I attach a very good article that walks through some of the benefits and downfalls of Trump's proposed tax plan. While cutting the rate for corporations is well publicized (and last I checked Trump and his family have a number of corporations), a less well publicized aspect is that many of the wealthiest folks with pass-through incomes will also only pay the 15% rate. And those who do not have pass-through incomes can legally alter their job structure to be eligible for pass-through treatment.
http://www.europac.com/commentaries/damn_deficits_huge_tax_cuts_ahead
Pass-through income, by the way, is simply a structure where you have, let's say a LLC, and the income passes through it to the owners, like in a law partnership that operates as a LLC. The LLC is not taxed the pass-through income as the partners/owners are taxed individually. But under the Trump plan, they get to enjoy the 15% corporate rate even if they are making millions per year.
This all sounds great if you are the beneficiary, but the real point of the attached article is the massive deficits that will occur as most taxes in this country come from the few at the top who will benefit from this new reform - you know, like the billionaires that put it together.
I highly recommend reading the attached as I will not summarize it all here. Let's just say the ultimate cost to the country can be devastating.
Sunday, April 30, 2017
Sunday, March 5, 2017
Destroy All The Jobs
I posted some time ago on the prospect that increased automation in factory, auto-related and service sector jobs will lead to millions less jobs and perhaps the need for a more socialistic society. I am not a fan of socialism, but if the jobs are gone what else is left?
Well, as pointed out in the attached article, we have been here before. Farming jobs, for example, occupied 90% of the population a couple hundred years ago and now, at least in the U.S., only 2%. Factories have been going through automation for decades. And despite all the jobs that have disappeared over the years, new ones have shown up to replace them. Indeed, if you look at Elon Musk and his various enterprises, which includes autonomous cars, they now employ around 30,000 people, which is not bad. So perhaps there is hope for my kids to have jobs. No one knows what the jobs will be 20 years from now, but maybe, just maybe, they will be better. Either way, a good point made in the attached article is that it is foolish to fight progress in an attempt to preserve jobs that are no longer needed. Yes, we have to plan for the change and allow time to adapt, but it is happening whether we want it or not.
https://mishtalk.com/2017/03/04/does-technology-destroy-jobs-if-not-what-does/#more-44478
Well, as pointed out in the attached article, we have been here before. Farming jobs, for example, occupied 90% of the population a couple hundred years ago and now, at least in the U.S., only 2%. Factories have been going through automation for decades. And despite all the jobs that have disappeared over the years, new ones have shown up to replace them. Indeed, if you look at Elon Musk and his various enterprises, which includes autonomous cars, they now employ around 30,000 people, which is not bad. So perhaps there is hope for my kids to have jobs. No one knows what the jobs will be 20 years from now, but maybe, just maybe, they will be better. Either way, a good point made in the attached article is that it is foolish to fight progress in an attempt to preserve jobs that are no longer needed. Yes, we have to plan for the change and allow time to adapt, but it is happening whether we want it or not.
https://mishtalk.com/2017/03/04/does-technology-destroy-jobs-if-not-what-does/#more-44478
Wednesday, March 1, 2017
Lookin' Good Man
I am in the islands for vacation and just checkin' in from time to time, but from what I can see, everting is lookin' good man! The stock market soared - and I mean soared today - based undoubtedly on a subdued speech by the Don last night. Dow now over 21K - OMG! And it is all comin' up roses.
Indeed, rates of a Fed hike later this month just reached 80%, which must be tied to a rebounding economy, right? Now I suspect part of this is Janet and others on the Fed not liking the Don and part of it is simply them making up for lost time to get to where they need some wiggle room when the inevitable happens. But either way, rates are likely going up, which means all that wonderful debt out there -see my last post - is becoming more expensive to maintain.
And then there is that whole GDP forecast thingy. The GDPNow site from our friends at the Atlanta Fed was a mere month ago at a 3.4% forecast and today has notched down just a tad to 1.8%. Seriously, falling like a rock. But hey, all is well, so go back to the beach and enjoy the waves man. I know I intend to do so as there is not a thing I can do about it.
Indeed, rates of a Fed hike later this month just reached 80%, which must be tied to a rebounding economy, right? Now I suspect part of this is Janet and others on the Fed not liking the Don and part of it is simply them making up for lost time to get to where they need some wiggle room when the inevitable happens. But either way, rates are likely going up, which means all that wonderful debt out there -see my last post - is becoming more expensive to maintain.
And then there is that whole GDP forecast thingy. The GDPNow site from our friends at the Atlanta Fed was a mere month ago at a 3.4% forecast and today has notched down just a tad to 1.8%. Seriously, falling like a rock. But hey, all is well, so go back to the beach and enjoy the waves man. I know I intend to do so as there is not a thing I can do about it.
