: Bonfire of the InsanitiesPosted: June 25, 2018
Good Morning Skydancers!
I’m going to do my economist thing today because, my family, I think you need to know that the last year has been about taking actions that will blow things up. It’s true for the economy too. There have been so many bad economic policies coming out of this regime that it’s truly hard to figure out the extent things will be blowing up but it’s already starting. I feel like I’m continually delivering dismal news but forewarned is forarmed. Praemonitus praemunitus–the original Latin form–is actually the motto of the United States Army Security Agency. That seems oddly prescient.
Here’s the list of omens that I’ve been keeping track of the coming economic crash. I live in ground zero. We haven’t recovered from Jindal’s terrible policies yet. The Port of New Orleans and other port cities are going to lose a lot of business.
‘China is slamming $34 billion worth of US goods with tariffs. Here are the states that will be hurt the most.’
The states that exported more than $1 billion worth of tariff-eligible goods to China in 2017 were Texas, Louisiana, Washington, California, Alabama, South Carolina, Illinois, and Kentucky.
Southeast Missouri nail company gets hammered by Trump’s tariffs
President Trump’s tariff on steel imports that took effect June 1 has caused a southeast Missouri nail manufacturer to lose abo9ut 50% of its business in two weeks. Mid Continent Nail Corporation in Poplar Bluff – the remaining major nail producer in the country – has had to take drastic measures to make ends meet. The company employing 500 people earlier this month has laid off 60 temporary workers. It could slash 200 more jobs by the end of July and be out of business around Labor Day.
Since China proposed tariffs on soybeans following president trump’s announced tariffs on Chinese goods, the price of soybean bushels have dropped 20 percent.
For farmers in Arkansas, that’s something that could mean the end of their business.
Arkansas Farm Bureau President Randy Veach says it’s something he’s keeping an eye on. “We’re concerned, of course,” Veach said.
Being a soybean farmer himself, when he saw China was placing a tariff on United States soybeans, the market dropped the value of that crop to around nine dollars a bushel, putting Arkansas farmers in a difficult spot.
“They actually buy 60 percent of all the soybeans that’s traded around the globe,” Veach said. “We can’t make a profit at that low of a price.”
U.S. producers of pork, already saddled with duties enacted in an earlier round of the escalating trade dispute with China, are bracing for further pain after Beijing hit the products with additional tariffs due to come into effect next month.
China implemented a 25 percent duty on most U.S. pork items on April 2, and a 15 percent tariff on a range of fruits and nuts, in response to U.S. tariffs on Chinese steel and aluminum products.
Last week it included both categories in a second round of tariffs to be imposed on July 6. No other products have been listed twice.
Pork now faces cumulative import duties of 71 percent, not including value added tax, according to a formula published on the website of China’s finance ministry last week. Cumulative duties on fruit amount to 50 percent.
“The additional tariff will put us out of business,” said Zhong Zheng, founder of China-based Heartland Brothers, which sells U.S.-produced Berkshire pork to Chinese supermarkets and restaurants”
You beginning to see pattern here? And oh, look! We’re exporting jobs to the EU now! You know them! Land of livable wages and benefits?
President Donald Trump’s trade war with the European Union is going to cost Harley-Davidson Inc. as much as $100 million a year and spur a shift of production outside the U.S. at the manufacturer he embraced early in his term.
Each motorcycle shipped to Europe will mean a $2,200 expense because of the EU’s retaliatory tariffs for Trump’s steel and aluminum duties, according to a Monday filing. Passing that on to dealers or customers would cause an “immediate and lasting detrimental impact” on the company’s business in its second-largest market, so it will absorb most of those levies.
While Trump has repeatedly claimed that the U.S. can easily win trade wars, victims are starting to pile up at home and abroad. Daimler AG warned last week that escalating tension between the U.S. and China will impair earnings its Alabama SUV plant and lower profit this year. Harley tied its higher costs to a sequence started by Trump, who praised the company as a model American manufacturer during a February 2017 meeting at the White House.
