The biggest lie – “I created this economy”

The incumbent president likes to take credit for all things good and blame others for all things bad. This is true regardless of the extent of his role in the outcome. He boasts that he created this great economy before the pandemic and will help us get back to it. Although the economy continued to do well, to say he created it is not truthful. Given his loud chest beating on this one issue, it qualifies as his biggest lie, although other lies are further afield from the truth.

When he took the oath to his office in January, 2017, the US was on its third longest economic growth period in its history at 91 consecutive months of GDP growth. That translates into just longer than 7 1/2 years. It should also be noted for the six previous years, we had 2 million plus in annual job growth and the stock market more than doubled under his predecessor. To Donald Trump’s credit, the economy continued to grow for 36 more months, the stock market continued to climb and job growth continued until it fell with the pandemic. The recession officially started in February of this year.

Now, I wrote during Barack Obama’s presidency that presidents get too much credit and too much blame for the economy. They can provide headwinds and tailwinds, but that is about it. The “headwinds and tailwinds” remark is courtesy of conservative pundit David Brooks. The same goes with the current president. But, if people want to lay wreaths at Trump’s feet for the economy before the pandemic, they must also do the same for Obama. Obama actually inherited an economy in recession due to the housing crisis in late 2007 through mid 2009. He was sworn in January, 2009.

The incumbent president has provided some headwinds and tailwinds to help keep it going, sometimes at the same time. Here is a look at a few of these wind currents:

Tailwinds

The economy got a temporary boost from the December, 2017 tax cut that increased the debt by $1.5 trillion over the next ten years. At a time when we should have been decreasing the deficit, we increased it. So, in essence, we borrowed from our future to make our economy a little better for a little while. One economist referred to it as a sugar rush. Before the pandemic, we fell back to growth at the same level as before the election. Overall, this growth period has been the longest, but the rate of growth under both presidents has lagged other periods. It has been a slow and steady climb, again before the recession caused by the pandemic.

Cutting through some regulations also provided some stimulus for businesses, but as noted below, these will cause future headwinds. People often mix bureaucracy with regulations. We need to constantly review regulations to see if they are working and how they can be improved or rescinded, if need be. So, regulations are not necessarily bad. Bloating bureaucracy is what we must guard against. I recall a story of Erskine Bowles, who eventually became Bill Clinton’s Chief of Staff. When Bowles headed the Small Business Administration, he reduced the application from 42 pages to one.

Headwinds

We must guard against debt. Dipping into debt to stimulate the economy dragging from COVID-19 is one thing, but the 2017 tax cut needed not be so severe that it increased debt. Note, many said this before it was passed, not just now. By the end of this decade, we should be beyond $40 trillion in debt on an annual revenue budget (during 10/18 – 9/19 FY) that is currently just less than $3.5 trillion, with expenses around $4.5 trillion. With the pandemic stimulus, the annual 2019-20 deficit will be around $3.7 trillion. Eventually, interest cost will rival the biggest budget items if we do not remedy this growing problem. Some poor president and congress will have to make some hard decisions as revenue is too low and costs are too high.

Letting polluting industries skate on fewer regulations will come back to haunt us. Chemical spills, polluted water and nuclear waste causes major environment concerns to people, animals, carbon eating trees/ plants and food crops. Even the best of developers and manufacturers would like someone else to pay for their shortcuts. Industries go to great pains to hide their dirty laundry. The laundry is there, it just needs to be more cleaned up. Relying on a company’s altruism is not an effective means of controlling pollution.

Tariffs on all partners cause echo tariffs from our trading partners. And, no one wins a tariff war, regardless of what the president might say. As we have become harder to deal with, buyers and sellers find other markets. The increase in farmer bankruptcies has been significant since the tariff wars started, increasing dramatically over previous levels. One farmer said, other countries sought out other sources of farm goods, so we lost a future pipeline for sales. And, just today, I read in conservative George Will’s editorial that trust in America to do the right thing has fallen to 24% and preference to America as a trading partner has fallen.