Friday, February 10, 2017
Doubts About Debt
I attach what I consider an absolute must read from Mish Shedlock, who I follow closely. Like many other sites I visit I do so more for the factual information than the slant provided as I like to form my own point of view from facts. In this case, Mish is dead on and his earlier points in the piece talk about debt at various levels, which I view as one of the major issues we face today and one that Trump's policies will exasperate, perhaps significantly.
https://mishtalk.com/2017/02/10/impediments-to-growth/
Perhaps it is old school, but I was raised being taught that the prudent financial thing is to save what you can early on so that you have the resources later to do the things you want. Saving money was always in my childhood considered a good thing that everyone should do. I started a savings account when I was like five years old and used to love to go to the bank and put in whatever I had, sometimes as little as a quarter. Now I might add that my aunt worked there and always gave me a sucker when I showed up, so I had an ulterior motive, but I was saving. And I guess I should add as well that the few hundred I saved in childhood was blown on one Spring break in college, but still at least I had it to enjoy. I certainly did not need to go into debt on a credit card to enjoy Spring break, which made it a tad more relaxing.
Yet Keynesians like Krugman and Summers insist that savings is the devil and debt is salvation. I think they should both come out and tell the world how much debt they have in relation to their incomes. Do they know what it is like to struggle to make ends meet, to scrape together enough to make the minimal payment on a credit card, to be facing rates of interest on credit over 20%. Seriously? Now I admit I have a mortgage (refinanced at 3%) and I did a home equity loan at 3.25% last year, but the home equity I could pay off tomorrow with savings and would but for the low rate. The freedom from the stress that I am not buried in debt is liberating and something everyone should strive to achieve.
I know a vast percentage of people really do not have that luxury but I also know there is a vast percentage of people who can save if they want to but who choose not to do so. They want to enjoy life now, not tomorrow. They choose not to save and instead spend all they have now and their future earnings, in debt, for years to come. The government and corporations are doing the same and this is a recipe for disaster. No, the house of cards may not fall tomorrow or this year or next, but we have to at least stop building the house higher and perhaps start dismantling it before it falls. Still, there is clearly no desire or plan to do so on a national scale or on a corporate scale or individual scale.
And what really does debt do for the economy? It simply pulls future spending forward to today. Eventually the Devil is owed his due and you have to pay for crap, you have to pay the debt. Adding interest on top of the price tag only helps those charging the interest. It is a drain from productive use of money and it is a stupid thing for anyone to advocate - in my humble opinion.
On a personal scale for my many, many readers (both of you), note that rates are on the rise and it is a wise time to reduce debt, increase savings and prepare for the next recession. At least if you have some savings, when the recession comes you have the ability to take advantage of it. Either way, anyone with low to no debt and savings I believe will thrive in the years to come.
https://mishtalk.com/2017/02/10/impediments-to-growth/
Perhaps it is old school, but I was raised being taught that the prudent financial thing is to save what you can early on so that you have the resources later to do the things you want. Saving money was always in my childhood considered a good thing that everyone should do. I started a savings account when I was like five years old and used to love to go to the bank and put in whatever I had, sometimes as little as a quarter. Now I might add that my aunt worked there and always gave me a sucker when I showed up, so I had an ulterior motive, but I was saving. And I guess I should add as well that the few hundred I saved in childhood was blown on one Spring break in college, but still at least I had it to enjoy. I certainly did not need to go into debt on a credit card to enjoy Spring break, which made it a tad more relaxing.
Yet Keynesians like Krugman and Summers insist that savings is the devil and debt is salvation. I think they should both come out and tell the world how much debt they have in relation to their incomes. Do they know what it is like to struggle to make ends meet, to scrape together enough to make the minimal payment on a credit card, to be facing rates of interest on credit over 20%. Seriously? Now I admit I have a mortgage (refinanced at 3%) and I did a home equity loan at 3.25% last year, but the home equity I could pay off tomorrow with savings and would but for the low rate. The freedom from the stress that I am not buried in debt is liberating and something everyone should strive to achieve.
I know a vast percentage of people really do not have that luxury but I also know there is a vast percentage of people who can save if they want to but who choose not to do so. They want to enjoy life now, not tomorrow. They choose not to save and instead spend all they have now and their future earnings, in debt, for years to come. The government and corporations are doing the same and this is a recipe for disaster. No, the house of cards may not fall tomorrow or this year or next, but we have to at least stop building the house higher and perhaps start dismantling it before it falls. Still, there is clearly no desire or plan to do so on a national scale or on a corporate scale or individual scale.