Some economists on Wall Street think the economy could be growing at around a nearly 5 percent annual clip this quarter. But if the current economic vigor is only reflecting a short-term stimulus coming from the Trump administration’s tax cut, then some kind of slowdown is to be expected.
“It’s very hard to see what’s going to goose the economy further from these levels,” Ms. Gibbs said.
And the financial markets can sometimes sniff out problems with the economy before they show up in the official economic snapshots published on G.D.P. and unemployment. Another notable yield curve inversion occurred in February 2000, just before the stock market’s dot-com bubble burst.
In that sense, the government bond market isn’t alone. Stocks have been in a sideways struggle since the Standard & Poor’s 500 last peaked on Jan. 26. Returns on corporate bonds are negative, as are some key commodities tied to industrial activity.
An important caveat to the predictive power of the yield curve is that it can’t predict precisely when a recession will begin. In the past the recession has come in as little as six months, or as long as two years after the inversion, the San Francisco Fed’s researchers note.
Oh, and the weird artwork is all stuff related to comprehending ancient omens from the Greeks to the Aztecs to the old Europe. Just in case you wanted to know.
I put up the link to a crazy Washington Examiner bit in the tweet below. Trump and his team of NOT.ONE.REAL.ECONOMISTS. create more fairy tales from Dust. Here’s bull shit from a man that can’t even do high school statistics.
“The U.S. economy is the fastest-growing economy virtually in the whole world,” said Moore, the distinguished visiting fellow with the Project for Economic Growth at the Heritage Foundation. He predicted that when everything is factored in, second-quarter growth will come in just shy of that. He said, “4.5 percent is very plausible for the second quarter, which is a gigantic number.”
He also predicted that the stock market will continue its bullish ways, ignoring naysayers who say that the shallow but long U.S. recovery is about to fade.
“We really haven’t had a recovery,” said Moore, who added, “The economy isn’t running out of gas, it is just starting to rev up.”
That’s a pretty good example of being self-serving and delusional at the same time.
The escalating trade battle between the U.S. and the rest of the world is raising the risk of a meaningful slowing in an otherwise vibrant American economy.
While the tariffs already in place and set to be implemented will barely dent U.S. growth, economists say the panoply of additional measures being considered would take a perceptible bite out of gross domestic product if they go ahead.
“It’s going to be more noticeably painful,” said Peter Hooper, chief economist at Deutsche Bank AG in New York.
Hooper, who expects the economy to expand 3 percent this year, said the steps already taken or in the works would clip just 0.1 percentage point off GDP growth.
Throw in President Donald Trump’s threat to slap a 10 percent tariff on an additional $200 billion of Chinese imports and a 20 percent levy on car shipments from the European Union and the impact grows to 0.3 point to 0.4 point, he said. And the fallout could even be greater if heightened tensions begin to infect consumer, business and investor confidence,
Here are more impacts from bad policy: “Here’s how Trump’s tax law is raising health insurance premiums”
Approximately six months ago, Congress passed a tax law designed to benefit corporations and the wealthy while repealing the Affordable Care Act’s individual mandate penalty.
Today, we’re already seeing the consequences: Premiums in the individual market are rising, often by double digits. As more and more states hit their deadlines for insurers to file preliminary premium rates, the headlines tell the same story, with average premiums going up by 30 percent in Maryland, 19 percent in Washington, and 24 percent in New York.
This is no surprise — and no accident. The repeal of the mandate penalty was the latest in a long line of actions that the Trump administration has taken to deliberately undermine the ACA marketplaces.
President Trump himself has not exactly been subtle about this, remarking last year that “the best thing we can do politically speaking is let ObamaCare explode.” Similarly, former White House advisor Steve Bannon exclaimed, “That’s going to blow that thing up — gonna blow those exchanges up, right?” when describing Trump’s decision to cancel ACA cost-sharing payments last year.
