"The Ghost of Trump Chaos Future Sorry, investors, but there is no sanity clause. By Paul Krugman"
Amid all the disarray, President Donald Trump is resuming a partisan mantle he views as a unifier for the right: border warrior. | Evan Vucci/AP Photo
The president spent the weekend digging in on his position, and aides say he accepts a closure that could drag into the new year.
By CHRISTOPHER CADELAGO 12/23/2018 03:37 PM EST
President Donald Trump is now the “proud” owner of a government shutdown — his third. And he doesn’t seem to mind.
The threat of an extended shutdown is far less of a concern to the president than not making good on his central campaign pledge to build a border wall and looking like a fraud, according to White House aides and Trump allies. Trump spent the weekend digging in on his position behind closed doors, meeting with hard-line conservatives and signaling through his top aides that he could stomach a closure that could drag on well into the new year.
Mick Mulvaney, the acting White House chief of staff, set the bar on Sunday.
“I don’t think things are going to move very quickly here for the next couple of days,” he told Chris Wallace in an interview on Fox News.
The holiday shutdown comes amid a series of tumultuous Cabinet shakeups — Trump announced on Sunday that Defense Secretary Jim Mattis would depart earlier than expected — a stock market rout and turbulence from the Republican congressional ranks over the president’s decision to pull troops from Syria and scale back the U.S. presence in Afghanistan.
The U.S. Capitol is seen as the federal government is in a partial shutdown.
Government Shutdown The ‘all-I-want-for-Christmas-is-$5-billion-for-the-wall’ shutdown By JOHN BRESNAHAN and JAKE SHERMAN
Amid all the disarray, Trump is resuming a partisan mantle he views as a unifier for the right: border warrior.
Rep. Mark Meadows (R-N.C.), the House Freedom Caucus chairman, compared Trump’s stand to the Battle of the Alamo, offering that the historic struggle between Texans and victorious Mexicans is remembered “not because they won there, [but] because they fought there.”
Sen. Lindsey Graham (R-S.C.), who lunched with Trump and Meadows on Saturday at the White House, argued that Democrats and their leaders were the reason the country was in for a protracted confrontation.
“Sen. Schumer, we’re not going to abandon the wall,” Graham said later Saturday, referring to Senate Minority Leader Chuck Schumer (D-N.Y.). “We’re going to build a wall, and to all those Americans who want us to abandon the wall and open up the border, that’s what this fight’s about.”
The president’s aides, in private, have half-heartedly tried to pin the blame on Democrats — despite their boss’ saying earlier this month in the Oval Office that he would be proud to shut down the government for border security, suggesting that the American people were with him on the issue.
Trump, who cast the southern border wall in political terms as a “total winner,” even as polls show that majorities of Americans don’t support the structure, is marching out senior administration officials to assert that he’s been “very clear” about his expectations for funding various “physical barriers.” “We are open to a lot of different options along those lines,” one of the officials said.
Mulvaney said on Sunday that the president’s wall demands were “absolutely necessary.”
Republicans are not uniformly falling in line. Sen. Bob Corker of Tennessee blasted Trump for failing to avoid the partial shutdown, dismissing his hardening negotiating posture on immigration as “a made-up fight so that the president could look like he’s fighting.”
Trump did not arrive voluntarily at his latest choice to pursue the wall at all costs. Last week, he came under withering attacks from conservatives — notably commentators and hosts who appear on Fox News — who urged the president to veto a Senate-approved bill without wall funding that would have averted the shutdown.
Republicans close to the president said he was shocked by the swift reaction, particularly given everything he’d done up to that point, and that he had come to see this hinge moment as his best, and possibly last, chance to extract significant wall funding.
As the shutdown became a reality, some advisers have urged Trump to focus entirely on the border and Democrats’ intransigence, despite their backing similar security funding before he became president. One ally said the goal was to center the clash on who is with Trump and who is against him. As Graham put it, “This is about them hating Trump so much, wanting him to lose, they can’t understand that America needs to win.”
Trump’s reelection campaign has leapt quickly at the chance to capitalize on the stalemate and paint him as an authentic promise-keeper. One Trump campaign appeal to supporters tarred Democrats as insensitive to the safety of Americans. “FIGHT BACK,” it implored. “Donate to become an Official Build the Wall Member.” And other Trump-backed groups are running ads and circulating petitions to Republicans.
For the president, the border wall is about far more than a structure, allies concede. The White House has long seen his “Build the wall” promise as an indicator for how far his early pledges alone could take him with voters he’ll need to secure reelection.
“The wall is important, but it’s more the underlying anti-immigrant message that’s the key,” a former White House official said.
In addition to saying Mexico would pay for the wall — a goal the administration maintains is still viable, albeit most likely retroactively — others of Trump’s big early claims remain unfulfilled and look increasingly doubtful.
During his 2016 campaign, Trump estimated he would complete the entire border wall within two years from the time he started. “We’ll start quickly,” he added. “And it’ll be a real wall.”
While the wall has yet to come to fruition, the president has been filling the void with more words.
