Draining the Fed

The Chief Economist and Deputy Chief Economist at First Trust coauthored an article in which they point out that although the economy has returned to normal after the Panic of 2008, the one thing that hasn’t done so is the size and overreach of government with an emphasis on the Fed. Indeed, the point they make is that it is time to drain the Fed swamp:

It wasn’t government that saved the economy.  Quantitative Easing was started in September 2008.  TARP was passed on October 3, 2008.  Yet, for the next five months markets continued to implode, the economy plummeted and private money did not flow to private banks.

On March 9, 2009, with the announcement that insanely rigid mark-to-market accounting rules would be changed, the markets stopped falling, the economy turned toward growth and private investors started investing in banks.  All this happened immediately when the accounting rule was changed.  No longer could these crazy rules wipe out bank capital by marking down asset values despite little to no change in cash flows.  Changing this rule was the key to recovery, not QE, TARP or “stress tests.”

The Fed, and supporters of government intervention, ignore all these facts.  They never address them.  Why?  First, institutions protect themselves even if it’s at the expense of the truth.  Second, human nature doesn’t like to admit mistakes.  Third, Washington DC always uses crises to grow.  Admitting that their policies haven’t worked would lead to a smaller government with less power.

The Fed has become massive.  Its balance sheet is nearly 25% of GDP.  Never before has it been this large.  And yet, the economy has grown relatively slowly.  Back in the 1980s and 1990s, with a much smaller Fed balance sheet, the economy grew far more rapidly.

Here’s hoping the Don is as good at making Fed appointments as he is at appointing good judges.

Hat tip: Outside the Box from Mauldin Economics

Posted September 14th, 2017 Filed in Economics and the Economy, Government

Hillary’s Tax-and-Spend Plans

Investor Business Daily analyzes Hillary’s recent speech on her plans to improve the economy.

Hillary Clinton’s Economic Plan: Tax-And-Spend With A Vengeance

But her answer to every question was the same: more government spending, more government mandates and regulations, and higher taxes on businesses and investors. Indeed, in 30 minutes she managed to pack in a huge number of new government programs.

It will be 8 years of the Obama economy part deux. Just remember that Obama is the first and only president in our 227 year history to fail to achieve 3% GDP growth even once during his term.

Posted August 12th, 2016 Filed in Clinton, Hillary, Economics and the Economy

Blue States Stealing Kid’s Money

Well, not money actually belonging to children but money allocated to educate our youth so it’s the same thing, right?

First, the back story.

Democrats in Connecticut have created a massive debt problem with decades of poor fiscal decisions and now in desperate straits. According to Truth in Accounting, Connecticut is one of 39 “sinkhole states” that do not have enough assets to cover its debt. In fact, it ranks at the bottom of the list barely beating out New Jersey as the state in the worst fiscal condition. TIA calculates that Connecticut has only $10.1 billion of assets available to pay bills totaling $72.2 billion.

Fast forward to present day. What can a poor progressive do?

The obvious solution is to look for previously protected mountains of money and institute a tax for the common good.

American Interest documents just such a solution:

Connecticut Democrats are going after Yale, for the same reason Henry VIII went after the monks and Willie Sutton went after the banks. The Wall Street Journal reports:

The state of Connecticut wants its richest university to share more of its wealth.

Facing budget shortfalls and a deep pension hole, Connecticut lawmakers this week proposed taxing the investment profits of Yale University’s $25.6 billion endowment, the nation’s second-largest after Harvard University’s. Yale is located in New Haven, Conn.

… Connecticut is home to more than 40 colleges. But the potential tax singles out Yale because it would affect only endowments with $10 billion or more in assets.

$10 billion is certainly a good starting point. How many universities could that possibly affect?

Infographic: The Wealthiest Private Universities In The United States | Statista

You will find more statistics at Statista

Once one state finds a new, hopefully legal source of income, how long before other desperate states follow suit? Every one of the universities listed in the graphic above are in a sinkhole state (although Indiana barely qualifies with only a debt of $700 per taxpayer).

And once the taxation of sitting money becomes legal, how long until it is applied to other private sources? Churches will probably be safe (hopefully), but your 401K? Don’t bet on it. After all, it is for the common good.

Posted March 29th, 2016 Filed in Economics and the Economy, Taxes and the IRS

14 Reasons for Market Worries

Posted January 16th, 2016 Filed in Economics and the Economy

10 Scary Charts

Ted Kavadas has 10 scary charts posted at Seeking Alpha, and they are scary indeed. The first one surprised me, showing housing starts are not rising to healthy levels as I was led to believe by the MSM, but is rather hovering at the level of historical lows.

This one, on the other hand, is no surprise as it is a topic to which I pay closer attention — the seemingly never-ending “jobless recovery”:

Labor Force Participation Rate 62.7 percent

I recommend glancing at all 10, but brace yourself first.

Posted April 18th, 2015 Filed in Economics and the Economy

Heroin Deaths Skyrocketing

Perhaps a by-product of the declining workforce participation rate? But wait, we’re supposed to be focused on the rising employment rate and ignore the fact that more and more people have completely given up looking for a job (not to mention the massive underemployment problem).

