Tag Archives: economics

The Stage Is Set For The Next 10% Plunge In Stocks

bear-market-bearMy Comments: Some of you are starting to call me tiresome. And you are right; I keep saying the sky is about to fall and it never happens. But ignore me at your peril.

Actually, if it only falls 10%, we can all recover quickly and go about our lives once again. But my guess is it’s going to be 25%. The longer it takes to happen, the deeper it’s likely to be.

These words were written last August and still no correction. Any bets on when it will happen?

Sam Ro  |  August 22, 2016

The stock market (^GSPC) continues to trend higher as earnings growth remains lackluster. This has caused valuations to get very expensive, signaling a stock market that’s becoming increasingly due for a sharp sell-off.

Everyone is flagging this anxiety-inducing pattern, and yet the market continues to rally arguably nonsensically.

“The S&P 500 has advanced 6.8% YTD (8.4% including dividends) despite a more modest improvement in the earnings outlook (+1.4%),” RBC’s Jonathan Golub observed in a note to clients on Monday. “Put differently, the market’s move higher has been fueled almost exclusively by multiples.”

Most analysts argue that these record-high stock prices are unsustainable without a significant pickup in earnings growth. Unfortunately, there isn’t much hope for that.

“Since EPS trends have typically been associated with S&P 500 index patterns, a sharper-than-expected uptick in profits would be a necessary prerequisite for additional upside,” Citi’s Tobias Levkovich said on Friday. “[A Citi survey suggests] new positive developments would need to emerge to justify more in terms of net income generation. With outstanding issues such as the impact of Brexit and/or fiscal policy post the US elections, it seems challenging to come to any powerful conclusions at this juncture.”

The Fed wants to hike, and the S&P fell 10% after the last hike.

Economic data in the US has been positive, highlighted by notably strong labor market and housing market data. This has put pressure on the Federal Reserve to tighten monetary policy with an interest rate hike sooner than later.

In fact, three members of the Fed have signaled that a hike will come sooner in just the past week. Last Tuesday, NY Fed President William Dudley said “we’re edging closer towards the point in time where it will be appropriate to raise rates further.” On Thursday, San Francisco Fed President John Williams said every meeting, including the one coming in September, should “be in play” for a rate hike. On Sunday, Fed Vice Chair Stanley Fischer said “we are close to our targets.”

“A more hawkish Fed could trigger a return of volatility if financial conditions (USD, credit spreads) start to deteriorate again,” Societe Generale’s Patrick Legland said on Monday. “The S&P 500 fell c.10% following the first rate hike last December.”

In that same breath, Legland warned of the importance of earnings to the stock market.

“US company earnings were better than expected in Q2,” he acknowledged. “But the sharp increase in valuation ratios (S&P 500 forward P/E 17x, P/B 2.9x) puts the onus on EPS growth at a time when global GDP growth remains uninspiring.”

Could fund flows save the day?

The sad thing about the current stock market rally is that it comes at a time when retail investors are spilling out of the stock market. “US equity funds saw outflows deepen to a new 6 year low in July,” Credit Suisse’s Lori Calvasina observed on Thursday.

Calculating Required Minimum Distributions From a Tax-Qualified Retirement Account

income taxMy Comments: OK, I’m not a CPA and I’m talking about a tax matter. Please don’t call the FBI on me. If you have money in an account and it it got there before income taxes were applied to the money you earned, it’s known as a “qualified account”. Simply put, it “qualified” for special treatment by the IRS.

The offset to this is that in exchange for you NOT treating that money as taxable when you earned it, the IRA has imposed rules saying WHEN you must pay income taxes on that money. The incentive for all this is to encourage people to set aside money while they are working so they will have more when they are NOT working, ie retirement.

The Required Minimum Distribution (RMD) rules come into play when you reach age 70½. The requirement is you must start taking money out of those accounts or there is a disincentive that will cause you financial pain.

By Sean Williams | October 15, 2016

The United States may have the highest GDP of any country on the planet, and Americans may enjoy an above-average standard of living, but that doesn’t mean we have the best financial habits.

According to St. Louis Federal Reserve, the U.S. personal household savings rate in August was just 5.7%. This is well below most developed countries, about half the rate of what Americans were saving 50 years ago, and markedly lower than the 10% to 15% figure that financial advisors recommend consumers save. Per GoBankingRates’ latest survey, 62% of Americans have less than $1,000 in savings.

Yet here’s the irony of these figures: Americans have a bounty of tax-advantaged retirement options at their fingertips practically begging to be used. Three of the most common of these tools are the Traditional IRA, Roth IRA, and employer-sponsored 401(k).

Americans have an abundance of tax-advantaged retirement options

Of the three, the Roth IRA has probably witnessed the strongest growth this decade. Beginning in 2010, lawmakers altered the Roth IRA conversion rules. This allowed people who had previously been unable to contribute to a Roth because they earned too much to make the switch. Though a Roth IRA doesn’t provide an upfront tax benefit, it does allow a persons’ money to grow completely tax-free for life, so long as no unqualified withdrawals are made prior to age 59 1/2. It’s this potential for tax-free income during retirement, as well as the financial flexibility afforded by the Roth IRA — contributions (not to be confused with investment gains) can be withdrawn at any time, and for any reason, without tax or penalty — that’s made it such a popular retirement option.

But, no retirement plan has more active accounts than a 401(k), and the number of Traditional IRA accounts still outnumbers Roth IRAs. Both the Traditional IRA, which allows for a maximum contribution of $5,500 annual for people aged 49 and under and $6,500 for seniors aged 50 and up, and 401(k), which allows for contributions of up to $18,000 and $24,000, respectively, among those same age ranges as the Traditional IRA, are tax-deferred investment tools. This means that they can help reduce your taxable income in the current tax year, and that your investments can grow on a tax-deferred basis. However, once you retire, you’ll be required to pay ordinary income tax on the money you withdraw from a Traditional IRA and/or 401(k).

How to calculate your required minimum distribution

There’s another factor retirees should probably acquaint themselves with if they plan on utilizing a 401(k) plan or Traditional IRA during retirement: both plans have required minimum distributions, or RMDs. In plain terms, there’s a formula that determines how much money you’ll be required to withdraw from these retirement plans every year. Failing to do so could result in hefty tax penalties of up to 50% on the amount you should have withdrawn.

How do you calculate your RMD? Let’s take a closer look.

In order to calculate your RMD, you’ll need to know three figures:
• The age you’ll turn in 2016.
• The applicable divisor associated with that age (which we’ll get to in a moment).
• The monetary value of your 401(k) or Traditional IRA. ( as of 12/31/XX of the year immediately preceding the year for which you are making the RMD calculation)

In order to locate your applicable age-dependent divisor, use the following table:

As you can see, the applicable divisor decreases over time, requiring you to make larger distributions as you age.

