The Dow was up a good bit yesterday and Ure’s truly blew out of his latest long (bet the market would go up) position. We may get one – or several – more good runs prior to an all-time high that leads to a huge recession/depression. Or, we may not. Futures were flat when I checked.
The first thing to consider this morning is the Producer Price Index just released:
“The Producer Price Index for final demand increased 0.6 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.2 percent in December and 0.5 percent in November. (See table A.) On an unadjusted basis, the final demand index climbed 1.6 percent for the 12 months ended January 2017.
In January, over 60 percent of the advance in the final demand index is attributable to a 1.0-percent increase in prices for final demand goods. The index for final demand services moved up 0.3 percent.
Prices for final demand less foods, energy, and trade services rose 0.2 percent in January after
inching up 0.1 percent in December. For the 12 months ended in January, the index for final demand less foods, energy, and trade services climbed 1.6 percent.
Final demand goods: Prices for final demand goods moved up 1.0 percent in January, the largest rise since a 1.0-percent advance in May 2015. Three-fourths of the January increase can be traced to the index for final demand energy, which jumped 4.7 percent. Prices for final demand goods less foods and energy climbed 0.4 percent. The index for final demand foods was unchanged.
Product detail: Over half of the January increase in prices for final demand goods is attributable to the gasoline index, which advanced 12.9 percent. The indexes for pharmaceutical preparations, iron and steel scrap, home heating oil, residential natural gas, and pork also moved higher. In contrast, prices for beef and veal fell 7.2 percent. The indexes for light motor trucks and for candy and nuts also decreased.”
Toss in tomorrow’s Consumer Price Index and life could become interesting. Gold is up on PPI perhaps expecting more inflation to come.
In long wave economics terms, I continue to believe Donald Trump is walking in the path worn by Herbert Hoover.
Hoover, sworn in March 4, 1929 had about 182-days before the stock market hit its all-time high ahead of the Great Depression whose onset was heralded by the Crash just less than three months later. Trumps timeline would be late July. He was sworn in three months earlier.
Hoover was at the leading edge of protectionism. Like Donald Trump, he was a very good communicator who did well with vastly simplified messages. Rich…generous….yep. Echoes there.
He (Hoover) was also outspoken on current events:
“”The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis.”
He managed to say this the day the day after the ‘29 Crash.
“Any lack of confidence in the economic future and the basic strength of business in the United States is simply foolish. Our national capacity for hard work and intelligent cooperation is ample guaranty of the future of the United States.”
This little gem popped out about three weeks after the Crash.
“I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover.”
Almost six months after the Crash, Hoover was still optimistic and in denial.
But the biggest Hoover boondoggle was the Revenue Act of 1929. Which was what?
Come on! What is Trump pushing hard for? What did I tell subscribers recently? Tax Cuts at this time in our economic history are a bad – very, very, very bad – idea.
Over on the www.txhistory.org website we read how:
“On October 21, 1929, Hoover signaled his intention to ask for a tax cut. Treasury Secretary Andrew Mellon told lawmakers that he expected a budget surplus in each of the next two fiscal years. As a result, he suggested, Congress would have ample room to cut taxes. Ways and Means Chair Willis Hawley, R-Ore., responded warmly. “In the past,” he told reporters, “each reduction in taxes has stimulated business and resulted in another surplus the subsequent year.”
My study of the Hoover-Trump Parallels brings along some interesting points.
First, Hoover went for the 1929 cuts in the same mistaken belief that tax cuts are always good. As we explained in detail in last weekend’s Peoplenomics.com report, they are not. In fact, improperly timed, they bring disaster.
While the right-wing radio bloviators sing high praises of the Ronald Reagan tax cuts and cite it as evidence, they universally ignore the true economic background of the time.
- The all-time high of interest rates had passed in 1980-1981.
- Rates were going down and they would through 2016 when viewed over the ultra long-term.
- Reagan was the beneficiary of the Personal Computer Revolution.
He also benefited from huge numbers of women entering the workforce. Remember, Gloria Steinem’s Ms. Magazine had been on the racks for more than a decade and feminism and women in the workforce in general, and in upwardly mobile middle management positions was on the increase.
Reagan was just damn lucky.
