Thursday, November 24, 2016

Today's Links

1--Ex-Fed governor Richard Fischer: "low interest rates for too long hurt financial infrastructure" (video)

2--Trump paves the way for massive stock bubble

The profits that US corporations earned overseas, and that have remained untaxed in the US, have ballooned to $2.6 trillion, according to Congress’s Joint Committee on Taxation, cited by Bloomberg. This “overseas cash” made it onto Trump’s agenda. Wall Street and our Corporate Titans are licking their chops. They can smell a tax holiday or a new loophole to encourage them to “repatriate” this “overseas cash.”
Goldman Sachs now told its clients what these corporations are going to use this “cash” for. You guessed it: financial engineering.
The exact amount of this “cash overseas” remains a mystery. The numbers thrown around – including the $2.6 trillion above – are guesses. There is no official data. Companies are not required to disclose the details of their assets, in what currencies they’re denominated, or where they’re domiciled.
But in 2004, the last time there was a tax holiday for “overseas cash,” our Corporate Titans “repatriated” $300 billion at a tax-holiday rate of 5.25% and used 92% of if for share-buybacks.

The number of jobs that were promised to be created as a result of this repatriation? Forget it. But the number of share-buybacks soared by 84%....

And investment “for growth” (capital expenditures and research & development) will drop to 52% of total cash used in 2017, lower even the 55% in 2016, matching the record low of the great financial-engineering year 2007. Goldman expects CapEx to drop to 28% of total cash used, matching the low of 2007. And R & D will drop to 11% of total cash used, matching the lowest ratios going back to 2000.
If Goldman is right, this “repatriation” of “cash” will lead to no economic benefits, but plenty of benefits for Wall Street. There are, however, a few wrinkles to it.

3--Trump’s Infrastructure ‘Plan’ Is Really Just A Privatization Scam

...Trump’s plan is not really an infrastructure plan. It’s a tax-cut plan for utility-industry and construction-sector investors, and a massive corporate welfare plan for contractors. The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.

4--Trump promised the rich would pay their fair share – but his tax plan would make them much wealthier

"I am proposing an across-the-board income-tax reduction, especially for middle-income Americans," Trump, a billionaire businessman and reality TV star, said in a speech at the Detroit Economic Club. And at the New York Economic Club, Trump claimed "the tax relief will be concentrated on the working and middle-class taxpayer. They will receive the biggest benefit – it won't even be close."

His proposal would cut taxes at all income levels, although the largest benefits, in dollar and percentage terms, would go to the highest-income households," claims a comprehensive analysis of the impact of Trump's ambitious tax plan by the Tax Policy Center, a thinktank backed by the Urban Institute and Brookings Institution.

"Federal revenues would fall by $6.2tn (£5bn, €5.8bn) over the first decade before accounting for added interest costs and macroeconomic effects. Including those factors, the federal debt would rise by at least $7tn over the first decade and by at least $20.7tn by 2036."

The Center's distributional analysis of Trump's tax plan – how it would affect the different income groups – is revealing. The plan would cut the average American's tax bill in 2017 by $2,940, increasing after-tax income by 4.1%. But the highest-income taxpayers – the top 0.1% of the population whose income is over $3.7m a year – would enjoy an average tax cut of almost $1.1m. That is equivalent to 14.2% of their after-tax income, vastly higher than the average American.

5--Trump’s big infrastructure plan? It’s a trap.

6--Guess who really runs this country?  Federal Reserve Chair Throws Cold Water On Trump's Economic Plan

(After giving $4 trillion to Wall Street banks, Yellen lectures Trump on economic revival plan)
President-elect Donald Trump has pledged a $1 trillion infrastructure spending program to help jump-start an economy that he said during the campaign was in terrible shape.
Speaking on Capitol Hill Thursday, Federal Reserve Board Chair Janet Yellen warned lawmakers that as they consider such spending, they should keep an eye on the national debt. Yellen also said that while the economy needed a big boost with fiscal stimulus after the financial crisis, that's not the case now.
"The economy is operating relatively close to full employment at this point," she said, "so in contrast to where the economy was after the financial crisis when a large demand boost was needed to lower unemployment, we're no longer in that state."