As an example, a Government Accountability Office study in 2015 found that persons aged 65 to 74 had an average of $148,000 in retirement savings. Assuming you’ll turn age 70 in 2016, the divisor you’d use is 27.4 based on the table above. In order to determine your RMD in a given year you’ll divide your current account balance into the divisor (i.e., $148,000/27.4). In this instance your RMD in 2016 would be $5,401. Failing to withdraw this amount from your 401(k) or Traditional IRA could lead to a 50% penalty.

Investing shouldn’t stop when you retire

However, there’s an oft-overlooked point about RMDs: continued investment in a 401(k) or Traditional IRA could still lead to portfolio growth and/or RMD replacement well after your 70th birthday. Below is a table detailing the required rate of return you’d need in your 401(k) or Traditional IRA to maintain your account balance following your withdrawal. These calculations are provided by the Financial Industry Regulation Authority, and they assume beginning-of-the-year distributions. (Note: I’ve not included this table here. If you need to see it, go HERE )

What you’ll note is that in the 14 years between ages 70 and 84 the required rate of return to maintain your account balance from one year to the next is lower than 7%. The reason this figure is of such importance is that historically the stock market has returned 7% per year, inclusive of dividend reinvestment.

It’s impossible to predict what the stock market will do in the short-term, but over the long run the stock market tends to head higher, as the data clearly shows. What this implies is that if retirees continue to invest for their future, they may be able to hold off on seeing any real depletion in their retirement accounts until their mid-80s. Again, this makes some very broad assumptions that the stock market continues to perform as it has in the past; but the data is suggesting that continuing to invest could be of great benefit to seniors and their tax-advantaged retirement accounts.

(Note: there is an effective RMD calculator to be found HERE: )

About Your Money Market Fund

My Comments: We take them for granted. A place to park money that earns a little bit and can be used to buy stuff or used to invest somewhere else. If you’re bored by finance and economics, this post is not for you, even though it may affect your wallet along the way.

by Bob Bryan | October 15, 2016

On Friday, money market funds underwent a huge shift in how they will be regulated, resulting in a sea change for the $2.65 trillion money market fund industry.

Let’s recap quickly. Money market funds are mutual funds that invest mostly in short-term assets such as US Treasurys and short-dated corporate bonds with maturities under one year. These funds are generally thought of as safe, but yield low returns.

The net asset value [(market value of all of its shares – fund’s liabilities) / number of issued shares] of money market funds is designed to remain around $1, but should not go below. Only three money market funds have fallen below $1 in NAV, or “broken the buck,” the most recent in 2008. This caused a run on money market funds and contributed to the financial instability of the time.

To try to prevent this from happening again, the federal government passed regulations in 2014 that mandated changes to make these funds safer. Now all money market funds are required to maintain an average maturity for their assets of just 60 days, and the ratings criteria for the types of assets the funds can hold have increased as well.

The new regulations have made investors shift large amounts of money out of prime market funds, which invested in all types of short-dated assets, and into government funds which only invest in government debt. In fact, prime market funds have seen massive outflows.

“More than half a trillion dollars have fled the prime money market fund complex since this summer,” said Dominic Konstam, an analyst at Deutsche Bank. “In recent weeks, the pace of outflows has also picked up considerably – prime funds lost on average $60 billion of assets per week in September and an eye-popping $110 billion last week, with their total assets now below $500 billion for the first time.”

In total, more than $700 billion has flowed out of prime market funds, according to Barclays, since the reforms were announced, with much of it heading to government funds.

With fewer funds holding non-government short-dates assets, the liquidity in trading for things such as commercial paper and certificates of deposit have increased. With less liquidity, interest rates for near-term lending products such as the London Interbank Offering Rate, or Libor, have increased to their highest levels since the financial crisis.

This increase in Libor, however, may have run its course according to Konstam. The gap between the Federal Reserve’s fed funds rate and the Libor rate, which is used as a proxy of stability for the banking system and the benchmark for how expensive short-term leaning is, has tightened in recent weeks after exploding over the summer.

“Despite this, 3-month Libor and the Libor bases have been relatively well behaved during this stretch, and FRA/OIS spreads are actually now ~5 bps tighter from three weeks ago,” said Konstam.

“We are inclined to think that the midsummer Libor pain has fully run its course, and 3-month Libor could begin to set tighter against Fed expectations (OIS) after next week’s SEC money market reform deadline.

All in all, these changes aren’t going to impact retail investors very much and the long lead time has allowed many fund managers to make the shift in portfolios ahead of time.

Jim O’Connor, senior portfolio manager for money market funds at BNY Mellon’s subsidiary The Dreyfus Corporation, told Business Insider that most of his clients’ portfolios had been shifted away from prime funds well before the date of the regulation implementation and the only changes made in the run-up were to back-end maintenance.

The jump in rates such as the Libor, however, may impact some borrowers. Floating rate mortgages and other types of floating rate loans can be pegged to the Libor, thus as it increases the interest costs for those borrowers will increase.

The move has been a massive multi-year shift of billions of dollars, but for many investors it will likely not even move the needle.

Bill Moyers: Economic Inequality Is a Threat to the Very Core of Our Democracy

babel 2My Comments: The system is rigged; just not the way you think it is. These words by Bill Moyers are almost enough for a book. So be prepared.

I’m increasingly persuaded that the social ills in this country, from racism, to mysogeny, to conflict with law enforcement, all down the line, are highly correlated with our increasing economic inequality.

Economic tension is endemic, and if your ability to see a better economic future for yourself is reduced, you are going to let frustration grow and it will likely manifest itself somewhere.

It doesn’t need logic; if there’s someone on TV telling you to hate Muslims, for example, it’s an easy step to get pissed off at Muslims. Or at white people, or the flag, or whatever. It doesn’t even need to be you who is affected if you have sympathy for those who are. Whomever wins the White House MUST focus energy and time trying to shrink the ever increasing economic gap between the haves and the have nots.

If they don’t we can soon kiss our ass good by.

September 12, 2016 BY Bill Moyers

Sixty-six years ago this summer, on my 16th birthday, I went to work for the daily newspaper in the small East Texas town of Marshall where I grew up. It was a good place to be a cub reporter—small enough to navigate but big enough to keep me busy and learning something every day. I soon had a stroke of luck. Some of the paper’s old hands were on vacation or out sick and I was assigned to help cover what came to be known across the country as “the housewives’ rebellion.”

Fifteen women in my hometown decided not to pay the social security withholding tax for their domestic workers. Those housewives were white, their housekeepers black. Almost half of all employed black women in the country then were in domestic service. Because they tended to earn lower wages, accumulate less savings, and be stuck in those jobs all their lives, social security was their only insurance against poverty in old age. Yet their plight did not move their employers.

The housewives argued that social security was unconstitutional and imposing it was taxation without representation. They even equated it with slavery. They also claimed that “requiring us to collect [the tax] is no different from requiring us to collect the garbage.” So they hired a high-powered lawyer—a notorious former congressman from Texas who had once chaired the House Un-American Activities Committee—and took their case to court. They lost, and eventually wound up holding their noses and paying the tax, but not before their rebellion had become national news.