One of the business lessons I learned over the years, is if you become difficult to work with, your customers and clients will be forced to find other providers of services and products. It does not get any plainer than that. One of the best things a president can do is create new markets – Reagan, Clinton, Nixon, and Obama all were good at creating new avenues for trade. It is not surprising that Clinton had the most jobs created on his watch, with Reagan having the most jobs as a Republican president. And, Nixon for all his corruption, should be remembered well for opening up relationships with China. Trump should get credit for renewing a refined NAFTA agreement, but he hindered his efforts to compete with China when he pulled the US out of the Trans Pacific Partnership which went on without us and backtracking on deals with Cuba, Iran and the Paris Climate Change Accord, has placed the US at odds with others.

Global trade builds revenue. A country cannot shrink to greatness. And, what we are seeing today is other countries not wanting the hassles of dealing with the US as much as before. And, this is before the mishandling of the pandemic that has left the world aghast.

The primary focus on the economy is not just make believe

The coronavirus is a tough one. It may be less deadly than other illnesses, but it is still killing many and impacting others. And, while we have heard the young need to worry the least, the numbers indicate that people the ages of 54 and below are the largest group being hospitalized. One ER nurse said it surprised her how many younger folks were being stricken.

Yet, deal with it we must or it will overwhelm our healthcare providers. We simply do not have an abundance of free beds. We are still awaiting a workable vaccine. So, we must do what is asked of us to control its spread. We must “flatten the curve” of the virus.

But, this social distancing has caused our global and US economy to understandably grind to a halt. In essence, our economy is simple – people who need things buy them from people who have them to distribute and so on down the supply line. When people stop buying things, the supply chain grinds to a halt.

Focusing on the economy, people impacted by the virus and the companies that have had to furlough them, is not unwise. But, it cannot be the primary focus. It is an important one, but keeping people safe is the key. Getting them money to buy groceries, medicines and non-durable products is important. Making sure they have a job to return to is important.

But, we cannot lose sight of what this virus can and could do. One of my concerns that precedes the current tenure of the incumbent president, is the significant majority of his decisions can be traceable back to his fragile and large ego. He cannot tolerate looking poorly or accepting blame for anything. So, that has always been his top-of-mind mission. It is also one not conducive to solving problems.

Since the president thrives off the stock market (his main barometer for the economy) success, the fact it has tanked due to the virus reflects poorly on him. It matters not that any president does not have a huge impact on the economy good or bad, but as Warren Buffett said of the current president, “If he is going to take the credit for the rise, he must take blame when it falls.”

So, many fear that decisions will be made that prop up the stock market, but put us at risk. And, until people start buying more things, taking more trips, etc., the economy will still lag. Yes, the economy is important, but let’s focus on it from a people impacted lens. The article below is telling.

https://www.msn.com/en-us/news/opinion/trump-is-in-a-frenzy-over-the-economy—not-so-much-the-virus/ar-BB11Bkcf?ocid=spartanntp

The Fed needs to act independently

The Federal Reserve was set up to be a nonpartisan governing board over the money supply in the US, which impacts the economy. The president would only appoint members for Senate vetting when terms expired. The Fed is supposed to be independent from pressures from the White House.

Yet, the bull-in-the-china shop president wreaks havoc over what is supposed to be done. He acts regally in what is supposed to be a democracy with rules of governance. The Fed should not succumb to any president, but especially this one, who routinely places his self-interests above the country’s. And, that does not lead to good governance.

Presidents have little impact on the economy, only providing some headwinds and tailwinds. This president has done a little bit of both. But, he championed himself as a superior dealmaker and business person when campaigning and since elected. Yes, he has had success, but given his starting point, some financial people think he should be wealthier than he is.

He touts a $1 million loan from his father, but that is fable. An in-depth study was reported by The New York Times in the fall of 2018, that Trump’s father transferred tax free over $400 million to his son before he died. That is well north of a $1 million loan. Plus, there are Trump’s six corporate bankruptcies on failed projects. That caused US banks to stop lending to him, so he went to Deutsche Bank for money. But, there have been other failed investments – airlines, mortgage company, etc.

