Tag Archives: Socialism

Illinois Considering Taxing IRA’s To Supplement State Employee Pensions

Is Illinois’ desire to tax (steal from) private retirement accounts to supplement state employee pension promises a Modern Monetary Theory experiment to measure voter acceptance? If this happens and voters roll over, how long until other states like NY, NJ, CA and others rush in to raid their residents self-funded retirement accounts? How about couching a Federal bill along the same lines because don’t Federal retirees deserve the most they can get from wherever they can get it too?

If you can’t touch it, you don’t own it. If you don’t believe this simple fact, just wait.

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Société Générale’s Albert Edwards: Investors Should Brace For A World Of Negative Rates, 15% Budget Deficits And Helicopter Money

Eariler this week, when the San Fran Fed published a paper that suggested that the recovery would have been stronger if only the Fed had cut rates to negative, we proposed that this is nothing more than a trial balloon for the next recession/depression, one in which the Federal Reserve will seek affirmative “empirical evidence” that greenlights this unprecedented NIRPy step (in addition to QE of course).

Today, in his latest note to clients after returning from a 2 week vacation in Jamaica, SocGen’s Albert Edwards picks up on this point and cranks it up to 11 writing that “as central banks thrash around for new tools, I have long thought the next recession would trigger the adoption of helicopter money and deeply negative Fed Funds. Clients have been sceptical of the latter because of the negative impact on bank margins, but now I am more convinced than ever that we will see negative Fed Funds.”

Predictably, Edwards takes aim at the SF Fed “analysis”, writing that “just because the San Fran Fed has published this paper doesn’t mean the Washington Fed will adopt the policy in the next recession, but with this economic cycle clearly now in its final act, one can sense that a number of trial balloons are being floated on what the Fed might do in the next recession. This is just one of them.

More to the point, Edwards also focuses on the recent resurgence of interest in Modern-Money Theory, i.e., MMT, or government-mandated helicopter money, which is predictably a “theory” espoused by socialists everywhere most notably Bernie Sanders and his economic advisors…

https://www.zerohedge.com/s3/files/inline-images/MMT%20spike.jpg?itok=_k1YiwHo

… and writes that “many of the more radical Democrats in the US seem to be adopting the idea and since I expect the US budget deficit to soar to 15% of GDP in the next recession, the ideas of MMT will surely become even more popular.” Edwards is convinced that “the Fed and other central banks will be desperate enough to adopt outright monetisation (aka helicopter money, that is to say the direct central bank financing of public sector deficits) in the next recession. And as that will coincide with public sector deficits in the mid teens, we will be conducting a live MMT experiment. Welcome to a brave new world!”

As validation of his (not all that controversial) view, Edwards believes that in recent weeks we have seen the Fed “take a large step away from Quantitative Easing (QE) and towards outright monetisation.”

When QE was introduced the central bankers vehemently denied that QE was monetisation as the latter sounded too scary. Their argument was QE is different from outright monetisation because they (the central banks) were absolutely going to unwind QE as soon as practical (aka Quantitative Tightening or QT – remember how they told us it was going to be so easy with minimal consequences!). And as economic agents knew QE would be reversed and did not regard it permanent, QE could not be equated to monetisation. My own view has always been that until QE is actually fully reversed, it is to all intents and purposes the equivalent of outright monetisation, and so the central banks are merely splitting hairs.

Naturally, Powell’s recent commentary which switched off the balance sheet unwind “autopilot” caught Edwards’ attention, and the recent trial balloons by the WSJ – and the Fed – hinting at the like likely abandonment of QT, just as it was getting started- removes any doubt in Edwards’ mind “that what we have seen since 2008 is in fact outright monetization” and asks rhetorically, “does anyone really think these bloated central bank balance sheets will ever be reduced before the next recession brings yet another tidal wave of QE?”

The answer: of course not, especially if it only took a 20% drop in stocks for the Fed to immediately reverse its “autopilot” course.

Which brings us to the topic of the next inevitable recession, in which Edwards expects our “all-knowing” central bankers will pull any and every policy lever they have to hand and that in my view includes the Fed pursuing deeply negative interest rates.”

Here the SocGen strategist concedes that the reason most clients reject this outcome is “the destructive impact negative interest rates would have on bank margins, which might exacerbate any credit crunch. Hence policy makers would therefore shy away from negative rates.”

Needless to say, Edwards himself disagrees, reasoning that unlike in the 2008 Global Financial Crisis he does not expect banks to be at the apex of the next recession, perhaps as a result of an ocean of liquidity thanks to the $1.5 trillion in excess reserves currently in the system.