7--Hitler vs Bernanke (archive)

Here’s a little background from C.K.Liu’s Asia Times article “Nazism and the German Economic Miracle”:
“The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.” (“Nazism and the German Economic Miracle,” Henry C. K. Liu, Asia Times)

8--Obama's commitment to austerity ruined his presidency

Krugman used to make this point forcefully.
[T]he American Recovery and Reinvestment Act, aka the Obama stimulus … surely helped end the economy’s free fall. But the stimulus was too small and too short-lived given the depth of the slump: stimulus spending peaked at 1.6 percent of GDP in early 2010 and dropped rapidly thereafter, giving way to a regime of destructive fiscal austerity. And the administration’s efforts to help homeowners were so ineffectual as to be risible...

But Romer, Summers, and Bernstein experienced the same frustration as 2009 proceeded. The problem was not simply the Rubinites’ fervor for the self-inflicted wound of austerity – the fundamental problem was President Obama. Obama’s administration was littered with Rubinites because Obama was a New Democrat who believed that Rubin’s love of austerity and trade deals was an excellent policy. Of course, he had campaigned on the opposite policy positions, but that was simply political and Obama promptly abandoned those campaign promises. Fiscal stimulus ceased to be an administration priority as soon as the stimulus bill was enacted. Romer and Summers recognized the obvious and soon made clear that they were leaving. Bernstein retained Biden’s support, but he was frozen out of influence on administration fiscal policies by the Rubinites....

Obama began pushing for the fiscal “grand bargain” in 2010. The “grand bargain” would have pushed towards austerity and begun unraveling the safety net. As such, it was actually the grand betrayal. Obama’s administration began telling the press that Obama viewed achieving such a deal with the Republicans critical to his “legacy.” There were two major ironies involving the grand bargain. Had it been adopted it would have thrown the U.S. back into recession, made Obama a one-term president, and led to even more severe losses for the Democratic Party in Congress and at the state level. The other irony was that it was the Tea Party that saved Obama from Obama’s grand betrayal by continually demanding that Obama agree to inflict more severe assaults on the safety net....

Trump will create an exceptionally criminogenic environment that will produce epidemics of control fraud. The challenge for progressive Democrats and independents is to break with the New Democrats’ dogmas. Neither America nor the Democratic Party can continue to bear the terrible cost of this unforced error of economics, politics, and basic humanity. I fear that the professional Democrats assigned the task of re-winning the support of the white working class do not even have ending the New Democrats’ addiction to austerity on their radar

9--1 percent continue to do well

In 2000, the top 1 percent owned 49.6 percent of all household wealth, dropping to 45.4 percent in 2009. This figure has since clambered back up to reach 50.8 percent in 2016. Trends for the wealthiest top 5 percent and 10 percent of people show a similar trajectory with the wealthiest decile now owning 89.1 percent of all global assets.

At the other end of the scale, the poorest 20 percent of people – numbering around one billion – are mostly found in developing markets, with Africa, India and Asia-Pacific accounting for 72 percent of these, as well as 70 percent of the bottom half of the world's population.

10--Yellen statements--Not good

11--‘EU betrays own principles’: RT’s editor-in-chief slams ‘free speech doublethink’

12--Trump campaign add

“Our movement is about replacing a failed and corrupt political establishment with a new government controlled by you, the American people. The establishment has trillions of dollars at stake in this election. Those who control the levers of power in Washington and the global special interests they partner with, don’t have your good in mind. The political establishment that is trying to stop us is the same group responsible for our disastrous trade deals, massive illegal immigration and economic and foreign policies that have bled our country dry.

“It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities. The only thing that can stop this corrupt machine is you. The only force strong enough to save our country is us. The only people brave enough to vote out this corrupt establishment is you, the American people.”

13--The 19,000 Dow: Markets soar on prospects for profiteering under Trump

US stock indexes reached record highs again on Wednesday on expectations that the policies of the incoming Trump administration, based on “America first” economic nationalism, the removal of all regulations restricting corporate profit-making, and huge business tax cuts, will provide a major boost to the bottom lines of banks and corporations.

The Dow Jones Industrial Average continued its rise after closing above 19,000 for the first time ever on Tuesday. The Standard & Poor’s 500 index and the Russell 2000 were also in record territory. Only the tech-based Nasdaq index was slightly down after hitting a record high on Tuesday.
All four major indexes reached record highs on Tuesday, something that had not occurred since New Year’s Eve in 1999, at the height of the bubble.

The market rise is being led by two groups of stocks, banks and those involved in construction and infrastructure.
Bank stocks are being propelled by the prospect of interest rate increases, which will boost their profits, and indications that the Trump administration will wind back regulations, including some of the limited restrictions imposed under the 2010 Dodd-Frank Act. The rise in bank stocks is the main reason for the jump in the S&P 500....