Trump has eagerly patted himself on the back about the economy. But, the economy was just over 7 years of economic growth and the stock market had more than doubled under his predecessor when he took office. But, as with Trump, Obama should not get too much credit for the economy either. He provided mostly tailwinds and a few headwinds. What is revealed by the stock market fall off due to global softening, falling oil prices and the coronavirus, is the president does not have much to do with the stock market. As Warren Buffett once said, if the president is going to take credit for the stock market increase, then he must take the blame for the fall.

So, the Fed would do well to ignore the president. Yes, the president is entitled to his opinion, but what has been shown over his history, is maybe his financial advice is not as sound as he (or his followers) think it is. My concerns are we are using tools that should be reserved for even tougher times. The stock and bond markets seem to be more jittery with moves like this. And, when people are staying home, traveling less and eating in, reducing interest rates may not be creating a needed salve, if less spending is occurring.

Yet, as noted earlier, what bothers me most is the president is interested in his own optics, not fixing a problem. He has and wants to trade short term gain for his benefit, at the expense of future problems. He did this with the debt and deficit and he has and will do it with the Fed. They need to tell the president, thanks but no thanks.

Bank CEO blasts peers for not seeing inequality (per The Charlotte Observer)

With more interest and advocacy for the disenfranchised in our midst, an article by Austin Weinstein of The Charlotte Observer caught my this week called “Bank CEO blasts peers for not seeing inequality. A link to the article is below.

I have written often about the “haves and have-nots” in America. The disparity has been worsening for years and it now matters more to whom and where you were born than merit. Sadly, the declining middle class and growing poverty problem has been addressed by more trickle down economics and attacks on benefits to help people in need.

Per The Charlotte Observer:

“Kelly King, the CEO of Truist — America’s sixth largest bank — issued an exhortation to the economic elite of North Carolina and the country: We are blind to the difficult lives of many in the U.S. and must work to resolve the country’s educational and economic divides, or risk the consequences.

‘We see what happens when we have this giant divide between the haves and the have-nots,’ King said to bankers and executives gathered in Durham for an annual economic forecast hosted by the North Carolina Chamber and North Carolina Bankers Association. ‘If we have this scenario where people lose hope, they have no sense of opportunity, they’re dysfunctional. They get mad, they get on drugs, they get guns, they start shooting.’…

While there are many origins to America’s widespread educational and economic inequality, King pointed to the perceived failures of American public school system as one of the paramount reasons for the divides in the country. If people can’t read or do simple math, he said, they are effectively left out of much of the U.S. economy.

‘We are cheating our kids and our grandkids of a future,’ King said. ‘They will not have the same kind of life we have had,” he warned, if the current course of the country isn’t changed.'”

We must invest in our children and our communities. Asset Based Community Development means repurposing depleted assets or restoring them to original form. A neighborhood school is more than a place of seven hour education. It offers a community meeting place for after-school programs, neighborhood meetings, civic meetings, exercise classes, etc. Inviting schools, rewarded teachers, safety mind-sets, etc. will reinforce better education for our kids.

King’s admonition speaks to the crisis it is. The US disparity has widened at the same time our educational ranks in science and math have fallen. If we don’t invest in our kids, we really don’t have the standing to speak of American exceptionalism. It is hard to be a shining light on a hill if we fall from the top.

Read more here: https://www.charlotteobserver.com/news/business/banking/article239048138.html#storylink=cpy

We cannot solve US debt by charging more on our national VISA

The math problem is large. We have $23 trillion plus in US debt today, per the US debt clock. It is projected to increase by $10 trillion by 2027 FYE (September 30, 2027) before the tax cut in December, 2017. The tax cut added $1.5 trillion to the debt projection over ten years. A later budget change added $500 billion over ten years.

The budget bill just signed last week will add $500 billion over ten years per the Committee for a Responsible Federal Budget, yet they note all laws passed in 2019 have added $2.2 trillion over ten years. That would make it at least $37 trillion. So, a good working number is $37 trillion sans any action by the end of 2029 FYE.