I have long said that in the next recession the main toxic asset to avoid will be US corporate bonds – most especially Investment Grade. In the next recession, banks will inevitably lose money if commercial and residential property prices decline and corporate and consumer loans default – although we have been reassured that banks are better capitalised than before and that they have been vigorously stress-tested.

But more importantly due to the Volker Rule and other macro-prudent regulations, banks do not sit on mountains of corporate and mortgage paper as they did in 2007. It is pension funds, insurance companies – and via ETFs, mom and pop – who bought the avalanche of US corporate bonds issued since the last GFC.

So the good news, according to the grumpy SocGen permabear, is that banks are unlikely to be a systemic risk as the next crisis drives a rapid unravelling of the global economy, like they were in 2008 (sarcastically, he then notes that he is “not known for seeing a cup half full!”).

That is why he is confident that central bankers will not care if bank profits are squeezed as interest rates are pushed deep into negative territory – including the sort of adverse market reaction towards the banking sector we saw when Japan cut interest rates from +0.1% to -0.1% in early 2016 (Japanese banks fell around 25% relative to the market as did the eurozone banks as the ECB pushed interest rates to minus 0.4%, see charts below).

https://www.zerohedge.com/s3/files/inline-images/banks%20in%20NIRP%20edwards.jpg?itok=BEiUYdwl

Addressing just this hot topic, moments ago Dallas Fed president Robert Kaplan said that he is “skeptic about whether that’s a viable option” although he quickly added that the central bank should “not take any option off the table” even as he admitted that deploying negative interest rates in the U.S. could cause problems for the financial system.

Perhaps that’s some advice the Fed could have given the ECB, SNB and BOJ before they launched NIRP, but we digress, especially since Edwards is ultimately right, and with fears about banks off the table, banks will be driven by just one prerogative (the same one that Nomura’s Charlie McElligott hinted at earlier) – doing everything to preserve inflation, and avoid deflation, to wit:

The primary central bank objective will be to avoid outright deflation. The inability of the ECB, in particular, to escape the gravitational pull of zero core inflation, despite its continual predictions of success, has been truly shocking

https://www.zerohedge.com/s3/files/inline-images/ecb%20forecasting.jpg?itok=07iNe5Mh

However, it is not just the eurozone that risks falling into outright deflation in the next recession: according to Edwards, the US is also vulnerable, and while core CPI and core PCE have remained relatively healthy in recent months, and roughly at the
Fed’s 2% target, this has been mostly a function of strong rents and Owner Equivalent Rent, i.e. housing prices, which dominate the core CPI calculation.

However, the risk is that US rent inflation “tends to broadly follow the fortunes of the housing market overall and there is no doubt that the US housing market has begun to unravel quickly over the past six months. New home prices are now actually falling yoy (even with a heavy 9-month moving average, see right-hand chart below). The last two occasions this happened were Nov 1990 and Dec 2007 when the US economy had entered recession! Rent inflation slumped shortly afterwards. In the next recession, the reality of outright deflation will dominate investors’ fears.

https://www.zerohedge.com/s3/files/inline-images/US%20CPI%20rent.jpg?itok=Ifk7b1pS

Meanwhile, in addition to inflation, central banks will be keeping a close eye on the dollar (recall we noted earlier that only two factors matter for the fate of the current rally: inflation and the dollar).

The reason for that, according to Edwards, is that one key policy lesson from Japan in the 1990s (and the GFC of 2008) when the economy slipped towards outright deflation is that a strong currency must be avoided at all costs as it exacerbated the deflation impulse still further.

Finance 101 dictates that a strong currency means import prices begin to decline and what we found in Japan, was that even where an industry was dominated by domestic Japanese producers, the marginal importer was able to undercut domestic producers and became the price setter for the whole sector. “Economists’ models could just not pick up this behavior and were unable to foresee the strong deflationary pull.”

So while Edwards predicts that the Fed does not want to rush to cut Fed Funds into negative territory, the cost of delaying will be very high if others are doing it (via a strong dollar).

The Fed will be forced to participate as avoiding deflation will be the number 1 priority – not the profitability of the banking sector. Investors should contemplate a brave new world of negative Fed Funds, negative US 10y and 30y bond yields, 15% budget deficits and helicopter money. Sounds ridiculous doesn’t it? What I said in 2006 sounded ridiculous too.

Concluding, as he often does, Edwards says that he hopes he is wrong, but fears that he will be proved right (again… eventually).