As for the famed “Laffer Curve” – a cornerstone of Reaganomics? As Wikipedia notes:
“The Laffer curve postulates that no tax revenue will be raised at the extreme tax rates of 0% and 100% and that there must be at least one rate which maximizes government taxation revenue. The Laffer curve is typically represented as a graph which starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. The shape of the curve is uncertain and disputed.”
And with good reason. Despite what far-right commentators believe, Reagan could have done NOTHING – or actually reduced the federal deficit – and still have enjoyed a thriving economy: Women were now working (beginning to), computers were going mainstream, the ATH of interest rates was past and rates were coming down, and there was the consumer explosion as the “Echo Baby Boom” got consumptive.
Like I said, he was lucky.
This is where the trip wires are for Donald Trump.
In an idealized Replay of Hoover, Trump will replay both the Revenue Act of 1929 (tax cuts) and will install his own version of the Smoot-Hawley Tariff Act. Wiki it:
“By the late 1920s the economy of the United States had made exceptional gains in productivity due to electrification, which was a critical factor in mass production. Horses and mules had been replaced by motorcars, trucks and tractors. One-sixth to one-quarter of farmland previously devoted to feeding horses and mules was freed up, contributing to a surplus in farm produce. Although nominal and real wages had increased, they did not keep up with the productivity gains. As a result the ability to produce exceeded market demand, a condition that was variously termed overproduction and underconsumption. Senator Smoot contended that raising the tariff on imports would alleviate the overproduction problem; however, the US had actually been running a trade account surplus, and although manufactured goods imports were rising, manufactured exports were rising even faster. Food exports had been falling and were in trade account deficit; however the value of food imports were a little over half that of manufactured imports.
As the global economy entered the first stages of the Great Depression in late 1929, the US’s main goal emerged to protect American jobs and farmers from foreign competition. Reed Smoot championed another tariff increase within the US in 1929, which became the Smoot-Hawley Tariff Bill. In his memoirs, Smoot made it abundantly clear:
The world is paying for its ruthless destruction of life and property in the World War and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war.”
With this as the foreplay – and realizing that Hoover was forced into a tax increase in 1932 (Revenue Act of 1932) which arguably turned the potentially short but sharp Depression into a longer-term disaster, we can look at the morning’s headlines and apply a little Plug & Play logic.
TAXES: You’ll remember a few days back the story was Trump promises a major tax announcement in a few weeks. Bingo: Rhyme on the Revenue Act of 1929.
PRTECTIONISM: “EU and others gear up for WTO challenge to US border tax.” This promises to be the biggest deal in the history of the World Trade Organization.
There is some debate about whether the the U.S. can be bound by the WTO. In fact, it’s a hot enough button that the WTO’s website here offers a whole page of rebuttal of the assertion that WTO membership was undemocratically adopted.
But, of course, what else would they say?
There is the matter of the Senate vote in December 1994 – which bound us on a 76 (yes) to 24 (no) margin. Text of the law is here.
Still, that leaves a very interesting legal debate that could go something like this: If the U.S. joined the WTO in 1994, (Jan 1, 1995 to be exact) can Congress bind us to an organization that continuously modifies it’s own rules without voting to conform to the new rules?
In a sense, you can see it as an abdication of power.
Trump is likely to go back to the 1994 state of affairs and toss out anything added to the WTO gameplan since – and this might be his basis of challenge.
So we get back to the point: Given that Trump will likely do a tax break, and that Congress will approve such, then in addition to a trade mess (presently evolving) we can also predict that within three years any tax breaks in the short-term will be reversed – just as the Revenue Act of 1932 reversed the 1929 Act.
So here we sit – ahead of a Greater Depression – with the LBGTQ groups rerunning the Flapper role of sexual liberation as the whole country goes through a serious replay of previous events.
And last but not least, we look at an 88-year economic cycle that may coincide with the blow-up of the nation’s currency. Just like it did in the Depression.
How do you spell “digital confiscation?”
And in Other News
Who cares? Yeah, Flynn’s out for not telling all on his Russia talks.
And yes, the next 10-days will see another 4-inches of rain at the Oroville, California dam.
But compared to the apparent reality of the firming of our Replaying 1929 approach, those items are far less worrisome and don’t server much headspace.
Prepping, though? Oh yeah…