Congress knew in advance that the individual mandate played an important role in stabilizing the market, and that repealing the mandate penalty would cause premiums to go up. The non-partisan Congressional Budget Office estimated that repealing the mandate penalty would increase individual market premiums by 10 percent on average in 2019.
In fact, Trump’s own former Secretary of Health and Human Services, Tom Price, recently admitted that the repeal “actually will harm the pool in the exchange market because you’ll likely have individuals who are younger and healthier not participating in that market, and consequently that drives up the cost for other folks in that market.”
The only problem with the positive new perspective on the GOP tax law created by the flurry of bonus announcements is that it’s wrong. Pelosi was right. While anyone less wealthy than Trump and his cabinet would find an unexpected bonus of $1,000 a welcome surprise, the bonuses were—relatively speaking and in the proper context—crumbs. And they’re crumbs that few workers are actually receiving.
The only way to have figured this out was to cut through the hype and look at the numbers. Americans for Tax Fairness (ATF) did just that, creating a master database documenting bonuses, wage hikes, tax savings, stock buybacks, layoffs, and a half-dozen other indicators of the impact of the Tax Act on business fortunes and behavior. Unlike the simple lists of cheery corporate news collected by Americans for Tax Reform and several other tax-cut boosters, ATF’s presentation is an entire searchable website that makes it easy to compare who—among corporations, their shareholders, and their workers—is actually getting how much.
This is a really long read about both the politics and the sham but it’s worth your time.
Beyond this initial audience of one lay the harder-to-convince American people. And despite the vigor of the corporate public relations campaign meant to woo them, it wasn’t difficult to see it was all an act.
One tip-off was the timing. The rush to distribute bonuses at the end of the year was timed so corporations could write them off at the old, higher tax rate: Employee expenses incurred in 2017 and even into early 2018 could still be deducted against a 35 percent tax rate, more valuable than the 21 percent deduction available under the new law. (Fiscal-year filers could exploit this same tax arbitrage even later in the year, but the advantage wanes the deeper you get into 2018.)
That diminishing tax advantage is one reason the seeming flood of announcements over the winter slowed to a trickle by the spring.
Another signal that we had not in fact reached a new era of broadly shared prosperity was that the vast majority of payouts were one-time bonuses, not permanent wage hikes. More than twice as many workers are getting bonuses as are getting raises. It’s far easier for corporations to withhold future bonuses than to cut their workers’ wages.
So, these one shot blow your wad kind of things just lead to what we’re seeing now. The economy is getting a short term blast of amphetamine. It’s something the Fed won’t allow because these things turn into inflation. The tariffs are essentially tax increases too. The overproduction of agricultural goods that can’t find a market right now will turn into shortages, higher final prices, and failed businesses next season.
The bizarre thing is that the staff of real economists for the CEA are contradicting the Administration’s public narrative. They can do math. But they still spin crap.
A White House economic analysis of President Trump’s trade agenda has concluded that Mr. Trump’s tariffs will hurt economic growth in the United States, according to several people familiar with the research.
The findings from the White House Council of Economic Advisers have been circulated only internally and not publicly released, as is often the case with the council’s work, making the exact economic projections unknown. But the determination comes as top White House officials continue to insist publicly that Mr. Trump’s trade approach will be “massively good for the U.S. economy.”
The chairman of the Council of Economic Advisers, Kevin Hassett, an economist who came to the administration from the American Enterprise Institute, a conservative think tank, dodged questions at a White House briefing on Tuesday about whether tariffs would hurt an economy that has accelerated during Mr. Trump’s tenure.
Asked whether the administration’s economists had modeled the impact that a trade war with China would have on the United States economy, Mr. Hassett said Mr. Trump was a great negotiator who would persuade other countries to open their markets to American products.
I’ll end with this.
What’s on your reading and blogging list today?