Source: ZeroHedge

Shock Survey: 59 Percent Of Americans Support Alexandria Ocasio-Cortez’s Proposal To Raise The Top Tax Rate To 70%

https://i2.wp.com/theeconomiccollapseblog.com/wp-content/uploads/2019/01/Alexandria-Ocasio-Cortez-YouTube-Screenshot-768x432.jpg

Although she has only been in Congress for less than a month, Alexandria Ocasio-Cortez is getting more attention than any other member of the U.S. House of Representatives.  She has been setting social media ablaze with her posts about the inner workings of Congress, the mainstream media is constantly gushing about her, and now she has been tapped to teach her fellow Democrats “how to be good at Twitter”.  She is getting rave reviews for taking on the corrupt establishment in both political parties, but the bad news is that she literally doesn’t know what she is talking about on virtually every single important issue.  She is like a five-year-old kid that has been set free to run wild in a toy store, and her misdirected enthusiasm is bound to get her into all sorts of trouble.

It is a good thing to be idealistic, as long as you have the right ideals

Unfortunately for Ocasio-Cortez, her head has been filled with all sorts of socialist nonsense.  During a recent interview with 60 Minutes, she proposed raising the top income tax rate to “as high as 60 or 70 percent”

“You look at our tax rates back in the ’60s and when you have a progressive tax rate system, your tax rate, let’s say from zero to $75,000, may be 10 percent or 15 percent, etc. But once you get to the tippy-tops —  on your 10 millionth dollar — sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder, you should be contributing more.”

Do you think that anyone is going to want to work hard to earn an extra dollar once their income reaches a level where each extra dollar is being taxed at 70 percent?

The truth is that socialism kills the incentive to work hard, and it is hard work that fuels economic growth.

If somebody works really hard to earn a dollar, it is immoral for somebody else to come in and grab 70 percent of that dollar just because they can.  But an increasing percentage of Americans are fully embracing the idea of “radical wealth redistribution”, and a shocking new poll contains some numbers that are almost too crazy to believe.

According to this new survey, 59 percent of all Americans support raising the highest tax rate to 70 percent

Rep. Alexandria Ocasio-Cortez (D-N.Y.) and her Republican critics have both called her proposal to dramatically increase America’s highest tax rate “radical” but a new poll released Tuesday indicates that a majority of Americans agrees with the idea.

In the latest The Hill-HarrisX survey — conducted Jan. 12 and 13 after the newly elected congresswoman called for the U.S. to raise its highest tax rate to 70 percent — a sizable majority of registered voters, 59 percent, supports the concept.

Even as I write this article, I am still having a hard time wrapping my head around the fact that most Americans want tax rates to be that high.

But this is the reality of the “Robin Hood mentality” that is sweeping the nation.  Most people seem to think that we should “take from the rich” and “give to the poor”, and that even includes a lot of so-called “conservatives”.

In fact, that same survey found that 45 percent of Republicans actually support what Ocasio-Cortez is proposing…

Increasing the highest tax bracket to 70 percent garners a surprising amount of support among Republican voters. In the Hill-HarrisX poll, 45 percent of GOP voters say they favor it while 55 percent are opposed to it.

Independent voters who were contacted backed the tax idea by a 60 to 40 percent margin while Democratic ones favored it, 71 percent to 29 percent.

What in the world has happened to us?

We have already traveled very far down the road toward socialism, and now key leaders on the left such as Ocasio-Cortez want to take us the rest of the way.

This is why we need a new generation of leaders in America that are willing to do more than just get elected to office.  We need educators that are willing to work hard to win the battle for hearts and minds.  We need men and women of character that will be able to communicate why the values that America was founded upon are so great and why we need to return to them.  And we need fighters that have the courage to intellectually contend for the future of our nation while there is still time to do so.

Even though virtually everything that she believes is wrong, at least Alexandria Ocasio-Cortez has enough passion to stand up for what she believes.  That is more than can be said for the soy latte drinking wimps on the right that never want to offend anyone so that they can extend their political careers for as long as possible.

At this point the left is rapidly taking control of the national conversation, and Rasmussen just released a national survey that shows that if Ocasio-Cortez ran for president in 2020 she would almost have as much support as Trump

A new Rasmussen Reports national telephone and online survey finds that, if the 2020 presidential race was between Trump and Ocasio-Cortez, 43% of Likely U.S. Voters would vote for Trump, while 40% would vote for Ocasio-Cortez. A sizable 17% are undecided.

Fortunately, Ocasio-Cortez is not old enough to run for president yet.

But someday she will be

We are in a tremendous amount of trouble as a nation, and we are rapidly running out of time to do anything about it.

Source: by Michael Snyder | Economic Collapse