Portfolio Return as of 08/12/22:
2020: 25.65%
2021: 29.15%
YTD: 6.2%

Thursday, August 18, 2022

Inflation Reduction Act: Will Never Reduce Inflation

Joe Biden signed into law the horrific Inflation Acceleration Act – which, as you know, increases government taxes and spending by roughly ANOTHER $750 billion. One of the groups that betrayed taxpayers and fiscal sanity in this fight was the inaptly named Committee for a Responsible Federal Budget. To believe this bill will lead to a “responsible federal budget” is about as divorced from reality as to believe that this is an “inflation reduction act.”

Yet here is the statement that Maya McGuineas of CFRB put out to the press:
  • This legislation focuses on lowering health care and energy costs, raising revenue, and reducing deficits and is exactly what the doctor ordered.
  • Senator Manchin deserves tremendous credit for pushing this fiscally responsible reconciliation bill.
I'm speechless. The Heritage Foundation reports that the bill will INCREASE the deficit by “at least $110 billion through 2031.” The bill raises $300 billion for corporate give-always for the climate change industrial complex, includes a massive expansion in the entitlement state with the added Obamacare subsidies, and fails to cut even a penny from a single domestic program.

Sadly, the CFRB has a history of supporting multi-trillion dollar bailout bills and CFRB OPPOSED the Trump tax cut of 2017 – which ended up RAISING revenues and helped create the strongest American economy in decades.

CFRB has again exposed itself as "bipartisan." Bipartisan? They supported the most partisan bill in modern times: every Democrat voted for this bill and not a single Republican, CFRB is now officially a front group that gives aid and intellectual support to the tax and spend forces on Capitol Hill.

Wednesday, August 10, 2022

Prices Surge 8.5 Percent

By Jack Crowe

Inflation surged 8.5 percent in July compared to the same month last year, down slightly from the four-decade high reached in June, the Labor Department announced Wednesday.

The Consumer Price Index, a key measure of the cost of goods and services, dropped slightly due to a decline in record-high fuel prices which drove the previous month’s historic inflation spike. The increase also beat expectations as economists surveyed by Dow Jones expected headline CPI to increase 8.7 percent year-over-year in July.

Excluding volatile food and fuel prices, core inflation rose 5.9 percent annually and 0.3 percent monthly.

The average national fuel price stood at $4.010 per gallon as of Wednesday, down from a record-high $5.016 in mid-June.

Despite the slight relief offered by declining fuel prices, the Federal Reserve is still expected to further raise interest rates to bring inflation closer to its target of 2 percent.

Voters across the country consistently rank inflation as one of their top priorities going into November’s midterm elections. Republicans have consistently highlighted the Biden administration’s aggressive spending, arguing that the $1.9 trillion Covid-relief bill passed weeks after Biden took office overheated an already hot economic recovery.

While Biden has repeatedly denied that the package contributed to record inflation, even calling the idea “bizarre,” the moniker attached to the Democrats’ latest spending bill — The Inflation Reduction Act — at least nods toward voters’ concerns, though non-partisan analysts have said the legislation’s impact on inflation will be negligible.

The $433 spending bill, which passed the Senate over the weekend and is expected to be signed by Biden this week after passing the House, includes $369 billion for climate initiatives and another $80 billion to double the size of the IRS. It also imposes a 15 percent corporate tax on businesses worth more than $1 billion.

Markets reacted positively to the Wednesday CPI numbers, with Dow Jones up more than 500 points as of 8:50 a.m. CDT and government bonds down sharply.

Thursday, August 4, 2022

Inflation Reduction Act Will Not Reduce Inflation

From the Tax Foundation. Full analysis here

Reconciling the reconciliation bill: The Inflation Reduction Act, successor to the House-passed Build Back Better Act of late 2021, has been touted by President Biden to, among other things, help reduce the country’s crippling inflation.

Among the major tax changes are a 15 percent corporate minimum tax, drug price controls, IRS tax enforcement, and a tax hike on carried interest to pay for increased spending on energy and health insurance subsidies as well as deficit reduction. See a more comprehensive list here.