The stories I helped report for the local paper were picked up and carried across the country by the Associated Press. One day, the managing editor called me over and pointed to the AP Teletype machine beside his desk. Moving across the wire was a notice citing our paper and its reporters for our coverage of the housewives’ rebellion.

I was hooked, and in one way or another I’ve continued to engage the issues of money and power, equality and democracy over a lifetime spent at the intersection between politics and journalism. It took me awhile to put the housewives’ rebellion into perspective. Race played a role, of course. Marshall was a segregated, antebellum town of 20,000, half of whom were white, the other half black. White ruled, but more than race was at work. Those 15 housewives were respectable townsfolk, good neighbors, regulars at church (some of them at my church). Their children were my friends; many of them were active in community affairs; and their husbands were pillars of the town’s business and professional class.

So what brought on that spasm of rebellion? They simply couldn’t see beyond their own prerogatives. Fiercely loyal to their families, their clubs, their charities and their congregations—fiercely loyal, that is, to their own kind—they narrowly defined membership in democracy to include only people like themselves. They expected to be comfortable and secure in their old age, but the women who washed and ironed their laundry, wiped their children’s bottoms, made their husbands’ beds and cooked their family’s meals would also grow old and frail, sick and decrepit, lose their husbands and face the ravages of time alone, with nothing to show from their years of labor but the crease in their brow and the knots on their knuckles.

In one way or another, this is the oldest story in our country’s history: the struggle to determine whether “we, the people” is a metaphysical reality—one nation, indivisible—or merely a charade masquerading as piety and manipulated by the powerful and privileged to sustain their own way of life at the expense of others.

“I Contain Multitudes”

There is a vast difference between a society whose arrangements roughly serve all its citizens and one whose institutions have been converted into a stupendous fraud, a democracy in name only. I have no doubt about what the United States of America was meant to be. It’s spelled out right there in the 52 most revolutionary words in our founding documents, the preamble to our Constitution, proclaiming the sovereignty of the people as the moral base of government:
“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
What do those words mean, if not that we are all in the business of nation-building together?

Now, I recognize that we’ve never been a country of angels guided by a presidium of saints. Early America was a moral morass. One in five people in the new nation was enslaved. Justice for the poor meant stocks and stockades. Women suffered virtual peonage. Heretics were driven into exile, or worse. Native people—the Indians—would be forcibly removed from their land, their fate a “trail of tears” and broken treaties.

No, I’m not a romantic about our history and I harbor no idealized notions of politics and democracy. Remember, I worked for President Lyndon Johnson. I heard him often repeat the story of the Texas poker shark who leaned across the table and said to his mark: “Play the cards fair, Reuben. I know what I dealt you.” LBJ knew politics.

Nor do I romanticize “the people.” When I began reporting on the state legislature while a student at the University of Texas, a wily old state senator offered to acquaint me with how the place worked. We stood at the back of the Senate floor as he pointed to his colleagues spread out around the chamber—playing cards, napping, nipping, winking at pretty young visitors in the gallery—and he said to me, “If you think these guys are bad, you should see the people who sent them there.”

And yet, despite the flaws and contradictions of human nature—or perhaps because of them—something took hold here. The American people forged a civilization: that thin veneer of civility stretched across the passions of the human heart. Because it can snap at any moment, or slowly weaken from abuse and neglect until it fades away, civilization requires a commitment to the notion (contrary to what those Marshall housewives believed) that we are all in this together.

American democracy grew a soul, as it were—given voice by one of our greatest poets, Walt Whitman, with his all-inclusive embrace in Song of Myself:

“Whoever degrades another degrades me,
and whatever is done or said returns at last to me. …
I speak the pass-word primeval—I give the sign of democracy;
By God! I will accept nothing which all cannot have their counterpart of on the same terms. …
(I am large—I contain multitudes.)”

Author Kathleen Kennedy Townsend has vividly described Whitman seeing himself in whomever he met in America. As he wrote in I Sing the Body Electric:
“—the horseman in his saddle,
Girls, mothers, house-keepers, in all their performances,
The group of laborers seated at noon-time with their open dinner-kettles and their wives waiting,
The female soothing a child—the farmer’s daughter in the garden or cow-yard,
The young fellow hoeing corn—”

Whitman’s words celebrate what Americans shared at a time when they were less dependent on each other than we are today. As Townsend put it, “Many more people lived on farms in the nineteenth century, and so they could be a lot more self-reliant; growing their own food, sewing their clothes, building their homes. But rather than applauding what each American could do in isolation, Whitman celebrated the vast chorus: ‘I hear America singing.’” The chorus he heard was of multitudinous voices, a mighty choir of humanity.

Whitman saw something else in the soul of the country: Americans at work, the laboring people whose toil and sweat built this nation. Townsend contrasts his attitude with the way politicians and the media today—in their endless debates about wealth creation, capital gains reduction, and high corporate taxes—seem to have forgotten working people. “But Whitman wouldn’t have forgotten them.” She writes, “He celebrates a nation where everyone is worthy, not where a few do well.”

President Franklin Delano Roosevelt understood the soul of democracy, too. He expressed it politically, although his words often ring like poetry. Paradoxically, to this scion of the American aristocracy, the soul of democracy meant political equality. “Inside the polling booth,” he said, “every American man and woman stands as the equal of every other American man and woman. There they have no superiors. There they have no masters save their own minds and consciences.”

God knows it took us a long time to get there. Every claim of political equality in our history has been met by fierce resistance from those who relished for themselves what they would deny others. After President Abraham Lincoln signed the Emancipation Proclamation it took a century before Lyndon Johnson signed the Voting Rights Act of 1965—a hundred years of Jim Crow law and Jim Crow lynchings, of forced labor and coerced segregation, of beatings and bombings, of public humiliation and degradation, of courageous but costly protests and demonstrations. Think of it: another hundred years before the freedom won on the bloody battlefields of the Civil War was finally secured in the law of the land.

And here’s something else to think about: Only one of the women present at the first women’s rights convention in Seneca Falls in 1848—only one, Charlotte Woodward—lived long enough to see women actually get to vote.

“We Pick That Rabbit Out of the Hat”

So it was, in the face of constant resistance, that many heroes—sung and unsung—sacrificed, suffered, and died so that all Americans could gain an equal footing inside that voting booth on a level playing field on the ground floor of democracy. And yet today money has become the great unequalizer, the usurper of our democratic soul.

No one saw this more clearly than that conservative icon Barry Goldwater, longtime Republican senator from Arizona and one-time Republican nominee for the presidency. Here are his words from almost 30 years ago:
“The fact that liberty depended on honest elections was of the utmost importance to the patriots who founded our nation and wrote the Constitution. They knew that corruption destroyed the prime requisite of constitutional liberty: an independent legislature free from any influence other than that of the people. Applying these principles to modern times, we can make the following conclusions: To be successful, representative government assumes that elections will be controlled by the citizenry at large, not by those who give the most money. Electors must believe that their vote counts. Elected officials must owe their allegiance to the people, not to their own wealth or to the wealth of interest groups that speak only for the selfish fringes of the whole community.”

