Capital Commerce
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6 Reasons We Won't Get a Recession
Continue reading… 3 CommentsAfter perusing the blizzard of U.S. economic data that we've gotten this week, you could easily—and quite plausibly—draw this megaconclusion: The Federal Reserve will cut interest rates again, inflation is under control, and while the economy is weakening, it won't slip into recession. Here is the evidence:
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Forget Clintonomics--This Is Mondalenomics
Continue reading… 7 CommentsIf you've a hankering for higher government spending and higher taxes—and I know plenty of people who do—you most likely got a bellyful at last night's Democratic debate in Hanover, N.H. Here are a few takeaways:
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Why 2008 Is Looking Like 1992 for Republicans (Update No. 1)
Continue reading… 0 CommentsAn interesting bit from Democratic political consultant Mark Mellman (via The Hill) that plays into my thesis that the economic slowdown—even if the economy reaccelerates after a quarter or two—is mega-bad news for Republicans next year:
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Capital Gains Taxes and Innovation
Continue reading… 0 CommentsInvestment adviser Kurt Brouwer puts in his two cents, via his outstanding Fundmastery blog, about my recent post concerning capital gains taxes and innovation:
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Giuliani Willing to Consider Raising Social Security Taxes
Continue reading… 0 CommentsIn an Associated Press interview, Rudy Giuliani refused to rule out raising taxes to save Social Security. As the AP quotes Giuliani:
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Diving Dollar Is a Vote of No Confidence
Continue reading… 0 CommentsHere's the deal with the falling dollar: Over the long run, a country's currency reflects its economic strength. When the U.S. economy boomed in the '80s and '90s, so did the greenback. So when the greenback is tumbling, I prefer to go beyond short-term factors such as whether the Federal Reserve is cutting interest rates or what the near-term inflation outlook is. Perhaps the deep factor at play here is a global vote of no confidence in the direction of American economic policy. First, you have a Congress that is tilting protectionist. As Morgan Stanley's Stephen Roach writes in a New York Times column this week:
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Wall Street Wisdom: Hillary Wins It All
Continue reading… 1 CommentSome key 2008 takeaways from the latest research by Greg Valliere, politics guru at the Stanford Group, a Wall Street institutional research firm:
- A president with approval ratings as low as President Bush's always gets replaced by someone from the other party.
- The immigration debate may hurt the Republicans badly with Hispanic voters in key states such as Florida, Colorado, New Mexico, and Arizona.
- Ohio appears to be a solid "blue state" after the GOP was wiped out there in last year's election.
- Hillary Clinton will be the de facto Democratic nominee after the February 5 "Super Duper Tuesday" primaries in 20 states.
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Inflation, Gold, and Iran
Continue reading… 0 CommentsNo sooner had the Federal Reserve cut interest rates than the inflation hawks began squawking that Bernanke and company had blown it and inflation was sure to worsen. And not without some plausible reasons.
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Why Americans Really Are Getting Richer
Continue reading… 0 CommentsIt's an interesting little factoid. The median American house has grown by some 40 percent over the past generation. Yet to hear some economists tell it, that huge home enlargement somehow has happened just at the same time that the average worker has seen no increase in his real, inflation-adjusted wages. That means no increase in his standard of living—at least as measured by his take-home pay. (Of course, living in a bigger house filled with flat-screen TVs, iPods, laptops, Wiis, and carpet-cleaning robots could be taken as de facto signs of a higher standard of living. Plus, those wage numbers ignore nonwage compensation such as healthcare benefits and 401(k) programs).