And what really does debt do for the economy? It simply pulls future spending forward to today. Eventually the Devil is owed his due and you have to pay for crap, you have to pay the debt. Adding interest on top of the price tag only helps those charging the interest. It is a drain from productive use of money and it is a stupid thing for anyone to advocate - in my humble opinion.
On a personal scale for my many, many readers (both of you), note that rates are on the rise and it is a wise time to reduce debt, increase savings and prepare for the next recession. At least if you have some savings, when the recession comes you have the ability to take advantage of it. Either way, anyone with low to no debt and savings I believe will thrive in the years to come.
Thursday, February 2, 2017
What He Said
I wrote some thoughts on issues with Trump's economic plans back in December and noted I would follow with more. Well, here is a link to a nice piece by Nouriel Roubini, who last I checked had slightly better economic credentials than I do. Now I do not always agree with him, but with respect to President Trump's economic policies we seem to see pretty much eye-to-eye. His first few points are what I discussed in December and he nicely goes onto some additional observations worth noting. Perhaps one of the biggest points worth noting today is that no one has any clue what Trump will do next and the absolute uncertainly of it all is not good for the economy, either domestically or internationally. I think many folks voted for Trump for the very reason that he would stir the pot, but you never know what doing so might bring up from the bottom.
https://www.project-syndicate.org/commentary/trump-market-honeymoon-over-by-nouriel-roubini-2017-02
https://www.project-syndicate.org/commentary/trump-market-honeymoon-over-by-nouriel-roubini-2017-02
Thursday, January 26, 2017
Who Needs to Raise the Minimum Wage When You Have Trump
Nice article today in Bloomberg on how challenging it will be to find enough legal workers to build the wall between the U.S. and Mexico. It turns out a significant number of construction trade workers are illegal, which Trump (at least now that he is President) will not allow.
https://www.bloomberg.com/news/articles/2017-01-26/trump-wants-to-build-a-wall-finding-workers-won-t-be-easy
So the question becomes, where will we get the workers? Obvious answer, pay higher wages and train people to get them out of their parent's basement and into the work force. Which is good for workers, but which drives up inflation, drives up the price of other construction, e.g. homes, and cuts into the profits of construction companies. Wish I had seen this coming. Wait a second, I think I did. In a post just over a month ago I noted the following on the participation rate:
https://www.bloomberg.com/news/articles/2017-01-26/trump-wants-to-build-a-wall-finding-workers-won-t-be-easy
So the question becomes, where will we get the workers? Obvious answer, pay higher wages and train people to get them out of their parent's basement and into the work force. Which is good for workers, but which drives up inflation, drives up the price of other construction, e.g. homes, and cuts into the profits of construction companies. Wish I had seen this coming. Wait a second, I think I did. In a post just over a month ago I noted the following on the participation rate:
People who would just as soon stay home in their parent's basement or live off welfare. Getting these folks to take any new factory jobs or infrastructure jobs is going to take some pretty high wages. But rest assured, factory wages (and service sector wages) will have to go up as we are shipping a few million illegal immigrants out of the country and building a wall to keep them out, so companies that are already dealing with a 4.9% unemployment rate will be desperate to get workers and have to pay significantly more. Trump may be wholly against raising the minimum wage but his economic plans will do plenty to raise wages, and prices, and inflation.Don't get me wrong, I am all for getting people jobs and increasing the participation rate, but it will have consequences that I think are being ignored.
To the extent companies cannot raise prices to offset the increased wages because foreign companies have a massive exchange rate advantage, there goes those tax incentives out the door (assuming companies do not simply spend the saved tax dollars on dividends and buybacks like they did with money borrowed under the Feds low rates). Prices will also have to go up, increasing inflation, increasing interest rates, increasing dollars needing to service debt and decreasing profits. Yep, sounds like a good plan.