About the time Senator Goldwater was writing those words, Oliver Stone released his movie Wall Street. Remember it? Michael Douglas played the high roller Gordon Gekko, who used inside information obtained by his ambitious young protégé, Bud Fox, to manipulate the stock of a company that he intended to sell off for a huge personal windfall, while throwing its workers, including Bud’s own blue-collar father, overboard. The younger man is aghast and repentant at having participated in such duplicity and chicanery, and he storms into Gekko’s office to protest, asking, “How much is enough, Gordon?”

Gekko answers:
“The richest one percent of this country owns half our country’s wealth, five trillion dollars. … You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now, you’re not naïve enough to think we’re living in a democracy, are you, Buddy? It’s the free market. And you’re part of it.”

That was in the high-flying 1980s, the dawn of today’s new gilded age. The Greek historian Plutarch is said to have warned that “an imbalance between rich and poor is the oldest and most fatal ailment of a Republic.” Yet as the Washington Post pointed out recently, income inequality may be higher at this moment than at any time in the American past.

When I was a young man in Washington in the 1960s, most of the country’s growth accrued to the bottom 90% of households. From the end of World War II until the early 1970s, in fact, income grew at a slightly faster rate at the bottom and middle of American society than at the top. In 2009, economists Thomas Piketty and Emmanuel Saez explored decades of tax data and found that from 1950 through 1980 the average income of the bottom 90% of Americans had grown, from $17,719 to $30,941. That represented a 75% increase in 2008 dollars.

Since 1980, the economy has continued to grow impressively, but most of the benefits have migrated to the top. In these years, workers were more productive but received less of the wealth they were helping to create. In the late 1970s, the richest 1% received 9% of total income and held 19% of the nation’s wealth. The share of total income going to that 1% would then rise to more than 23% by 2007, while their share of total wealth would grow to 35%. And that was all before the economic meltdown of 2007-2008.
Even though everyone took a hit during the recession that followed, the top 10% now hold more than three-quarters of the country’s total family wealth.

I know, I know: statistics have a way of causing eyes to glaze over, but these statistics highlight an ugly truth about America: inequality matters. It slows economic growth, undermines health, erodes social cohesion and solidarity and starves education. In their study The Spirit Level: Why Greater Equality Makes Societies Stronger, epidemiologists Richard Wilkinson and Kate Pickett found that the most consistent predictor of mental illness, infant mortality, low educational achievement, teenage births, homicides and incarceration was economic inequality.

So bear with me as I keep the statistics flowing. The Pew Research Center recently released a new study indicating that, between 2000 and 2014, the middle class shrank in virtually all parts of the country. Nine out of ten metropolitan areas showed a decline in middle-class neighborhoods. And remember, we aren’t even talking about over 45 million people who are living in poverty. Meanwhile, between 2009 and 2013, that top 1% captured 85% percent of all income growth. Even after the economy improved in 2015, they still took in more than half of the income growth and by 2013 held nearly half of all the stock and mutual fund assets Americans owned.

Now, concentrations of wealth would be far less of an issue if the rest of society were benefitting proportionally. But that isn’t the case.

Once upon a time, according to Isabel Sawhill and Sara McClanahan in their 2006 report Opportunity in America, the American ideal was one in which all children had “a roughly equal chance of success regardless of the economic status of the family into which they were born.”

Almost 10 years ago, economist Jeffrey Madrick wrote that, as recently as the 1980s, economists thought that “in the land of Horatio Alger only 20 percent of one’s future income was determined by one’s father’s income.” He then cited research showing that, by 2007, “60 percent of a son’s income [was] determined by the level of income of the father. For women, it [was] roughly the same.” It may be even higher today, but clearly a child’s chance of success in life is greatly improved if he’s born on third base and his father has been tipping the umpire.

This raises an old question, one highlighted by the British critic and public intellectual Terry Eagleton in an article in the Chronicle of Higher Education:
“Why is it that the capitalist West has accumulated more resources than human history has ever witnessed, yet appears powerless to overcome poverty, starvation, exploitation, and inequality? … Why does private wealth seem to go hand in hand with public squalor? Is it … plausible to maintain that there is something in the nature of capitalism itself which generates deprivation and inequality?”

The answer, to me, is self-evident. Capitalism produces winners and losers big time. The winners use their wealth to gain political power, often through campaign contributions and lobbying. In this way, they only increase their influence over the choices made by the politicians indebted to them. While there are certainly differences between Democrats and Republicans on economic and social issues, both parties cater to wealthy individuals and interests seeking to enrich their bottom lines with the help of the policies of the state (loopholes, subsidies, tax breaks, deregulation). No matter which party is in power, the interests of big business are largely heeded.

More on that later, but first, a confession. The legendary broadcast journalist Edward R. Murrow told his generation of journalists that bias is okay as long as you don’t try to hide it. Here’s mine: plutocracy and democracy don’t mix. As the late (and great) Supreme Court Justice Louis Brandeis said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” Of course the rich can buy more homes, cars, vacations, gadgets, and gizmos than anyone else, but they should not be able to buy more democracy. That they can and do is a despicable blot on American politics that is now spreading like a giant oil spill.

In May, President Obama and I both spoke at the Rutgers University commencement ceremony. He was at his inspirational best as 50,000 people leaned into every word. He lifted the hearts of those young men and women heading out into our troubled world, but I cringed when he said, “Contrary to what we hear sometimes from both the left as well as the right, the system isn’t as rigged as you think…”

Wrong, Mr. President, just plain wrong. The people are way ahead of you on this. In a recent poll, 71% of Americans across lines of ethnicity, class, age, and gender said they believe the U.S. economy is rigged. People reported that they are working harder for financial security. One quarter of the respondents had not taken a vacation in more than five years. Seventy-one percent said that they are afraid of unexpected medical bills; 53% feared not being able to make a mortgage payment; and, among renters, 60% worried that they might not make the monthly rent.

Millions of Americans, in other words, are living on the edge. Yet the country has not confronted the question of how we will continue to prosper without a workforce that can pay for its goods and services.

Who Dunnit?

You didn’t have to read Das Kapital to see this coming or to realize that the United States was being transformed into one of the harshest, most unforgiving societies among the industrial democracies. You could instead have read the Economist, arguably the most influential business-friendly magazine in the English-speaking world. I keep in my files a warning published in that magazine a dozen years ago, on the eve of George W. Bush’s second term. The editors concluded back then that, with income inequality in the U.S. reaching levels not seen since the first Gilded Age and social mobility diminishing, “the United States risks calcifying into a European-style class-based society.”

And mind you, that was before the financial meltdown of 2007-2008, before the bailout of Wall Street, before the recession that only widened the gap between the super-rich and everyone else. Ever since then, the great sucking sound we’ve been hearing is wealth heading upwards. The United States now has a level of income inequality unprecedented in our history and so dramatic it’s almost impossible to wrap one’s mind around.