But here's the thing: If one readjusts wage growth for the likely fact that government inflation numbers have continually overstated inflation, guess what? You find that real wages have grown by around 40 percent over the past generation—matching the increase in home size. Here is how Northwestern University economist Robert Gordon calculated the numbers for me during an E-mail exchange earlier this year:
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Capital Gains Taxes, Venture Capital, and Innovation
Continue reading… 1 CommentPlenty of Democrats, including presidential candidates Barack Obama and John Edwards, are talking about rolling back the 2003 capital-gains-tax cut. Here is an interesting piece of analysis looking at capital-gains taxes and the venture capital industry from economic consultant Gerard Jackson:
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Another Reason 2008 Is Looking Like 1992
Continue reading… 0 CommentsThis ugly news from Reuters: "A record 26 percent of U.S. homeowners say the value of their homes has fallen during the past year, above the previous peak of 24 percent seen in 1992, a survey released on Friday showed. Reflecting the extent of the prolonged housing slump, 21 percent of homeowners polled in September expect the value of their home to decline in the year ahead, up from 18 percent in August, according to the data from Reuters/University of Michigan Surveys of Consumers." By the way, 1992 was a year when a Republican lost the White House despite a so-called good economy as measured by GDP growth.
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Bush the Economist
Continue reading… 0 CommentsMy good friend Larry Kudlow reviews Bush's economic reasoning and record:
At his news conference yesterday, President Bush proclaimed that he's a supply-sider. He added that he remains determined to keep tax rates low in the face of a large-scale tax hike threat from the Democratic Congress.... The president did not completely describe the incentive model that is central to supply-side thinking. But he did point out that economic growth and budget revenues have responded favorably to lower marginal tax rates. He's absolutely right. Total revenues have far surpassed the 2000 peak at lower marginal tax rates. In fact, since the mid-2003 tax cuts, revenues have grown by 45 percent. Revenue growth has averaged almost 10 percent per year since 2003 and has far surpassed the previous 2000 peak.
This sort of analysis drives liberal economists crazy. Too bad. The budget numbers are the budget numbers. Meanwhile, the deficit has fallen substantially from about 4.5 percent of GDP to 1.5 percent of GDP under Mr. Bush's tax-cutting policies. The 2001 tax cuts were not supply-side, but the 2003 tax cuts that lowered the tax rate on incomes, capital gains, and dividends most certainly were. Remember, the basic tenet of supply-side economics is keeping more of each extra dollar earned or invested. This makes it more profitable to work, save, invest, or take risks. If it pays more, after tax, then people will respond to the incentives. As Nobel Prize-winning economist Ed Prescott has put it, economic behavior responds to changing tax rates.
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Don't Sweat the Dropping Dollar
Continue reading… 1 CommentRichard Berner, chief U.S. economist at Morgan Stanley, frets more about protectionism than about the falling greenback:
I don't buy the dollar crisis scenario; instead, a softening economy, falling inflation, and policy easing are classic signals of a benign decline. While the dollar is hitting record lows, the pace of the dollar's decline has been measured, if relentless. And neither investor flows nor positioning seem to indicate sizable short dollar positions; if anything, investors have been surprised at how weak the dollar has been lately and seem to be playing catch-up.... [Yet] three risks worry me: First, the pace of the dollar decline could intensify, unsettling investors. Second, the combination of these developments may boost inflation expectations. Finally, in a weak economy, the threat of protectionism will escalate, which would push up inflation and undermine growth.
And after surveying the American and European economies, economist Robert Brusca agrees: "It is fair to say that the U.S. is in state of repair and Europe is in a state of despair. So much for the fate of the poor dollar.... Dollar rules! Euro drools! Why? Because the dollar and U.S. economy can survive this sort of thing since IT IS A REAL RESERVE UNIT with all the trappings. The euro, sadly, is not."
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Should Dubai Buy Part of the Nasdaq?
Continue reading… 1 CommentThe proposed purchase of a 20 percent stake in the Nasdaq by Borse Dubai, a Dubai-controlled exchange, probably won't raise anywhere near the same level of alarm in Washington as the attempt in 2006 by another Dubai company to buy a company that managed operations at U.S. ports. That latter deal was bashed over concerns it would somehow compromise national security. As Rep. Barney Frank of Massachusetts told the New York Times yesterday, "In the ports deal, the concern was smuggling something or someone dangerous into ports. What are we talking about here—smuggling someone onto a stock exchange?"
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The Myth of Stagnant Wages
Continue reading… 20 CommentsIt's a core message found in almost every Democratic presidential stump speech.
