PPI and the Cowardly George

by

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

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:

Some examples:

“”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.[6]

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…

28 thoughts on “PPI and the Cowardly George”

  1. I like today’s column. It is quite educational! Good work! Makes me wonder if any of Trump’s advisors are as well informed as you are about these particular things…

  2. So in order for our economy to recover we just need to rely on our capacity for hard work and co operation? I don’t know how to tell you this, but on that basis alone, the US is totally fracked. I’m almost sixty and I don’t know anyone younger than I am that is capable of sustained hard or even consistent work, I am surrounded by whiners and complainers ( maybe it’s the blue state I’m in, they are all rich or free lunchers)as to our ability to work together, dream on sweet prince. I’ve never seen the people so polarized in my life. Really BLM folks calling for KILLING white people. BLACK lives matter, but white lives don’t? Don’t even get me started… abra

    • I am 57 and I can pull a 38 hour shift to get the job done with minimal down time afterwards, that’s a day and a half days without sleep, coffee or drugs. It is called work ethic, and determination and persistence. It is very sad to see a generation growing up without exercising their multiple spiritual, physical, mental, and emotional character building muscles. But you know the saying, when the going gets tough, the tough get going. They’ll move it to eat.

    • It’s very simple. The USA is not coming back. The view from Ecuador says civil war, then the breakup of the USA to get out from the unpayable federal debt. Then economic colonization of the USA by Chinese and other monied interests. Stability comes when USA wages equals Chinese wages. Prison labor, currently around 30 cents per hour, will be a factor in the USA becoming internationally competitive again. Service industries, now about 70% of the USA economy will mostly disappear. Those of you who are not part of the economy actually producing physical goods need to consider yourself simply too small to save. If you want to know how it goes, refer to Argentina in the 1990’s, or Venezuela today where at least 30% of the population has foraged the trash for food, and pets and zoo animals have long since disappeared into the food supply. Or perhaps Greece or Portugal where amateur women today are prostituting themselves for $5 in order to eat.

  3. So, Chicken George is ‘gone with the wind’ in his long stock positions. I think it’s a good time for extreme caution. It’s hard to crawl up to the edge of the cliff while fear increases, as the volatility index is showing. I keep thinking we are close to the top but the market pundits keep dangling hope and optimism to entice a few more skeptics into capitulation. Don’t miss the coming wave! Hard to buy low and sell high at these levels.
    Your contention that Reagan was lucky omits one factor, he was a charismatic speaker with an uncanny ability to communicate with the common man. I’m trying to decide how that squares with the current resident of 1600 Pennsylvania Avenue. In some respects there are parallels, but the difference in levels of articulation is ‘tremendous’.
    However, the actual economic impact of advanced industries in the eighties was relatively small in comparison to 90’s and beyond. I think ‘lucky’ might describe a confluence of positive factors that were multiplied by public optimism and unwavering leadership.

  4. After living half of my life worshiping at the feet of Reganomics, it grates a little to read any disparaging words directed at Ranauldus Magnus. Lafler is settled science. You should be prosecuted for denying it.

  5. “We may get one – or several – more good runs prior to an all-time high that leads to a huge recession/depression. ”

    I had bet for years that it would start in march.. if it started on march 15 then I would have hit it on the head.. since that was my first prediction.. that I expanded from march to the fall of 2017.. I figured we would be deep in a war to since war makes money.. and still think that would have been how it played out if Hillary had gotten into office.. but Trump is there and he is working night and day to turn the titanic USA away from the iceberg .. depending on whether or not congress stops his progress he might just succeed.. I had one person give me guff the other day because the deficit will be growing.. I answered.. have you ever heard of compounding interest .. just imagine what the compounding interest on the national debt is.. it is going to double no matter who is in office.

    • Me,too, I saw Easter time, sometimes that falls in March sometimes in April, but China and Russia and other trading partners are going to drop the dollar as the world reserve currency.

  6. Karma applies to groups as well as individuals, hence, we, the USA populace group, are replaying 1929. Karma is a teaching tool used by Universe/Source to ensure we learn our lessons. If we don’t pass the first time, the lesson repeats with greater urgency and pain so as to get our attention and perhaps make a different decision. IMO each individual can have a unique experience within the group lesson, so be good to one another, prepare and trust that you may walk through the mine field unscathed.

    • Ah huh, tell that to the hundreds of millions killed all over the world since the year dot. Recycled schoolhouse.

  7. Hey George,

    Considering you talk on worldview, who are some people to look up on how to survive and thrive through the next great depression? I figure looking at the past and applying a modern version of their tactics would help… I may be wrong but its worth a shot as what I see coming, I am not sure I can prepare enough for what is coming and I don’t want the people I care about starving but I am scared it will happen.

    • Ok, sorry to break it to ya, but you haven’t done your homework. You get a “D” for effort. Get busy reading this site!!!

    • Hello ‘MC’, I do not any names for you.
      What I will say, ” To help your loved ones you need to start by preparing yourself”.

      Ensure you are acquiring/improving a ‘hands on’ skill daily.
      SKILL=carpentry, plumbing, farming, sewing, welding, etc. Even fishing will help support others. The ability to can/dry foods is an important skill too.

      Get out an find people with the skills you want to develop. With the right approach many would be willing to help start you off in learning that skill.
      Think Basics= Food…Water…Shelter…Heat

      It is important to ensure your loved ones come together as a strong group. A group with shared responsibilities/skills is a wonderful thing.

      Do not let your fear hold you back. Your love of others will be your energizing strength. I know you will succeed!!!

      p.s. Come here everyday for G.U.s ideas he is living a life of continued learning.
      Check out the survivalblog website.
      Check out the backdoorsurvival website
      They have valuable archives.