Contrary to what the president said at Rutgers, this is not the way the world works; it’s the way the world is made to work by those with the money and power. The movers and shakers—the big winners—keep repeating the mantra that this inequality was inevitable, the result of the globalization of finance and advances in technology in an increasingly complex world. Those are part of the story, but only part. As G.K. Chesterton wrote a century ago, “In every serious doctrine of the destiny of men, there is some trace of the doctrine of the equality of men. But the capitalist really depends on some religion of inequality.”

Exactly. In our case, a religion of invention, not revelation, politically engineered over the last 40 years. Yes, politically engineered. On this development, you can’t do better than read Winner Take All Politics: How Washington Made the Rich Richer and Turned Its Back on the Middle Class by Jacob Hacker and Paul Pierson, the Sherlock Holmes and Dr. Watson of political science.

They were mystified by what had happened to the post-World War II notion of “shared prosperity”; puzzled by the ways in which ever more wealth has gone to the rich and super rich; vexed that hedge-fund managers pull in billions of dollars, yet pay taxes at lower rates than their secretaries; curious about why politicians kept slashing taxes on the very rich and handing huge tax breaks and subsidies to corporations that are downsizing their work forces; troubled that the heart of the American Dream—upward mobility—seemed to have stopped beating; and dumbfounded that all of this could happen in a democracy whose politicians were supposed to serve the greatest good for the greatest number. So Hacker and Pierson set out to find out “how our economy stopped working to provide prosperity and security for the broad middle class.”

In other words, they wanted to know: “Who dunnit?” They found the culprit. With convincing documentation they concluded, “Step by step and debate by debate, America’s public officials have rewritten the rules of American politics and the American economy in ways that have benefitted the few at the expense of the many.”

There you have it: the winners bought off the gatekeepers, then gamed the system. And when the fix was in they turned our economy into a feast for the predators, “saddling Americans with greater debt, tearing new holes in the safety net, and imposing broad financial risks on Americans as workers, investors, and taxpayers.” The end result, Hacker and Pierson conclude, is that the United States is looking more and more like the capitalist oligarchies of Brazil, Mexico, and Russia, where most of the wealth is concentrated at the top while the bottom grows larger and larger with everyone in between just barely getting by.

Bruce Springsteen sings of “the country we carry in our hearts.” This isn’t it.

“God’s Work”

Looking back, you have to wonder how we could have ignored the warning signs. In the 1970s, Big Business began to refine its ability to act as a class and gang up on Congress. Even before the Supreme Court’s Citizens United decision, political action committees deluged politics with dollars.

Foundations, corporations and rich individuals funded think tanks that churned out study after study with results skewed to their ideology and interests. Political strategists made alliances with the religious right, with Jerry Falwell’s Moral Majority and Pat Robertson’s Christian Coalition, to zealously wage a cultural holy war that would camouflage the economic assault on working people and the middle class.

To help cover-up this heist of the economy, an appealing intellectual gloss was needed. So public intellectuals were recruited and subsidized to turn “globalization,” “neo-liberalism,” and “the Washington Consensus” into a theological belief system. The “dismal science of economics” became a miracle of faith. Wall Street glistened as the new Promised Land, while few noticed that those angels dancing on the head of a pin were really witchdoctors with MBAs brewing voodoo magic. The greed of the Gordon Gekkos—once considered a vice—was transformed into a virtue. One of the high priests of this faith, Lloyd Blankfein, CEO of Goldman Sachs, looking in wonder on all that his company had wrought, pronounced it “God’s work.”

A prominent neoconservative religious philosopher even articulated a “theology of the corporation.” I kid you not. And its devotees lifted their voices in hymns of praise to wealth creation as participation in the Kingdom of Heaven here on Earth. Self-interest became the Gospel of the Gilded Age.

No one today articulates this winner-take-all philosophy more candidly than Ray Dalio. Think of him as the King Midas of hedge funds, with a personal worth estimated at almost $16 billion and a company, Bridgewater Associates, reportedly worth as much as $154 billion.

Dalio fancies himself a philosopher and has written a book of maxims explaining his philosophy. It boils down to: “Be a hyena. Attack the Wildebeest.” (Wildebeests, antelopes native to southern Africa—as I learned when we once filmed a documentary there—are no match for the flesh-eating dog-like spotted hyenas that gorge on them.) Here’s what Dalio wrote about being a Wall Street hyena:
“… when a pack of hyenas takes down a young wildebeest, is this good or bad? At face value, this seems terrible; the poor wildebeest suffers and dies. Some people might even say that the hyenas are evil. Yet this type of apparently evil behavior exists throughout nature through all species … like death itself, this behavior is integral to the enormously complex and efficient system that has worked for as long as there has been life. … [It] is good for both the hyenas, who are operating in their self-interest, and the interests of the greater system, which includes the wildebeest, because killing and eating the wildebeest fosters evolution, i.e., the natural process of improvement. … Like the hyenas attacking the wildebeest, successful people might not even know if or how their pursuit of self-interest helps evolution, but it typically does.”

He concludes: “How much money people have earned is a rough measure of how much they gave society what it wanted…”

Not this time, Ray. This time, the free market for hyenas became a slaughterhouse for the wildebeest. Collapsing shares and house prices destroyed more than a quarter of the wealth of the average household. Many people have yet to recover from the crash and recession that followed. They are still saddled with burdensome debt; their retirement accounts are still anemic. All of this was, by the hyena’s accounting, a social good, “an improvement in the natural process,” as Dalio puts it. Nonsense. Bull. Human beings have struggled long and hard to build civilization; His doctrine of “progress” is taking us back to the jungle.

And by the way, there’s a footnote to the Dalio story. Early this year, the founder of the world’s largest hedge fund, and by many accounts the richest man in Connecticut where it is headquartered, threatened to take his firm elsewhere if he didn’t get concessions from the state. You might have thought that the governor, a Democrat, would have thrown him out of his office for the implicit threat involved. But no, he buckled and Dalio got the $22 million in aid—a $5 million grant and a $17 million loan—that he was demanding to expand his operations. It’s a loan that may be forgiven if he keeps jobs in Connecticut and creates new ones. No doubt he left the governor’s office grinning like a hyena, his shoes tracking wildebeest blood across the carpet.

Our founders warned against the power of privileged factions to capture the machinery of democracies. James Madison, who studied history through a tragic lens, saw that the life cycle of previous republics had degenerated into anarchy, monarchy, or oligarchy. Like many of his colleagues, he was well aware that the republic they were creating could go the same way.

Distrusting, even detesting concentrated private power, the founders attempted to erect safeguards to prevent private interests from subverting the moral and political compact that begins, “We, the people.” For a while, they succeeded.

