How are we going to pay for all this shit?

[The_Waco_Kid]

Originally Posted by Tiny

Thanks much! They say you have to get into a woman's head before you can get into her pants. And this is helping me get into Alexandria's head.

Seriously, a 15 hour work week? It does fit in well with the whole AOC/Sanders cradle-to-grave manifesto.

George Jetson worked an hour a day, two days a week.


and complained about it. all he had to do was push a button.

[Tiny]

Originally Posted by lustylad

The Fed's bond-buying binge has compressed and distorted the yield curve, so the risk premium to invest in junk securities is absurdly low. The Fed even started to buy corporate bonds (albeit in much smaller amounts than Treasuries and MBS) directly during its pandemic QE program. What a crazy idea that is! They should stay the hell out of the private debt markets.

A 20% "zombie" rate for the 500 companies in the S&P index is alarming. It means 100 of the largest firms in the country are only profitable on paper due to Fed-induced artificially low borrowing costs. They should be taking advantage of the stock market boom to issue more equity/de-leverage and get off the fucking zombie list before it's too late.

Thank goodness for the lower corporate tax rate passed by a Republican Congress. Without it there would be even more motivation to finance growth through debt, with tax deductible interest expense, instead of equity, which previously was double taxed at 35% at the corporate level and then 23.8% when dividends were paid. Corporations had more motivation to run up debt. And thank goodness (or thank Kyrsten Sinema) that President Biden didn’t get his 28% corporate tax and 43.4% tax on dividends passed.

[lustylad]

Originally Posted by Tiny

Around the time Congress passed Biden's $1.9 trillion American Rescue Plan, Larry Summers was pounding the table, saying "Don't do it!" His main concern was that the stimulus spending was going to far exceed the output gap and stoke inflation. I believe I read that he predicted three possible endings, each with about a 1/3rd probability of occurring,

1. Some kind of a semi-soft landing, where we don't get burned. The Fed manages interest rates and backs away from quantitative easing such that we don't have steep inflation or a deep recession.

2. Inflation goes up like a bat out of hell. (OK, I'm exaggerating, he didn't really say bat out of hell.) The Fed aggressively raises interest rates. That throws us into a nasty recession.

3. Inflation goes up like a bat out of hell. The Fed doesn't react quickly and/or strongly enough. We end up with an extended period of rising prices, and maybe stagflation.

Summers has changed his odds making. He's more pessimistic now:

https://www.bloomberg.com/news/artic...rking-out-well

[lustylad]

Originally Posted by Tiny

Thank goodness for the lower corporate tax rate passed by a Republican Congress. Without it there would be even more motivation to finance growth through debt, with tax deductible interest expense, instead of equity, which previously was double taxed at 35% at the corporate level and then 23.8% when dividends were paid. Corporations had more motivation to run up debt. And thank goodness (or thank Kyrsten Sinema) that President Biden didn’t get his 28% corporate tax and 43.4% tax on dividends passed.

Excellent points.

[WTF]

Originally Posted by Tiny

Thank goodness for the lower corporate tax rate passed by a Republican Congress. Without it there would be even more motivation to finance growth through debt, with tax deductible interest expense, instead of equity, which previously was double taxed at 35% at the corporate level and then 23.8% when dividends were paid. Corporations had more motivation to run up debt. And thank goodness (or thank Kyrsten Sinema) that President Biden didn’t get his 28% corporate tax and 43.4% tax on dividends passed.

Originally Posted by lustylad

Excellent points.

Almost 8 trillion dollars more debt later

We should cut taxes even more as it has worked so well since Ronnie started this belief! Funny how it was after a tax increase in the late 90's where we manged deficits at tad better than did Trump.

[WTF]

Originally Posted by The_Waco_Kid

do you really think the Fed is "independent"? are you that naive?


.

Evidently, lustylad

Originally Posted by lustylad

No, Reagan never considered firing Volcker. To the contrary, he re-appointed him to a second 4-year term as Fed Chairman in 1983. And Volcker was entirely independent.

[Why_Yes_I_Do]

Thx for the post. But darn my luck here. I was looking for the "silver lining" in your post but all I'm seeing is cheap rusty pot metal, made in China. Will keep digging around though.