Trump repeatedly boasts about how much of the wall has already been built, even though little if any building has happened, let alone during his presidency. To keep up appearances during the midterm elections, aides handed out signs that read “Finish the Wall.”
Well before the recent conservative backlash reared, one threat the president’s team identified on the subject was supporters beginning to doubt his ability to deliver.
Though Trump could continue to point a finger at Congress, which has given him only a fraction of what he wants for border security, another person close to the president noted that the government-funding exercise was one area where he had the ultimate say.
For now, it’s a function of leverage, which the ally acknowledged Democrats have.
President Trump in a meeting with governors and members of Congress about tax cuts in April 2018. Doug Mills/The New York Times
The 2017 tax cut has received pretty bad press, and rightly so. Its proponents made big promises about soaring investment and wages, and also assured everyone that it would pay for itself; none of that has happened.
Yet coverage actually hasn’t been negative enough. The story you mostly read runs something like this: The tax cut has caused corporations to bring some money home, but they’ve used it for stock buybacks rather than to raise wages, and the boost to growth has been modest. That doesn’t sound great, but it’s still better than the reality: No money has, in fact, been brought home, and the tax cut has probably reduced national income. Indeed, at least 90 percent of Americans will end up poorer thanks to that cut.
Let me explain each point in turn.
First, when people say that U.S. corporations have “brought money home” they’re referring to dividends overseas subsidiaries have paid to their parent corporations. These did indeed surge briefly in 2018, as the tax law made it advantageous to transfer some assets from the books of those subsidiaries to the home companies; these transactions also showed up as a reduction in the measured stake of the parents in the subsidiaries, i.e., as negative direct investment (Figure 1).
Figure 1 Bureau of Economic Analysis
But these transactions are simply rearrangements of companies’ books for tax purposes; they don’t necessarily correspond to anything real. Suppose that Multinational Megacorp USA decides to have its subsidiary, Multinational Mega Ireland, transfer some assets to the home company. This will produce the kind of simultaneous and opposite movement in dividends and direct investment you see in Figure 1. But the company’s overall balance sheet – which always included the assets of MM Ireland – hasn’t changed at all. No real resources have been transferred; MM USA has neither gained nor lost the ability to invest here.
If you want to know whether investable funds are really being transferred to the U.S., you need to look at the overall balance on financial account – or, what should be the same (and is more accurately measured), the inverse of the balance on current account. Figure 2 shows that balance as a share of GDP – and as you can see, basically nothing has happened.
Figure 2 Bureau of Economic Analysis
So the tax cut induced some accounting maneuvers, but did nothing to promote capital flows to America.
The tax cut did, however, have one important international effect: We’re now paying more money to foreigners.
Bear in mind that the one clear, overwhelming result of the tax cut is a big break for corporations: Federal tax receipts on corporate income have plunged (Figure 3).
Figure 3 Bureau of Economic Analysis
The key point to realize is that in today’s globalized corporate system, a lot of any country’s corporate sector, our own very much included, is actually owned by foreigners, either directly because corporations here are foreign subsidiaries, or indirectly because foreigners own American stocks. Indeed, roughly a third of U.S. corporate profits basically flow to foreign nationals – which means that a third of the tax cut flowed abroad, rather than staying at home. This probably outweighs any positive effect on GDP growth. So the tax cut probably made America poorer, not richer.
And it certainly made most Americans poorer. While 2/3 of the corporate tax cut may have gone to U.S. residents, 84 percent of stocks are held by the wealthiest 10 percent of the population. Everyone else will see hardly any benefit.
Meanwhile, since the tax cut isn’t paying for itself,it will eventually have to be paid for some other way – either by raising other taxes, or by cutting spending on programs people value. The cost of these hikes or cuts will be much less concentrated on the top 10 percent than the benefit of the original tax cut. So it’s a near-certainty that the vast majority of Americans will be worse off thanks to Trump’s only major legislative success.
As I said, even the mainly negative reporting doesn’t convey how bad a deal this whole thing is turning out to be.
The next financial crisis: Why it is looking like history may repeat itself
"The Ghost of Trump Chaos Future"
The videos are embedded inside
* Too-big-to-fail banks are bigger than ever. 10 banks — including J.P. Morgan, Goldman Sachs and Citigroup — own more than 50 percent of the assets of the top 100 commercial banks.
* Trump's attacks on the Fed's independence could bring back stagflation not seen since the Nixon administration.
* The revolving door between Wall Street and Washington is spinning faster than ever.
Victor Li, professor of economics, Villanova School of Business
Published 9:15 AM ET Fri, 14 Sept 2018 Updated 9:42 AM ET Fri, 14 Sept 2018 CNBC.com
Sept. 15, 2018, will be the 10th anniversary of the collapse of Lehman Brothers, the fourth-largest investment bank in the United States. It was the definitive moment that pushed the U.S. economy into the Great Recession and the worst economic crisis since the 1930s. It can happen again. In fact, the current direction in federal policy suggests it even may be likely.
Oli Scarff | Getty Images
On Sept. 29, 2010, the second anniversary of Lehman Brothers' bankruptcy, the firm put their artwork up for auction at Christies. The auction comprised the artwork that hung on the walls of Lehman Brothers' offices in Europe.