When the brilliant young French aristocrat Alexis de Tocqueville toured America in the 1830s, he was excited by the democratic fervor he witnessed. Perhaps that excitement caused him to exaggerate the equality he celebrated. Close readers of de Tocqueville will notice, however, that he did warn of the staying power of the aristocracy, even in this new country. He feared what he called, in the second volume of his masterwork, Democracy in America, an “aristocracy created by business.” He described it as already among “the harshest that ever existed in the world” and suggested that, “if ever a permanent inequality of conditions and aristocracy again penetrate the world, it may be predicted that this is the gate by which they will enter.”

And so it did. Half a century later, the Gilded Age arrived with a new aristocratic hierarchy of industrialists, robber barons, and Wall Street tycoons in the vanguard. They had their own apologist in the person of William Graham Sumner, an Episcopal minister turned professor of political economy at Yale University. He famously explained that “competition … is a law of nature” and that nature “grants her rewards to the fittest, therefore, without regard to other considerations of any kind.”

From Sumner’s essays to the ravenous excesses of Wall Street in the 1920s to the ravings of Rush Limbaugh, Glenn Beck and Fox News, to the business press’s wide-eyed awe of hyena-like CEOs; from the Republican war on government to the Democratic Party’s shameless obeisance to big corporations and contributors, this “law of nature” has served to legitimate the yawning inequality of income and wealth, even as it has protected networks of privilege and monopolies in major industries like the media, the tech sector, and the airlines.

A plethora of studies conclude that America’s political system has already been transformed from a democracy into an oligarchy (the rule of a wealthy elite). Martin Gilens and Benjamin Page, for instance, studied data from 1,800 different policy initiatives launched between 1981 and 2002. They found that “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy while mass-based interest groups and average citizens have little or no independent influence.” Whether Republican or Democratic, they concluded, the government more often follows the preferences of major lobbying or business groups than it does those of ordinary citizens.

We can only be amazed that a privileged faction in a fervent culture of politically protected greed brought us to the brink of a second Great Depression, then blamed government and a “dependent” 47% of the population for our problems, and ended up richer and more powerful than ever.

The Truth of Your Life

Which brings us back to those Marshall housewives—to all those who simply can’t see beyond their own prerogatives and so narrowly define membership in democracy to include only people like themselves.

How would I help them recoup their sanity, come home to democracy and help build the sort of moral compact embodied in the preamble to the Constitution, that declaration of America’s intent and identity?

First, I’d do my best to remind them that societies can die of too much inequality.

Second, I’d give them copies of anthropologist Jared Diamond’s book Collapse: How Societies Choose to Fail or Succeed to remind them that we are not immune. Diamond won the Pulitzer Prize for describing how the damage humans have inflicted on their environment has historically led to the decline of civilizations. In the process, he vividly depicts how elites repeatedly isolate and delude themselves until it’s too late. How, extracting wealth from commoners, they remain well fed while everyone else is slowly starving until, in the end, even they (or their offspring) become casualties of their own privilege. Any society, it turns out, contains a built-in blueprint for failure if elites insulate themselves endlessly from the consequences of their decisions.

Third, I’d discuss the real meaning of “sacrifice and bliss” with them. That was the title of the fourth episode of my PBS series Joseph Campbell and the Power of Myth. In that episode, Campbell and I discussed the influence on him of the German philosopher Arthur Schopenhauer, who believed that the will to live is the fundamental reality of human nature. So he puzzled about why some people override it and give up their lives for others.

“Can this happen?” Campbell asked. “That what we normally think of as the first law of nature, namely self-preservation, is suddenly dissolved. What creates that breakthrough when we put another’s well-being ahead of our own?” He then told me of an incident that took place near his home in Hawaii, up in the heights where the trade winds from the north come rushing through a great ridge of mountains. People go there to experience the force of nature, to let their hair be blown in the winds—and sometimes to commit suicide.

One day, two policemen were driving up that road when, just beyond the railing, they saw a young man about to jump. One of the policemen bolted from the car and grabbed the fellow just as he was stepping off the ledge. His momentum threatened to carry both of them over the cliff, but the policeman refused to let go. Somehow he held on long enough for his partner to arrive and pull the two of them to safety. When a newspaper reporter asked, “Why didn’t you let go? You would have been killed,” he answered: “I couldn’t … I couldn’t let go. If I had, I couldn’t have lived another day of my life.”

Campbell then added: “Do you realize what had suddenly happened to that policeman? He had given himself over to death to save a stranger. Everything else in his life dropped off. His duty to his family, his duty to his job, his duty to his own career, all of his wishes and hopes for life, just disappeared.” What mattered was saving that young man, even at the cost of his own life.

How can this be, Campbell asked? Schopenhauer’s answer, he said, was that a psychological crisis represents the breakthrough of a metaphysical reality, which is that you and the other are two aspects of one life, and your apparent separateness is but an effect of the way we experience forms under the conditions of space and time. Our true reality is our identity and unity with all life.

Sometimes, however instinctively or consciously, our actions affirm that reality through some unselfish gesture or personal sacrifice. It happens in marriage, in parenting, in our relations with the people immediately around us, and in our participation in building a society based on reciprocity.

The truth of our country isn’t actually so complicated. It’s in the moral compact implicit in the preamble to our Constitution: We’re all in this together. We are all one another’s first responders. As the writer Alberto Rios once put it, “I am in your family tree and you are in mine.”

I realize that the command to love our neighbor is one of the hardest of all religious concepts, but I also recognize that our connection to others goes to the core of life’s mystery and to the survival of democracy. When we claim this as the truth of our lives—when we live as if it’s so—we are threading ourselves into the long train of history and the fabric of civilization; we are becoming “we, the people.”

The religion of inequality—of money and power—has failed us; its gods are false gods. There is something more essential—more profound—in the American experience than the hyena’s appetite. Once we recognize and nurture this, once we honor it, we can reboot democracy and get on with the work of liberating the country we carry in our hearts.

America’s Economic Mess

retirementMy Comments: Like a pig going through a python, baby boomers represent a demographic with staggering economic implications. I’m on the front end of that demographic, and those of you behind me are coming to terms with the concepts of retirement and getting older.

It’s the primary reason we perceive there’s a change happening in our lives over which we have little or no control. And make no mistake, there is very little we can do about it. But it does help to have a better understanding of the dynamics involved.

By Ana Swanson | October 7, 2016

Ever since the financial crisis, the U.S. economy has grown at a stubbornly slow rate, far less than the 3 percent that was widely considered a sign of good health. This disappointing outcome — the Federal Reserve expects the economy to grow only about 1.8 percent this year — has been blamed by economists on many factors: the financial crisis in 2008, fiscal fights in Washington, Europe’s repeated debt crises, China’s slowdown and more.

But according to provocative new research from Fed economists, there might be a simple explanation for the slow growth — and there might not have been much policymakers could have done about it. If the new explanation is true, it might also explain why efforts to boost economic growth — including trillions of dollars in monetary stimulus and near-zero interest rates — haven’t worked that well.

