James Madison: “We are free today substantially but the day will come when our Republic will be an impossibility. It will be an impossibility because wealth will be concentrated in the hands of a few.”
The tax cut has now been shown the very scam I outlined it to be in 2017. Debt is soaring and so are debt financing obligations. The CBO estimated that the US will have to add $12 trillion in debt over the next 10 years. As growth estimates for GDP keep being revised downward into 2019 and 2020 there is zero evidence that the tax cut has added anything but a 2 quarter temporary bump to GDP, but the financial consequences will linger for years to come. The promises of resulting investments were of course lies:
“The Trump administration’s $1.5 trillion cut tax package appeared to have no major impact on businesses’ capital investment or hiring plans, according to a survey released a year after the biggest overhaul of the U.S. tax code in more than 30 years.
The National Association of Business Economics’ (NABE) quarterly business conditions poll published on Monday found that while some companies reported accelerating investments because of lower corporate taxes, 84 percent of respondents said they had not changed plans. That compares to 81 percent in the previous survey published in October.
The White House had predicted that the massive fiscal stimulus package, marked by the reduction in the corporate tax rate to 21 percent from 35 percent, would boost business spending and job growth. The tax cuts came into effect in January 2018.”
So horrific is the debt explosion that “deficits continue to blow out,” said Brian Edmonds, head of interest-rates trading at Cantor Fitzgerald in New York. “We are going to see more and more supply.”
The Treasury’s total net new issuance in 2018 amounted to $1.34 trillion, more than double the 2017 level of about $550 billion. In 2019, it will be $1.4 trillion, with $1.11 trillion from more coupon-bearing debt and the rest in bills, according to forecasts from Steven Zeng of Deutsche Bank. Annual new issuance will range from $1.25 trillion to $1.4 trillion over the next four years, he says.
The fiscal 2018 U.S. budget gap hit a six-year high of about $780 billion, and the Congressional Budget Office forecasts it will reach $973 billion in 2019 and top $1 trillion the next year. Over the next decade, the U.S. government will spend about $7 trillion just to service the nation’s debt, according to the CBO”.
And guess what happens to discretionary spending when $7 trillion go to service the debt? No cuts to its largest line item, the military, oh no, they’ll cut benefits, social programs, etc. someone has to pay for it.
Indeed Larry Kudlow is already laying it all out there following the now familiar script:
Step 1: Bullshit people with ‘tax cuts pay for themselves’
Step 2: Implement tax cut for the top 1% & corporate donor class
Step 3: Watch deficit & debt blow up
Step 4: Make the rest pay for it with services & benefits cuts
Step 5: Demand bailouts during the next recession https://t.co/pAYj7Lh1ip
— Sven Henrich (@NorthmanTrader) January 29, 2019
I keep highlighting the ever increasing obscenity of wealth inequality as the distribution keeps getting more and more extreme:
The wealthiest 0.1% and 1% of households now own about 17% and 50% of total household equities, respectively, up significantly from 13% and 39% in the late 1980s. The bottom 90% (which is pretty much everybody) owns less than 10% of the stock market. Just ponder that. And as central bank policy has disproportionately benefitted the asset classes owned by the top 10%, or rather top 1%, it’s no wonder wealth inequality has soared to unseen heights since the 1930’s.
And so this has happened:
The median net worth for the bottom 90% is less than it was in 2007 while the top 10% net worth has soared.
And guess what the top 10% are doing with their wealth? Buy real estate, driving real estate prices higher and in the process are leaving the rest unable to compete with rising home values as their wages are stagnant.
What’s the ultimately end game of this circle jerk? Beats me, but I continue to suspect it won’t have a happy ending.
And so here we are with the Fed back to backing off from reducing its balance sheet and stock markets have again been soaring on this policy shift benefitting again the very few.
Does any of the above matter? Apparently not is the message. An ever high debt burden carried by the many, and ever more concentration of wealth in the hands of the few. That has been the trend over the last 30 years and I see zero signs of any of it changing, no matter who is in charge.
This is what our so called capitalistic system produces, a structure geared toward the few and not working for the many.
As Ray Dalio recently outlined our system of capitalism is not working for the majority of people and this has consequences:
“Today, the top one-tenth of 1 percent of the population’s net worth is equal to the bottom 90 percent combined. In other words, a big giant wealth gap. That was the same — last time that happened was the late ’30s,” Dalio said.
Further, Dalio points to a survey by the Federal Reserve showing that 40 percent of adults can’t come up with $400 in the case of an emergency. “It gives you an idea of what the polarity is,” Dalio said. “That’s a real world. That’s an issue.”
And Dalio says the income gap will only get worse.
“We’re in a situation when the economy is at a peak, we still have this very big tension. That’s where we are today,” he said in November. “We’re in a situation where, if you have a downturn, and we will have a downturn, I believe that — I worry that that polarity will become greater.“
And so be clear who benefits from the Fed having caved. Not a single person on minimum wage or on a median household income. The tax cuts have not resulted in more investments, it is buybacks benefitting again the very shareholders which we know are the top 10%. The entire system is geared toward that narrow group of ownership.
The Empire has struck back and is benefitting the very few it serves.
And the Fed is a driving force behind everything, inflating the very assets that the very few increasingly own. Unelected and accountable their policies have exacerbated wealth inequality and contributed to global discontentment:
This is what permanent central bank intervention has produced:
1. Enabled record global debt
2. Asset inflation benefitting the very few
3. Obscene wealth distribution
4. Global political discontent
All these results are destabilizing the world. https://t.co/aiUi2QY7CS
— Sven Henrich (@NorthmanTrader) January 27, 2019
And the rest of America keeps getting screwed with little real wage growth and exploding debt obligations.
So yea Ray Dalio is right in pointing out the obvious: Capitalism is not working for the majority and it hasn’t in a long time. People may be inclined to blame the current administration for these problems, but they are only doubling down on the same script that has been at play since the early 80s. Nothing has changed in trend, only the actors keep changing.
And nothing will change until this country engages in an informed, fact based debate (in this political climate? Best of luck) on the causes and consequences of our current form of capitalism. Unfortunately those benefitting the most from the current structure have little incentive to change it unless the consequences will force them to. By that time it may be too late.
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Given the lack of bipartisan support for the tax cuts and threats by the Democrats to eliminate the Corporate tax cut – no business leader will make long-term investments under these circumstances. The claims by opposition that the tax cuts will not work are self fulfilling. The working class would be much better situated if the last three administrations had not moved the jobs to China.
“We’re in a situation where, if you have a downturn, and we will have a downturn, I believe that — I worry that that polarity will become greater.”
Dalio is a lying piece of shit. Income and wealth disparity started skyrocketing after the Wall Street bailouts, and of course during the Housing Bubble. During the fiancial crisis it was getting a lot better. Folks who made $150K realized they weren’t even worth $50K. That’s what we need again and no more bailouts for billionaires after the Fed’s Everything Bubble pops!
Another left-wing screed lol. Isn’t this guy based in the UK? US had to reduce corporate taxes just to be competitive with the EU. Tax rates don’t exist in a vacuum. US multinationals were keeping revenue offshore (in Ireland w/ 12.5% rate) instead of repatriating it and paying taxes.
This guy is no expert on US corporate tax avoidance –
Excellent data-based posting, thank you.
excellent articles sven but as a bear im feeling the pain…