Originally Posted by CaptainMidnight

Just within the last day we've seen our esteemed Slumberer-in-Chief rail against the Fed, saying it needs to get on the ball and do something about all this inflation.

Well, yes -- at least insofar as the Fed effected all the bond-buying that enabled Congress to pass (and Joey to sign) the additional multitrillion-dollar spending measures that replaced estimated loss wage and salary income several times over.

Perhaps it's useful to ask a couple of "what if" questions.

For instance, what if the Fed begins tightening right into the jaws of the inevitable withdrawal of massive fiscal surge spending? What if demand for durable goods in large swaths of the economy is already weakening? (It is, actually.)

What if tightening pushes the 10y UST yield above 3% during the next 12-18 months? (It's been as high as about 3.2% on a couple of post-GFC occasions.)

That would imply 30-year fixed mortgage rates pushing 5%.

They're already climbing:

https://www.mortgagenewsdaily.com/ma...rates-02162022

What if this causes the housing market, one of the key drivers of growth during the last two years, to weaken markedly in the face of rising rates?

What if this is the fakest economic "expansion" or "recovery" in US history and simply rests on a foundation of soft sand? (Well, this is surely the most medicated, stimulated economy in memory.)

What if about 20% of S&P 500 companies are essentially "zombies" incapable of handing debt service coverage and still throwing off enough free cash flow to remain viable on a sustained basis in a semi-normalized yield curve environment? (Another fund manager whose opinion I respect put out a note recently saying exactly that.)

That's why I think the probability is very high that within a year the Fed will be under great pressure to pivot back to accommodation as the economy weakens, especially if influential members of Congress start getting upset about a possible market selloff.

(Asset price support is the Fed's tacit "third mandate.")

What if we trade in the current inflation run rate for a big slowdown or even a recession commencing in late 2022 or 2023?

What if middle class and working class Americans are even more unhappy about that?

.

[WTF]

Originally Posted by Why_Yes_I_Do

Thx for the post. But darn my luck here. I was looking for the "silver lining" in your post but all I'm seeing is cheap rusty pot metal, made in China. Will keep digging around though.

Let's all hope the first rate hike is only 25 points instead of 50!

[Chung Tran]

Originally Posted by WTF

Let's all hope the first rate hike is only 25 points instead of 50!

Should be 50. Should have come 4-6 months ago. A forced slowing of economic activity must occur, to avoid a deep recession. It's already beginning. Debt is starting to explode, both to try and keep a recent standard of living afloat, and to get ahead of rising rates.

The Democrats stand to lose 40+ House seats in November. The only thing that could stop it, is a severe Judicial beat-down of Trump in various trials and Congressional hearings. Even then the Republicans take the House with a smaller margin. The Economy has too many failures to keep Democrats in control.

[lustylad]

Originally Posted by Chung Tran

Should be 50. Should have come 4-6 months ago. A forced slowing of economic activity must occur, to avoid a deep recession. It's already beginning. Debt is starting to explode, both to try and keep a recent standard of living afloat, and to get ahead of rising rates.

The Democrats stand to lose 40+ House seats in November. The only thing that could stop it, is a severe Judicial beat-down of Trump in various trials and Congressional hearings. Even then the Republicans take the House with a smaller margin. The Economy has too many failures to keep Democrats in control.

Whoa chungy, great post! I'll see your 50 bp and raise you another 50! Time for shock and awe! Otherwise the Fed will lose not only credibility but also (eventually) control of the debt markets. The reason big institutional investors continue buying US treasury obligations that are guaranteed to lose purchasing power is they have no better options to "park" their billions right now. That won't last forever. MMT is sowing the seeds of its own destruction.

[Tiny]

Originally Posted by WTF

Almost 8 trillion dollars more debt later

We should cut taxes even more as it has worked so well since Ronnie started this belief! Funny how it was after a tax increase in the late 90's where we manged deficits at tad better than did Trump.

Damn it WTF. I'll say the same thing to you that I said to Why_Yes_I_Do on a completely unrelated topic. You're smart. You've got lots of brains. Please use them.

First, the reason the deficits disappeared in the late 90's was because Clinton and a Republican Congress increased spending at a lower rate than GDP growth.