      {mm}

  9. I really like the concept that tax cuts have different effects at different points in the economic cycles, and it is true that Reagan inherited a flushed out economy ready to grow, but crikey, they doubled revenues in three years with the 1986 tax reform act. The Dem. congress just raised sending more than that, and Reagan let them.

    What we need, imho, is something like the ’86 act again. Virtually all deductions were eliminated, other than home mortgage deductions, so economic choices became closer to market choices rather than micromanaged, political ones. And no prosperous country had a simpler system, so here was the best business climate. 30 years later, we are back in the social engineering/corporate lobbyist morass of the ’70s. Probably even worse.

    For decades, I have discussed the regulatory and tax costs of building a factory here, with my business clients. At the end of 30 minutes of merely describing the steps they will have to take to build and staff a small factory, from building permits to HR to environmental impact to property taxes, sales taxes, income taxes, professional fees, and dozens of other hands sticking out, demanding a share of the cut, I conclude by saying “Or, you may have some contacts in Asia you could phone today, and have finished product here in a month.”

    Guess what they choose?

    Then we have the insane double taxation of dividends, which used to form the bedrock of retirement income. If the corporate management just keeps the dividends for themselves, disguised as stock options, and grows the company in whatever way looks good to the market, including simply buying other companies, investors pay only capital gains, rather than corporate income taxes, followed by capital gains

    You hear no complaints from bloated management types about this, and collectivists love the “fairness”. But it is misguided class envy to make management super rich, while squeezing pensioners and small investors with a double tax, more than twice what the management pays. Sometimes I wonder how few people noticed that, during the Bush/Clinton era, corporations changed from an income and asset value vehicle for the middle and upper classes, to a rigged casino for the tiniest fraction of the 1% and their minions?

    How many corporate jets would be flying the super rich to tropical paradises, deducting the costs from taxable income, if that was not deductible, yet shareholder dividends were taxed only as capital gains? Ask a shareholder what they think about that. I suggest that if we just taxed sales at a flat rate, and eliminated artificial incentives to fatten the controllers’ wallets, our businesses would return to being efficient and productive, rather than playthings for plutocrats – and China would have a hard time competing.

    • I’m sorry, but the double-taxation canard is just that. It drives me nuts that folks think there is double taxation. Business people made a choice to set up the fiction of a separate limited liability entity. It’s a separate entity and should be taxed the same as you or I. Dividends are new income flowing to different taxpayers and taxes should be paid on that income too. If someone doesn’t want the glory of limited liability then they can forgo the Inc or LLC and not worry about having to pay taxes at the entity level.

      Now you want to talk double-taxation look at all of the taxes we pay on already taxed income – sales, gas, sin and some others that we get deductions for like property taxes, excise, etc. That’s true double-taxation.

      I disagree that cap gains should be taxed at a lower rate than the income of lunch bagging alarm clock waking folks.

  10. I’ve been concerned about Trump’s support of Clinton earlier. Makes me wonder if this wasn’t all planned out. He gets in office as a republican and pushes us to depression giving republicans the blame.

  11. “Tax Cuts at this time in our economic history are a bad – very, very, very bad – idea.”

    that is what sunk carter to.. carters original plan was to raise taxes across the board He believed in a balanced budget and the only way to turn the ship around was to raise taxes and cut spending this upset congress because their highest donors would be affected that they passed a bill that literally tossed the middle class under the bus and lowered the taxes of the wealthy it was coined the millionaire relief act of 78..if we had gone through the adjustment then that was needed we would have all been suffering but nothing like what we will be..that all was followed by the Reagan tax cuts and reaganomics( for me at least was the darkest days of my life.. Life was tough then especially if you were at the bottom end of the barrel in job position..)we all know how Reaganomics worked out.. it didn’t… which leads us to where we are today. A truly slippery slope.. it is in Trumps best interest and all the wealthy Americans that he rebuild our economy and make the dollar strong once again.. can he do it.. phew.. big if there.. I always coined it as the spiral budgeting..starts out slow then you hit the spiral.For a household you have your regular monthly bills.. you make your budget.. then the car breaks down.. you have to fix it or not work.. or the kid gets sick and daycare tells you that they won’t watch them. Now this is really ugly since employers don’t care what your babysitter says.. my employer once told me.. so how does that affect me. you will be here or you are saying you quit.. ..If you have a really good employer you still have a missed day at work.. you have to stay home.. or you have to fix the car.. money out of the budget.. so you readjust your budget.. gas goes up a nickle or a dime.. not much five dollars a week twenty dollars a month you won’t have to pay on regular expenditures.. it dips you deeper into the death spiral budgeting.. you end up taking out a second mortgage or a short term loan.. the bean counters will show you how good it works.. but in reality you go deeper pretty soon you can’t sustain your living expenses you either find a new job or you scrap everything to the bare bones start over your beyond the point of recovery from the death spiral..which ends up in bankruptcy.. the usa is in that right now..I have a grand daughter that is going through death spiraled budgeting right now.. hers started with a sick child and an unsympathetic employer and working in a low wage structured environment…

  12. George, before you go all weepy over Pres. Reagan again, don’t forget that he TRIPLED the National Debt.

    Tripled.

    Wow. That’s a lot of economic stimulus! Mike

  13. If we could just replace the Congress and the Senate with Mr Ure-type people (and do away with politics as usual!!) perhaps we could achieve paradise on earth; However, “down the drain” we’ll go. So much for representative government and capitalism. ;-((

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