Heroin Deaths are Rising


Posted March 7th, 2015 Filed in Economics and the Economy, Unemployment

Real Cost of a Higher Minimum Wage

Quora is a site where anyone can ask any question and anyone else can answer. Those providing answers include such luminaries as Steve Case (dot com billionaire), Ashton Kutcher (remarkably intelligent, contrary to his TV personas), Larry Summers (political economist), Sid Espinosa (Palo Alto mayor), Tiki Barber (former NY Giants running back) and many more.

Many of the questions are posed in a biased manner, such as the one below. I love it when someone with real life experience blows a hole in the bias to expose truth, especially when it demolishes a liberal line of group-think. Click through to read a Dane’s response to the question:

2014 Minimum Wage Debate: Do Republicans ignore the economic stimulative effect of raising the minimum wage?

Posted February 26th, 2014 Filed in Economics and the Economy

Big Idea 2014: The Texasization of America

Glenn Kelman, CEO of technology-powered real estate brokerage firm Redfin, writes about how the economy is impacting not only politics, but demographics as well:

It turns out that over the past three years, Texas has been America’s fastest-growing state, adding 913,642 people, nearly the population of Rhode Island. Almost half moved from elsewhere in the U.S. Of the 22 markets Redfin serves, the three in our Texas business are growing the fastest, at an average of more than 300% per year. And why not? A home in Houston costs less than a third what it would in, say, San Francisco, and it averages more than twice the size.

This migration to affordable housing is accelerating because, for the first time in a generation, home prices are increasing faster than wages or credit.

… Newly mobile Americans, freed for the first time in five years from underwater mortgages, won’t just move across the street. They’ll move across the country.

It will be, in the most literal sense, a political movement. The conservatives tired of the taxes in coastal cities are already leaving, in a process of segregation that can only increase America’s polarization.

The bigger change will be that the rest of the political spectrum likes the cost of living in Texas too, and once there will likely move to the right. After all, your politics don’t just change where you live; where you live changes your politics. To hear conservatives tell it, even people who want to be liberal can’t afford it.

… This is why the move to Texas isn’t just a move, it’s a movement, of people, businesses and governments, for better and for worse.

Just as what happened to America in the 1960s, from beat poetry to psychedelic drugs, happened first in California; now it is happening in Texas, with its diversity, its small-government swagger, its megapolitan areas. Texas is, after all, a state of mind. And it’s becoming America’s state of mind.

Link: Big Idea 2014: The Texasization of America | LinkedIn.

Luring California businesses away is a growing phenomena, and Texas is rated at the top of the list of attractive destinations due to incentives offered to businesses.

There’s lots of room in the flyover states and home prices will forever be lower than coastal properties. And if the “small-government state of mind” can survive business success, there might be hope for us yet.

Posted December 15th, 2013 Filed in Economics and the Economy

What Has $7 Trillion Bought Us?

If you don’t read anything else this week, make certain you read 3 Key Metrics That Show Why We Can’t Avoid Recession by Joseph Stuber.

Joseph offers 3 charts that not only show why a recession is coming, but also clearly demonstrates how ineffective fiscal stimulus has been. In part:

The U6 unemployment number in January 2009 was 14.2%. Last month, the number was 14.6%. We have made no gains at all since President Obama took office in 2009 based on that metric. In January 2009, the participation rate was 65.7%. In October 2012, the participation rate was 63.6% — a drop of 2.1%.

The net takeaway from these numbers is that the U6 number would be even worse than it is if the participation rate had remained at 2009 levels. Consider that the BLS doesn’t take into account those workers who have simply given up. If those representing the 2.1% drop in participation rate were included in the number, the U6 figure would be even larger than 14.6%.

$7 trillion in borrowed money and almost $3 trillion in monetary stimulus has accomplished nothing to date to improve the unemployment situation. At what point do we accept reality? Government stimulus is not helping to resolve the problem and is, in fact, going to make it that much worse when natural market forces outweigh all other forces and we enter into a protracted recession.

Exactly. Now go check out ShadowStats.com.

Posted November 26th, 2012 Filed in Economics and the Economy, Unemployment

More Green nonsense from Obama

Via Business Week comes the unbelievable news that Obama wants to double vehicle fuel efficiency standards. Just what we need in a struggling economy, more expensive cars, leading to fewer sales, leading to few jobs for production, transportation, sales and so on:

Government aims to double fuel efficiency. The Obama administration has released its final fuel efficiency standards for cars and trucks, requiring each automaker’s fleet to reach an average 54.5 miles a gallon by 2025, nearly doubling current levels. To meet the standard, automakers will need to introduce new technologies and sell more alternative fuel vehicles. Critics say the rules will add thousands of dollars to new car prices.

Not mentioned is that the rules will make automakers start manufacturing vehicles out of tin foil, leading to an increase in the 100-people-a-day that die on America’s highways.