Second, they didn't raise taxes in the late 90's. They cut them. The capital gains tax rate and tariffs went down. And what happened? Tax collected from the capital gains tax went up, from 66 billion in 1996 to 127 billion in 2000.

President Biden, and I believe you as well, want to increase the rate on long term capital gains and dividends to 43.4%. As we've discussed here and elsewhere, the Congressional Budget Office, Joint Committee on Taxation, Tax Foundation, and Wharton Budget Modeling agree that would REDUCE the revenues collected by the government, compared to a lower rate. You raise the capital gains tax rate too high and people don't realize capital gains. They don't sell. This also would cause investors and businesses to allocate capital inefficiently. Why sell the buggy whip company and invest in automobiles if the government's going to take 43.4% of your gain if you live in Texas, or 56.7% in California?

The same principle applies to dividends. Raise the tax too high and corporations won't be as inclined to pay dividends. Instead of using an appropriate amount of free cash flow to reinvest in the business, and returning the rest to investors to allocate to more dynamic businesses, they hang onto more of it. Or all of it.

As to the other tax I addressed in my post, the corporate income tax, I've posted on why it was too high, how it made some companies in the U.S. less competitive, and why lowering it played a part in boosting employment and wages. You however, regardless of the evidence that's presented, won't be swayed, so there's no use continuing to argue.

And what exactly was that 8 trillion you mentioned spent on? How much of it was flushed down the toilet? I didn't see any of it. I'll happily pay higher taxes if asked by the State of Texas or my local government. They're at least halfway efficient, and I can see value for my tax dollars -- highways, city services and the like. The power of the purse should be closest to the people. The politicians and bureaucrats in Washington, D.C., take our money and squander a big part of it.

At this point in time, the reduction in cumulative tax collection as a result of the Republican tax cuts in 2017 isn't much more than $1 trillion, if even that. You keep insisting on blaming all the incremental debt from COVID relief, and the whatever stupid crap the politicians decide to fund, on the tax cuts.

I'd a lot rather see the money stay in the private sector, invested in businesses and the like, instead of drained off by the Feds in the form of higher taxes.

They need to cut the spending.

[Tiny]

Originally Posted by WTF

Let's all hope the first rate hike is only 25 points instead of 50!

Good for your portfolio, bad for our country. I'm with CT and LL on this one.

I posted on Turkey a few months ago, when inflation there was running about 19%, and the country's bat-shit-crazy president dropped interest rates to 14%. Well, now short term rates are still 14%, and YoY CPI inflation is 49%.

Right now in the USA short term rates are a touch over 0%, and CPI inflation is 7.5%.

[WTF]

Originally Posted by Tiny

Good for your portfolio, bad for our country. I'm with CT and LL on this one.

I posted on Turkey a few months ago, when inflation there was running about 19%, and the country's bat-shit-crazy president dropped interest rates to 14%. Well, now short term rates are still 14%, and YoY CPI inflation is 49%.

Right now in the USA short term rates are a touch over 0%, and CPI inflation is 7.5%.

Comparing Turkey to the the United States is like comparing Lightening to a Lightening Bug.

You three are looking to overcorrected. It seems many of you have forgotten we are slowly working our way out of a global shutdown. You seem to forget that other countries have not yet come out of lockdown which is creating a backlog and thus inflated pricing. That at some point will be no more. So I disagree with you three on the 50 point rate hike. Plus I'm in good dividend paying stocks and plan to stay in them long term.

FYI...the reason besides Perot that Clinton and a Republican Congress agreed to slow spending was because Reagan had run up massive spending and debt.

You might need to brush up on your tax cut history and the phrase "starving the beast".

https://www.theatlantic.com/politics...e-plan/548720/

[Tiny]

“Good luck on getting either party to address spending.” Ok, I agree. But I don’t like it. I’m not going to follow Clayton Williams’ similar advice for what to do if you get raped, “it’s like the rain, you can’t do anything about it so you might as well sit back and enjoy it.”

Aside- Williams was the Republican candidate for governor of Texas when he said that. The comment probably caused him to lose the governorship to Ann Richards.

[Why_Yes_I_Do]

Originally Posted by Chung Tran

...The only thing that could stop it, is a severe Judicial beat-down of Trump in various trials and Congressional hearings....

Or we could bust out ye olde war drum and beat heck out of it.
Oh wait...