Tax increases will not solve this problem, nor will spending cuts. Both are needed. Once the interest cost approaches the defense cost, we have a serious problem. At $37 trillion in debt, the interest cost to maintain it inches closer. So, it truly matters not what Democrats or Republicans like, some poor souls in charge will take the heat for trying to solve a problem passed along by poor financial stewards. It will be akin to the Greek people not liking the EU or responsible Greek leaders when they said Greece was in debt trouble.

What frustrates me is the GOP Freedom Caucus who got elected on debt reduction is the biggest bunch of hypocrites. They screamed bloody murder when the debt was $8 trillion, then $13 trillion, but are passing debt increases misleading the public that the tax reduction would pay for itself – no tax bill has ever done that and this one did not. But, Dems are not without fault. What should scare us all, we should be reducing the deficit with a pretty good economy, yet the deficit is growing and will exceed $1 trillion next FYE. What happens when the economic growth softens even more than it has over the past year.

So, my plea to all is dust off the Simpson-Bowles Deficit Reduction Plan and do even more. I am trying to tell folks what they need to hear, not what they want to hear. If I was a young person, I would be screaming bloody murder at inaction on climate change, guns and debt. Debt is not as frightening as guns and climate change, but it is a huge problem.

“Before his death, legendary Fed chief Paul Volcker issued one last warning to the US”

The following reprint of an article is worth the quick read. It is from a very reputable source, retired Federal Reserve chair Paul Volcker, who passed away this week. An article with the above title was written bu Joseph Zeballos-Roig in Business Insider about Paul Volcker and a caution he left for us all. It speaks volumes.

Per Zeballos-Roig, “Volcker condemned President Trump’s efforts – without naming him – to pressure the Federal Reserve to lower interest rates in an attempt to juice US economic growth, already undergoing its longest sustained expansion.

‘Not since just after the second world war have we seen a president so openly seek to dictate policy to the Fed. That is a matter of great concern, given that the central bank is one of our key governmental institutions, carefully designed to be free of purely partisan attacks,’ the former Fed chairman wrote.

Volcker said he trusted the members of the Fed will fend off any attempts to interfere in its monetary policy decisionmaking so it may act ‘free of partisan political purposes.’

Trump has repeatedly assailed Jerome Powell, the current Fed chair, for not cutting rates. Back in August, Trump called Powell an ‘enemy’ of the United States comparable to China, the Washington Post reported.

The former Fed chair painted a very bleak portrait of the nation’s political environment, noting ‘forces’ are rolling back environmental and other protections considered emblematic of American democracy.

‘Increasingly, by design or not, there appears to be a movement to undermine Americans’ faith in our government and its policies and institutions,’ Volcker wrote.

‘We’ve moved well beyond former president Ronald Reagan’s credo that ‘government is the problem,’ with its aim of reversing decades of federal expansion.’

He went on: ‘Today we see something very different and far more sinister. Nihilistic forces are dismantling policies to protect our air, water, and climate. And they seek to discredit the pillars of our democracy: voting rights and fair elections, the rule of law, the free press, the separation of powers, the belief in science, and the concept of truth itself.’

Volcker was best-known for waging a campaign to subdue inflation in the late 1970s and early 1980s as Fed chairman. He later sought to keep regulations in place to oversee the financial industry and became an advocate for financial reform.

The former Fed leader later chaired Obama’s Council of Economic Advisory Board after the banking system teetered on the edge of total collapse in 2008.”

May the Force be with you – don’t click

Black Friday turned into hefty cyber sales. Today, is officially Cyber Monday, so the expectation is high for even more sales. However, a key financial lesson is if you don’t buy, you save even more money. So, use the Force to not click.

I realize I am not telling anyone anything new. But. people want your money, so they will make it easier to get it. I think there has been a trend toward more personal purchases from holiday gifts. It is clear the car commercials have gone down that path to lower year-end inventory. If you must buy a car, your best savings will be at the end of December not the beginnning.

Yet, resist the urge as much as you can. I tell people you can go broke saving 1/2 off if it leads to more purchases. The other reason to resist is the hyper-commercialization of Christmas. This is a key reason I am frustrated with the infringement on my favorite holiday of Thanksgiving.