"Corporate profits and CEO pay are hitting new highs, while wages for hard-working Americans are stagnant." —Hillary Clinton, February 2007
"For too long, they've told us we can't do anything about disappearing jobs and stagnant wages."—Barack Obama, June 2007
"I talked earlier about some of the adverse effects of globalization—stagnant wages and rising inequality." —John Edwards, August 2007
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Brighter Jobs Picture Lessens Recession Risk
Continue reading… 0 CommentsMaybe last month's 4,000-job loss was a blip after all, rather than the labor market starting to crack. The Labor Department has reported that initial jobless claims for the week ending September 15 dropped to 311,000 from 320,000, and the four-week average slipped to 320,750 from 324,250. These numbers suggest that the economy is still adding jobs at a clip of about 100,000 a month.
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Obama Pushes for Higher Investment Taxes
Continue reading… 62 CommentsAs part of his "Tax Fairness for the Middle Class" plan, Barack Obama is in favor of nearly doubling the capital-gains tax rate from 15 percent to 28 percent. Leaving the fairness issue aside for a moment—as well as the impact of higher taxes on economic growth—the Obama plan could also be called a "Ways in Which Government Can Collect More Taxes to Pay for New Spending" plan, since Democratic candidates are all scrambling to figure out ways to plausibly pay for new healthcare, education, and infrastructure spending if elected.
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'Helicopter Ben' Touches Down
Continue reading… 6 CommentsWell, it looks as if "Helicopter Ben" Bernanke might just deserve that snarky nickname after all. The Federal Reserve chairman (as well as the Fed's Open Market Policy Committee, natch) certainly flew to Wall Street's rescue today–at least if you go by the stock market's superbullish reaction–with a half-percentage-point cut in the federal funds rate to 4.75 percent and a half-point cut in the discount rate to 5.25 percent.
Economist Michael Darda of MKM Partners sums it up nicely: "The [rate cut] was aggressive and swift and leaves no doubt that the Fed is willing to risk higher inflation in order to lean against house price deflation and the potential ramifications that spring from it. We don't think it was an accident that gold and crude oil rose to cycle highs, the dollar fell, and the yield curve steepened dramatically on the Fed's move."
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Can Clinton Pay for Her Trillion-Dollar Plan?
Continue reading… 0 CommentsHillary Clinton proposes paying for half of her $1.1 trillion (over 10 years) healthcare plan through cost savings/modernization and the other half through higher taxes on wealthier Americans (those earning more than $250,000) by eliminating a portion of the Bush tax cuts. But it seems that the $50 billion or so in new tax revenue (assuming a static analysis that ignores any ill effects on growth from the tax hike) that Clinton is counting on is also being eyed by other some other Democrats for their pet projects.
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Gold and the U.S. Dollar
Continue reading… 0 CommentsShould the budget deficit make you buy gold as a hedge against a collapse of the dollar? Perhaps not, according to fund analyst Kurt Brouwer at the Fundmaster blog:
- The pitch for gold goes something like this: The dollar is losing value because the government is just printing money that is not tied to anything tangible like gold. Gold has been a storehouse of value for thousands of years. Stocks are risky as are bonds, but gold is a hedge against future inflation. Our government is piling up huge amounts of debt that can never be repaid and foreign governments—China in particular—own so much of our debt, that they could decide to collapse our economy by selling Treasury bonds and moving the cash to the yen or some currency other than the dollar. Gold is also a tangible asset that will be worth something if the economy collapses, etc.
- For example, the claims that our government debt is high are silly. U.S. government debt of nearly $9 trillion is about 66 percent of our gross domestic product (GDP). This ratio is lower than those of Japan, Canada, France, and Germany, for example. And of that $9 trillion, about 45 percent is owed by the government to itself. About 28 percent is owned by U.S. citizens and permanent residents. Only 27 percent is owned by foreign entities, primarily governments. The number one foreign government in terms of ownership of our debt is—Japan at $612 billion. China is next at just over $400 billion, which is under 5 % of our total government debt....If you like the feel of gold coins and want a few percent of your portfolio in coins, no problem. However, if you are doing this as a hedge in case the economy collapses, you better be very careful.