Tuesday, January 24, 2017
Autotrociously Wrong Focus
Trump seems to have an almost unwavering focus on bringing automobile manufacturing back to the U.S.
http://www.reuters.com/article/us-usa-trump-autos-idUSKBN1581CA
And he seems to be having some success. Many auto manufacturers are committing to keeping jobs in the U.S. and foreign auto manufacturers as well are committing to investing more in U.S. manufacturing facilities. Problem being that at least in the short term sales in the U.S. are not looking so good and may have peaked for this cycle given all the cheap credit, 72 month loans and fog-the-mirror loan standards.
http://www.zerohedge.com/news/2016-11-08/
But it is not the end of this cycle that bothers me. What Trump may not be focused on or perhaps not even aware of is that automobiles and how they are bought and used is in the process of changing. We are in 2017 and autonomous vehicles are becoming a reality. It will take a while and I am happy to debate how long it will take but it will happen. One of the dynamics of this happening is that people will no longer need cars at all, or at least most will not. Predictions are for a rather abrupt fall in vehicle sales as folks will be able to go into their app and have an autonomous car show up in 5-10 minutes to take them wherever they need to go. No need for car payments, no need for car insurance, no need for car maintenance or to deal with the hassle of same. The garage becomes a bonus/storage room. Clearly this already exists with the likes of Uber, but when Uber no longer needs to pay a driver, and when the auto manufacturers themselves get into this game for survival (Ford is focusing on this area) then the cost of a ride will drop and make the math a bit of a no brainer.
When this happens, far fewer cars will need to be manufactured. I have seen estimates of over 40% fewer in just the next decade or so. This is based upon the fact that currently most cars sitting idle most of the time. If you have an autonomous vehicle picking up and dropping off people virtually all the time, the number of cars needed is far fewer. Yes, they will need to be replaced more often as they rack up the miles, but a lot of car replacement is simply due to age of the car, not mileage, so there will still be far fewer cars needing to be manufactured. And if accidents go down drastically as expected, the need to replace cars for that reason also goes down.
So in my view Trump is focusing in the wrong area as the jobs in the area of his focus will in ten or so years be reduced significantly just by modern science. And the reduction will start much sooner.
Of course there are similar issues with most manufacturing jobs. They are being automated. Just this week listening to Fox on the radio they were citing a study showing that 49% of the jobs that exist today could largely be eliminated with automation with presently available technology. Many of these are service sector jobs but the initial focus has been and will continue to be on the higher paying factory jobs where Trump is focused. These jobs are going away and not to other countries. Trump is pushing on a string. Certainly he will have some short term success as there are still plenty of these jobs around, but he needs to have a longer term focus. Then again, he may not really care about anything at the moment beyond the next four years. We will see.
http://www.reuters.com/article/us-usa-trump-autos-idUSKBN1581CA
And he seems to be having some success. Many auto manufacturers are committing to keeping jobs in the U.S. and foreign auto manufacturers as well are committing to investing more in U.S. manufacturing facilities. Problem being that at least in the short term sales in the U.S. are not looking so good and may have peaked for this cycle given all the cheap credit, 72 month loans and fog-the-mirror loan standards.
http://www.zerohedge.com/news/2016-11-08/
But it is not the end of this cycle that bothers me. What Trump may not be focused on or perhaps not even aware of is that automobiles and how they are bought and used is in the process of changing. We are in 2017 and autonomous vehicles are becoming a reality. It will take a while and I am happy to debate how long it will take but it will happen. One of the dynamics of this happening is that people will no longer need cars at all, or at least most will not. Predictions are for a rather abrupt fall in vehicle sales as folks will be able to go into their app and have an autonomous car show up in 5-10 minutes to take them wherever they need to go. No need for car payments, no need for car insurance, no need for car maintenance or to deal with the hassle of same. The garage becomes a bonus/storage room. Clearly this already exists with the likes of Uber, but when Uber no longer needs to pay a driver, and when the auto manufacturers themselves get into this game for survival (Ford is focusing on this area) then the cost of a ride will drop and make the math a bit of a no brainer.
When this happens, far fewer cars will need to be manufactured. I have seen estimates of over 40% fewer in just the next decade or so. This is based upon the fact that currently most cars sitting idle most of the time. If you have an autonomous vehicle picking up and dropping off people virtually all the time, the number of cars needed is far fewer. Yes, they will need to be replaced more often as they rack up the miles, but a lot of car replacement is simply due to age of the car, not mileage, so there will still be far fewer cars needing to be manufactured. And if accidents go down drastically as expected, the need to replace cars for that reason also goes down.
So in my view Trump is focusing in the wrong area as the jobs in the area of his focus will in ten or so years be reduced significantly just by modern science. And the reduction will start much sooner.
Of course there are similar issues with most manufacturing jobs. They are being automated. Just this week listening to Fox on the radio they were citing a study showing that 49% of the jobs that exist today could largely be eliminated with automation with presently available technology. Many of these are service sector jobs but the initial focus has been and will continue to be on the higher paying factory jobs where Trump is focused. These jobs are going away and not to other countries. Trump is pushing on a string. Certainly he will have some short term success as there are still plenty of these jobs around, but he needs to have a longer term focus. Then again, he may not really care about anything at the moment beyond the next four years. We will see.
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