In a new paper, the Fed economists argue that America’s slow economic growth and low interest rates might have been largely inevitable — and they might not have much to do with the 2008 financial crisis at all. Their main culprit: demographics.

The researchers — Etienne Gagnon, Benjamin Johannsen and David Lopez-Salido — created a model of the economy that shows how changes in births, deaths, aging, migration, labor markets and other trends have affected the U.S. economy since 1900. Using that model, they find that most of the decline in economic growth and interest rates since 1980 has been due intractable factors like the aging and retirement of baby boomers, lower fertility rates and longer life expectancy for Americans.

They find that these demographic changes account for a 1.25 percentage point decline in annualized economic growth since 1980, which is essentially all of the decline we’ve seen in that metric, according to some estimates.

What’s really remarkable is that we might have seen this coming. The macroeconomics effects of this kind of demographic transition “have been largely predictable,” the economists write in their paper. In fact, most of the relevant changes that have weighed on growth and interest rates took place before the 1980s.

The biggest drag on the economy has been the aging and retirement of America’s baby boomers, the researchers say. The boomers are by far the largest American generation on record, with 76 million people born between 1946 and 1964. They are substantially more numerous than the 47 million members of the Silent generation that preceded them, as well as the 55 million Gen Xers, the 66 million millennials and the 69 million post-millennials, according to Pew Research Center.

Their generation is so large that it’s easy to see their impact as they move through the American age distribution, as the chart below from the U.S. Census Bureau shows:

As the boomers reached working age in the 1960s and 1970s, they greatly drove up the supply of labor in the United States, and that in turn boosted economic growth and interest rates. The effect was especially strong because boomer women went to work in much larger numbers than their mothers did, due in part to the women’s rights movement and more readily available birth control.

The U.S. economy enjoyed the benefit of a demographic dividend, as the number of workers relative to the total population reached a historic high.

But the boomer generation also ended up having fewer children than their parents did. And as they aged and retired, they left fewer people in the American workforce, and that reduced the country’s economic output.

The aging and retirement of the boomers also put downward pressure on America’s interest rates, the economists say. Interest rates that stay low for a long time are a problem in that they indicate an economy in which growth is slow and there is little willingness to invest. Low interest rates also leave central bankers with little capacity to stimulate growth in the future by cutting interest rates.

The retirement of the baby boomers has meant that what economists call capital — machines, factories, roads and buildings — has become relatively abundant compared to labor. That has depressed the return investors receive for investing in capital, and led to our era of lower investment. And that in turn led to a fall in the interest rate. In line with their model, the real interest rate in the United States rose through the 1960s and 1970s, peaked around 1980s, and has gradually declined since then, the economists say.

In the last decade, the effect of these trends has become even more pronounced, they say, as more boomers have retired and effects of the IT boom have faded. And their model suggests that low interest rates, low economic growth and low investment are here to stay, since America’s working population is not set to grow much in coming decades. Other countries in Europe and East Asia, are undergoing similar transitions, with rapidly aging populations, too.

Because of the timing of this trend, the economists say, many have confused it with the lingering effects of the financial crisis. The financial crisis undoubtedly had a powerful effect on the economy. Actions like the massive bond-buying programs undertaken by central banks around the world to lift their economies are powerful, too. But both may pale in comparison to the economic power of demography.

Source article: https://www.washingtonpost.com/news/wonk/wp/2016/10/07/theres-a-devastatingly-simple-explanation-for-americas-economic-mess

Is The World’s Longest Bull Run Over?

bear-market--My Comments: The yin and yang of investing money can be thought of as bonds and stocks. (Why do we usually say stocks and bonds?) For the past 35 years, bond yields have trended downward. They are now plus or minus zero, depending on where you live.

Meanwhile, stocks have been on a long running upward trend, until just recently. You can argue that the laws of finance are no longer relevant, just as you can argue the laws of physics are no longer relevant. But that just exposes ignorance about the fundamentals of life.

What little money I have is positioned to protect myself and those I love. I suspect that going forward, returns on investment are going to be lower than we are used to.

John Geddie | LONDON — Reuters | Published Friday, Sep. 30, 2016

No one yet has made money from calling an end to 35 years of gains in world bonds, but that has not stopped investors fretting that an era of central bank largesse is drawing to a close and a seismic shift in global markets is under way.

When the biggest debt funds say prices will fall and newspaper columns warn of a bubble set to burst and wreck people’s savings, even skeptics find it hard to dismiss the latest episode of jitters as just another ill-advised attempt to call the bottom of the longest bull market in history.

Economists argue shifts in demographics and globalization are finally turning the tide, while policy-watchers say the Bank of Japan’s commitment last week to draw a line under further yield falls is the watershed moment they have been waiting for.

But even for those bold enough to call the turn, the pace of the change in a world devoid of growth and inflation could mean years of waiting to find out if they were right.

“You can easily imagine looking back on last week in two or three years time and saying the BOJ was the start of this,” said Michael Metcalfe, head of global macro strategy at State Street.

In the world’s largest economy, the United States, yields on 10-year government bonds have steadily fallen from around 15 per cent in the early 1980s to record lows earlier this year of 1.37 per cent.

In Japan and Germany, yields of around 8 per cent a couple of decades ago are now below zero — meaning demand for their debt is so high that investors are paying for the privilege of lending to these governments.

Economists at M&G say these broad trends can be explained by a population boom after the World War Two which boosted the workforce at the end of the 20th century, keeping wage inflation low and the need for savings assets like bonds high.

Since the 2008 global financial crisis, central banks have played a much more direct role in keeping yields low — slashing interest rates and spending trillions of dollars on bond-buying splurges to try and bolster a fragile economic recovery.

And over the last decade, Reuters polls show that economists have consistently overcooked their expectations for bond yields, expecting central bank efforts to nurture growth and inflation to finally pay off.

So why should Deutsche Bank’s claim that the demographic trends that have driven markets are reaching ‘inflection point’, or bond giant PIMCO’s expectation that yields will rise as central banks run out of rope, carry more currency now?

Partly, it seems, these warnings come as investors are losing faith in the ability of financial assets to appreciate any more.

The latest monthly survey by Bank of America Merrill Lynch showed fund managers reckon equities and bonds combined are near their most overvalued and have ramped up their holdings of cash as a result.

Investors also get wary when terms like ‘bond bubble’ start to enter public discourse. Google searches for the term have hit their highest in over a year in recent weeks and cropped up in stories from the Sydney Morning Herald to Germany’s Die Welt and Britain’s The Times.

“The more people talk about it, the more likely it becomes. Investment decisions are made on a mixture of emotion and analysis, so it can prove self-fulfilling,” Louis Gargour, chief investment officer at LNG Capital, said.

But while some bond market veterans agree a three-decade rally may have run its course, they are not expecting a sharp turnaround.

They argue that even if the BOJ’s shift last week is a tacit acknowledgment that monetary policy is reaching limits, heavily-indebted governments have little room to take up the slack with fiscal stimulus.