According to our model, the bill would raise about $304 billion in net revenue from 2022 to 2031, but would do so in an economically inefficient manner, reducing long-run economic output by about 0.1 percent, eliminating about 30,000 full-time equivalent U.S. jobs, and reducing average after-tax incomes for taxpayers across every income group in the long run.

What about inflation? On balance, the long-run impact on inflation is uncertain but likely close to zero.By reducing long-run economic growth, the bill may worsen inflation by constraining the productive capacity of the economy.
By increasing spending faster than it raises revenue between 2023 and 2025, the bill would increase deficits and worsen inflation, especially in the first two years. See our full analysis.

Monday, August 1, 2022

New Legislation Will Raise Taxes on Everyone

Families earning less than $400,000, according to Joe Biden were not going to pay even “a dime of new taxes” under his tax plan. 

This was Joe Biden’s signature promise. It was the 2020 campaign’s equivalent to George H W Bush’s “read my lips, no new taxes” pledge back in 1988. 

Anyone who believed Joe probably deserves to pay more taxes. 

Anyway, here are the facts. Congress’s official budget and tax scorekeeper, the Joint Committee on Taxation, finds taxes rising in every income bracket. It’s a $17 billion a year whack at the lower and middle-class Americans. 
 

Thursday, July 28, 2022

America's Horrific Long-Term Fiscal Forecast

Some people think America's main fiscal problem is the gap between the two lines. In other words, they worry about deficits and debt.

But the real problem is government spending. And that's true whether the spending burden is financed by taxes, borrowing, or printing money. Full story here.



GDP Got Eaten By Inflation

Technically, because GDP was negative for two quarters, it's a recession. However, there are caveats to current economic conditions, which mean if it is a recession, it's very mild. And there's still that pesky 2yr/5yr bond rate inversion (2.9/2.72).

It's inflation that is the beast, which will undo everything.  The GDP Price Index came in at an 8.7% increase, well above expectations of an 8.0% gain and compared to the unrevised 8.2% rise seen in Q1.

By Kelly Evans
The Exchange, CNBC

Why was real GDP negative in the first half of this year? Because inflation ate up all the gains.

The bombshell report this morning showed that real GDP shrank again in the second quarter, by 0.9% annualized, after a 1.6% drop in Q1. But wait, how can real GDP be shrinking while the labor market at the same time added 2.7 million jobs, and the unemployment rate fell from 4% to 3.6%? Because inflation ate up all the real economic gains.

Nominal GDP--actual dollars before any adjustment for inflation--surged by a whopping 6.6% in the first quarter, and 7.8% in the second quarter. That's twice the size of what we used to see in the sluggish expansion of the 2010s. Turns out, it's way more than this economy can actually handle. So the huge nominal GDP boom we've had is all simply going into higher prices; the inflation rate was over 8% in the quarter, and that's how you end up with a negative "real" print.

Was the U.S. actually in recession, meaning the end of a business cycle? Probably not, as we've already discussed. The economic indicators, from the labor market to retail sales to industrial production, were all higher in May than January, and so far for June as well. Just yesterday, new orders for durable goods--a key leading indicator--came in stronger than expected. Orders have steadily risen this year, running as of last month at a 6% annualized pace--which would not be happening at the end of a business cycle. As for leading gauges of the labor market, new jobless claims actually fell last week, to a modest 256,000.

What this all shows is an economy that was overheated by monetary and fiscal stimulus, not one that was too soft or too weak. How else do you end up with 8% surging nominal GDP last quarter, on top of last year's whopping 10% gain? Certainly you don't get that from supply-chain constraints or high oil prices. And because we couldn't handle it all quickly enough as "real" economic gains, instead we simply got higher prices. 

Inflation caused negative real GDP.

Sunday, July 24, 2022

Fully Funding Education

In the race for Texas governor, Beto O'Rouke keeps claiming that he'll fully fund education. But it's already over-funded, and without the legislature, he can't do anything. Empty promises. Currently, more than $60 billion is spent on Texas education (not including universities). 



Inflation Reduction Act: Will Never Reduce Inflation

Joe Biden signed into law the horrific Inflation Acceleration Act – which, as you know, increases government taxes and spending by roughly A...