So, use the Force. Resist the urge. Don’t click on Submit or click far less. Black Friday and Cyber Monday lead to Red Debt.

Per Reuters – More foreign firms halted U.S. deals amid Trump administration scrutiny: report

Last week, Alexandra Alper of Reuters Financial News shared findings within a concerning report. The “report released by the Committee on Foreign Investment in the United States (CFIUS), shows that foreign companies abandoned roughly 14 percent of U.S. investments that were investigated by CFIUS in 2017 ‘in light of CFIUS-related national security concerns.’ The percentage in 2018 was 11 percent.

Those figures were sharply up from the period immediately before Trump took office. About 4 or 5 percent of such transactions probed by the committee were dropped annually from 2014 to 2016, the report showed. The Committee, led by the Treasury Department, reviews foreign investment in the United States for national security issues.”

I have raised this issue previously – when any entity makes it more burdensome to deal with, other entities will explore other options. The tariff wars are causing suppliers and customers to find other avenues. John Deere sales are down in the US, but up in South America as more agricultural products are being bought there.

On foreign investment, if we have companies jump through too many hoops, they will take their money elsewhere. These are headwinds to our economy and our growth has been softening.

Coupled with overall global softening, it should give us concern.

Medicaid expansion is needed for NC says this retired benefits professional

As North Carolina continues its stalemate on Medicaid expansion, it might be interesting to heed the words of former Ohio Republican governor John Kasich. When Ohio moved forward with the Medicaid expansion, he called it a “no brainer.”

Now why would he say that? Kasich noted Medicaid expansion would not only help people, it would bring $13 billion to his state over several years. George Washington University did a study that said Medicaid expansion would help a state’s economy, help a state’s rural hospitals and help people. We should also remember NC Republican Mayor Adam O’Neal of Belhaven walking to Washington seeking the expansion of Medicaid after his colleagues in Raleigh turned him down as he tried to save his town’s hospital.

Rather than offer stale arguments, it would be nice if the Senate and House leaders figure out a way to get this done. Let me add the voices of The Commonwealth Fund, RAND Corporation and Economic Policy Institute that echo the results of the GWU study. NC is already in the minority on this. Please let’s find a way to help people.

Let me close with a truism about health coverage to think about. Those with coverage will see doctors earlier and will have access to prescription drugs to avoid future train wrecks. Preventive care and health maintenance are better paths forward for people and healthcare financing.

Note: The author of this post is a retired benefits professional who is a former actuary, former benefits consultant and benefits manager for a Fortune 500 company

Perception matters more than reality to the US president

Our friend Jill has written an excellent post on “Trumponomics 101” (a link is provided below). What I opined in a comment is Trump is more about perception than reality. Here are a few examples:

– he beats his chest on his trade and tariff decisions, but they have dampened the global economy, of which we are a key part, as well as certain US industries.

– he left the Trans Pacific Partnership which was designed to compete better with China on trade (note the other ten countries proceeded without us).

– he claims being tough on immigration and terror, but his travel ban and reduction in legal immigration are dilutive to our economy (note legal immigration has fallen as well).

– he touts his tax law, but it borrowed from our future to make a pretty good economy a little better for eighteen months or so.

Focusing on another tax cut to lessen the impact of the slowing growth is malfeasance, as was the first tax cut in December, 2017. And, lowering interest rates won’t push a lot of investment as businesses are concerned by the chaos caused by Trump.

So, Trump is worried about the market and economy retrenching from its growth not recognizing the headwinds he created. Note, for brevity I did not speak to other headwinds – not investing more in renewables, infrastructure, healthcare, etc.

Yet, the biggest perception he painted to his followers before the election was the US economy was in trouble citing the unemployment rate at 30%, then 40% then 42%. The reality is the unemployment rate was beneath 5% and we were in an economic growth period of 90 consecutive months (7 1/2 years) which continues to this day. He convinced his followers that he alone helped turn the economy around, which was doing pretty good.

Reality does matter. And, you won’t get a lot of that from Trump, who had a faux reality TV show.

Trumponomics 101