And with their banks stuffed full of bonds that would be battered by a sharp rise in yields, authorities will be eager to keep inflation under control.

“When people think things are completely mispriced and there is going to be blood on the streets, their model is often that they expect rates to return to the post-war average,” said Andrew Balls, PIMCO’s bonds CIO.

“The argument between 1.5 and 2.5 per cent is much more modest than the argument between 5 and 6 per cent.”

There are, of course, more alarming scenarios out there.

Jim Leavis, head of retail fixed interest at M&G, said signs of a turn towards protectionist trade and labour policies — as seen through Britain’s vote to leave the EU in June and the rhetoric of U.S. presidential hopeful Donald Trump — could stoke inflationary pressures through wages in certain countries.

“If globalisation went into reverse, I think you would end up with higher inflation and bond markets would have a rough time,” said Leavis.

“Our view is that yields are too low here, but they probably stay lower than people expect for a long time.”

On the other side though, said Leavis, developments in technology could see many jobs automated, keeping downward pressure on wages.

The consensus appears to be – not least because of a slowdown in the world’s second biggest economy China – that disinflationary forces have the upper hand.

For Standard Life’s Andrew Milligan, an investment veteran of 30 years, this has created an expectation that while the bond rally may be over, any reversal may be a long time coming.

“Although the bull market in bonds may be over, that doesn’t mean a bear market is beginning.”

Trump vs. Clinton: 10 Ways the Next President Will Impact Your Wallet

roulette wheelMy Comments: New and existing clients are asking me what I think will happen to their money after the election. My gut tells me there will be a correction before long anyway. If Trump is the winner, the correction could be dramatic with chaos in the years ahead. If Clinton is the winner, the correction will be muted. Necessary changes are going to happen; it’s the natural order of things. But I’m ready for less drama and an orderly transition into the future. Trump will try and turn back the clock on many levels, including globalization, and it will be disastrous for lots of reasons.

This comes from Kiplinger, and is with most everything I post, I did not ask their permission. I’m giving you the text of the first two, but if you want the rest of it, then here is a link to their site where I found it all.


By Meilan Solly and Douglas Harbrecht | September 2016

The policies that Democrat Hillary Clinton or Republican Donald Trump say they’ll bring to the White House could have a dramatic impact on your wallet, your job, your health care and your retirement. Here’s where the two candidates stand on major economic and financial issues, with key differences in their approaches. We also threw in a few campaign quotes that help illustrate their views. Take a look:

Economic Growth and Jobs

Key differences: Trump wants to pull back from worldwide economic engagement in pursuit of tougher trade deals and creating more jobs at home. His approach is similar in many ways to the Brexit vote to pull the United Kingdom out of the European Union. Clinton emphasizes economic development that relies on trade. And she supports more liberal immigration policies, which Trump opposes.

Key Clinton quote: “We need to raise pay, create good paying jobs, and build an economy that works for everyone—not just those at the top.”

Key Trump quote: “Americanism, not globalism, will be our credo. As long as we are led by politicians who will not put America First, then we can be assured that other nations will not treat America with respect. The respect that we deserve. Nobody knows the system better than me. Which is why I alone can fix it.”

Trump’s proposals are a radical departure from 100 years of Republican pro-business, free-market orthodoxy. He wants to force some American companies to bring their foreign manufacturing operations back to the U.S. from China, Mexico, Japan and Southeast Asia. To put Americans to work, he advocates a huge infrastructure rebuilding program at home (more on that later in the slide show), including building a wall along the Mexican border to stop illegal immigration. He says he’ll deport all 11 million undocumented immigrants living illegally in the U.S. and place new restrictions on H-1B visas, which allow skilled immigrants to work in the U.S. for up to six years.

Trump supports a federal minimum wage of $10. He wants to declare China a currency manipulator and impose huge tariffs on Chinese and Mexican imports “if they don’t behave.” Such threats concern economists, who worry that they will provoke a trade war and increase the likelihood of a global recession.

Where Trump waves a stick, Clinton favors a carrot approach: She would create tax and economic incentives to entice multinationals to bring jobs back to the U.S. She supports creating a pathway to citizenship for undocumented immigrants living in the U.S., and supports the H-1B program. In accordance with the Democratic Party platform, Clinton would increase the federal minimum wage to $15 an hour from $7.25. She says trade has been a “net plus for our economy,” yet she opposes President Obama’s Trans-Pacific Trade Agreement. Economist Chris Farrell worries that neither candidate is embracing retraining and financial support for workers who have lost their jobs to international competition. “Yes, protectionism is wrong. But so is not sharing the bounty from freer trade with those on the losing side of trade liberalization,” Farrell says.


Key differences: Clinton’s plan would increase taxes on the wealthiest Americans. Trump’s would cut taxes across the board — from the lowest-income earners to the top 1%.

Key Clinton quote: “I want to make sure the wealthy pay their fair share, which they have not been doing.”

Key Trump quote: “Middle-income Americans and businesses will experience profound relief, and taxes will be greatly simplified for everyone. I mean everyone. […] Reducing taxes will cause new companies and new jobs to come roaring back into our country.”

Under Clinton’s plan, taxes would change slightly or not at all for the bottom 95% of taxpayers, while the top 1% would see sizable increases. This is because Clinton wants to implement a 4% surcharge tax on income over $5 million, plus the Buffett Rule, which would ensure that individuals who earn more than $1 million annually pay a minimum effective tax rate of 30%. Clinton’s tax plan would also cap the value of itemized deductions at 28% for folks in higher brackets. This limitation would apply to other tax breaks, too, such as the write-off for IRAs and moving expenses. And it would nick some currently tax-free items, such as 401(k) payins, tax exempt interest, and the value of employer-provided medical insurance. Finally, her plan would increase estate taxes, and place higher taxes on multinational corporations.

In a speech at the Detroit Economic Club on Aug. 8, Trump modified his proposal for overhauling the tax system.He still wants individual rate cuts, but they’re not as deep as in his original plan. Many said his first plan, with four brackets topping out at 25%, was too costly. Now he sees three brackets, maxing out at 33%, the same as the House GOP plan.

He continues to offer up a 15% rate on corporations and pass-throughs, such as partnerships and LLCs, and would extend the rate to sole proprietors. He favors full expensing for new asset purchases such as buildings and equipment. And he wants to do away with the estate and gift tax.

He’s silent on capital gains for now. His prior plan called for rates from 0% to 20%, compared with a 16.5% top rate under the House GOP blueprint. Also, he gives no details about which write-offs will be on the chopping block. He’ll probably keep breaks for home mortgage interest and donations to charity. But most others would have to disappear to help offset the cost of his proposed rate cuts..

Says Roberton Williams of the Urban-Brookings Tax Policy Center: “The Clinton plan is basically stay as you go. You’ve got a basic tax plan in place right now. She has so far proposed no major changes to that structure other than to raise taxes significantly on some high income people. That’s not a very radical change. Trump’s changes are much bigger.”