After unprecedented policies by the government to stabilize financial markets and reverse the economic carnage, the economic recovery is approaching its tenth year, but significant headwinds threaten to undo the progress .. https://www.cnbc.com/2018/09/11/billionaire-ray-dalio-we-are-in-the-7th-inning-of-the-current-economic-cycle.html .. made in the aftermath of the financial crisis. These concerns can be broken down into three key areas: deregulation of the financial sector, uncertainty in the future Federal Reserve policy, and the increased speed of the revolving door between Wall Street and Washington, D.C.
At the top of this list is the continued prevalence of too-big-to-fail banks and the current deregulatory environment in Washington. Today only six banks manage half of the assets of the entire banking industry. Currently, 10 banks — including J.P. Morgan .. https://www.cnbc.com/quotes/?symbol=JPM , Goldman Sachs .. https://www.cnbc.com/quotes/?symbol=GS .. and Citigroup .. https://www.cnbc.com/quotes/?symbol=C — own more than 50 percent of the assets of the top 100 commercial banks.
Although the growth of these banks occurred in spite of the more stringent regulations enacted by both the Congress and Federal Reserve, they are healthier and more financially solvent because of them. The increased capital requirements have incentivized banks to raise more capital, and the institution of bank stress tests have allowed financial institutions to better monitor and manage their liquidity and exposure to risk.
But the bigger they are, the harder they'll fall. Even though the post-crisis requirements, like increased capital and stress testing, have been good developments, that is set against the fact that the biggest banks are bigger today than they were 10 years ago. If deregulation leads to a worst-case scenario, they will fall even harder this time. It was precisely the pre-2008 deregulatory agenda, including the elimination of barriers between investment and commercial banking, that led to the development of complex financial instruments, such as credit default swaps and derivative markets. This encouraged excessive risk-taking by banks and mortgage lenders. By rolling back these regulations and dismantling portions of the Dodd-Frank Act .. https://www.cnbc.com/2018/09/11/dodd-frank--cfpb.html, the Trump administration is removing the safety net and creating a perfect storm that could lead to a crisis even worse than 2008.
Congress recently began repealing portions of the Dodd-Frank Act of 2010, which was enacted to prevent another financial meltdown. Smaller and midsize banks would now be exempt from the more stringent oversight and stress tests designed to access the ability of these banks to withstand another crisis.
Trump attacks on Federal Reserve could bring back stagflation
The latest year-to-year CPI .. https://www.cnbc.com/cpi/ .. figures show overall inflation near 3 percent, the highest levels in six years. With the economy at full employment, a number of factors are contributing to higher consumer prices. Among them the continued easy-money era — low-interest-rate policy by the Fed .. https://www.cnbc.com/federal-reserve/ .. and the fiscal stimulus from the corporate tax cuts is creating excess spending and demand. Second, the escalating trade tariffs enacted by the Trump administration is working toward strangling supply and stifling competition.
Rising prices highlight the importance of the FOMC to continue monetary policy normalization and follow through on at least one or two additional rate hikes this year. Even so, Trump has broken tradition and publicly voiced his disagreement with the policy of his appointed Federal Reserve Chair, Jerome Powell, of raising interest rates. Powell's Fed has already raised the Federal funds rate twice this year for a total of 50 basis points. Trump's criticism of Fed policy stands in direct conflict with his own criticism of Powell's predecessor, Janet Yellen, of keeping interest rates too low during the Obama administration.
An independent Federal Reserve is at the core of a sound monetary policy and its goal of maintaining price stability. If the Fed complies with the undue pressure to keep interest rates low, as it did during the Nixon administration, the days of stagflation will return with a vengeance.
Top regulators all have ties to Wall Street
Industry insiders policing the markets exacerbates many of the issues that led to the financial crisis.
The head of the major financial regulatory agencies appointed by Trump all have strong ties to Wall Street and have stated their commitment to reversing the regulations implemented since the financial crisis. Among them are Treasury Secretary Steve Mnuchin .. https://www.cnbc.com/steven-mnuchin/ , who was a hedge fund manager and partner at Goldman Sachs; SEC Chairman Jay Clayton, former partner at Sullivan & Cromwell, specializing in mergers and acquisitions; and Comptroller of the Currency Joseph Otting, who was vice chairman at U.S. Bank. Powell was a managing director at Banker's Trust when the bank was caught up in a derivatives trading scandal, and partner at the Carlyle Group investment company.
Every administration includes some members of this revolving door, but the Trump administration has a disproportionate number of top regulators from the financial industry and Wall Street.
The current state of the U.S. economy appears strong, with a low unemployment rate hovering around 4 percent and continued GDP growth that exceeded 4 percent for the fourth time in the past seven years. Indeed, the recovery it has made since the depths of the Great Recession has been nothing short of miraculous.
However, brewing below the surface is the undoing of the prudent regulatory and monetary policies of the last decade. If this continues, it spells a recipe for another financial crisis that will bring back the days of high inflation and high unemployment not seen in more than 30 years.
Those who do not learn history are doomed to repeat it.
—By Victor Li, professor of economics, Villanova School of Business
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