The tax measures include a reduction in corporate taxes from 35 to 15 percent, as well as a reduction in the top tax levels for the ultra-wealthy. Companies repatriating profits from overseas may have to pay as little as 10 percent.
But it is the infrastructure program, which has been put at $1 trillion, that has sent the markets soaring on the ever-stronger smell of money. It is not a plan for the government to borrow money and use it to finance much-needed improvements on roads, bridges and other basic facilities.

Rather, it is based on a privatisation scheme, in which firms will receive massive tax cuts for undertaking such projects. By means of tax breaks, they will receive back as much as 82 percent of the money they invest. As the owners of the projects they initiate, they will then be able to collect tolls or user fees in perpetuity. In many cases, the projects will involve profitable ventures to which companies would have been attracted anyway...

Trump is planning to cut non-defense discretionary spending by 1 percent a year, which will mean further reductions in food stamps, home heating assistance, unemployment benefits, health programs and the enforcement of job safety and environmental standards.
He is targeting federal workers for immediate attack, calling for mass layoffs, the gutting of job protection provisions, the elimination of automatic raises and the imposition of 401(k) plans instead of pensions for new-hires.
During the election campaign, Trump sought to attract voters suffering cuts in their wages and living standards with the promise that Medicare, Social Security and other entitlements would not be touched by his administration. But the budget process is in the hands of the Republican-controlled Congress, where House Speaker Paul Ryan has reiterated his plan to privatize Medicare. Since the election, Trump has said he is “open” to such a plan..

14--Dow Closes Above 19000 for First Time

15--European Companies Happily Take ECB’s Cheap Cash, but Don’t Spend It -- The very reason the ECB started buying corporate bonds—a weak economy—is crimping the program’s success

(Corporate bond scam begins to fizzle) 
The European Central Bank began buying billions of euros worth of corporate bonds earlier this year in a high-profile experiment aimed at spurring private investment. So far, the spending hasn’t materialized.
Since June, the ECB has bought €44.3 billion (around $46.9 billion) in corporate debt. Borrowing costs have tumbled, and debt issuance is up.
But the very reason the ECB started buying the bonds—a weak economy—is crimping the program’s success. The ECB buys bonds to stimulate tame growth with corporate spending. However, companies aren’t spending, executives say and data suggest, because they see few opportunities amid feeble growth and because credit was already cheap...

The average yield on eurozone senior debt of nonfinancial companies is 1.1%, down from around 1.4% before the ECB announced its buying plans in March, according to IHS Markit’s iBoxx index. Yields fall as prices rise.
That move is small compared with the decline in funding costs over the past several years. The yield was 7.1% in late 2008 at the height of the global financial crisis.
Juha Kervinen, group treasurer at Finnish telecom company Elisa, said the company hadn’t had any difficulty raising funds, so the ECB buying two of its bonds “really hasn’t changed our thinking.”
For us to increase [investment] we’d need to see an improved return, not just building networks without any reason,” he added...

The ECB’s program was supposed to trickle beyond those companies whose debt is bought on public markets. If large corporations and banks find it easier to finance themselves, they may be willing to extend more credit to smaller businesses.
Bank credit to nonfinancial corporations increased from April to July, but it fell in August and was broadly flat in September, according to the ECB.
Some companies want to avoid loading up on debt to avoid problems down the road, when the debt may need refinancing

16---The markets love Donald Trump

. Bullish sentiment in the American Association of Individual Investors’ poll last week had its biggest surge since July 2010. And more than 80% of 650 institutional investors polled by Strategas Research Partners said the election outcome made them more bullish on stocks.

17--Dollar is the new fear index

The world’s most-traded currency is becoming a fear gauge.
That’s the opinion of Hyun Song Shin, head of research at the Bank for International Settlements. A stronger dollar can depress demand for credit while reflecting reduced investor appetite for the riskiest assets, Shin wrote in a report released Tuesday by the BIS.

The research signals that the dollar’s surge after Donald Trump’s U.S. electoral victory shouldn’t be interpreted as a clear sign of confidence across markets. In fact the dollar has become a new fear gauge, replacing the Chicago Board Options Exchange VIX volatility index, Shin wrote.
“The mantle of the barometer of risk appetite and leverage has slipped from the VIX and has passed to the dollar,” he said. “Given the dollar’s role as barometer of global appetite for leverage, there may be no winners from a stronger dollar.”

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