Hysteresis In The C-Suite—-Why The GOP Tax Bill Won’t Stimulate “Growth” (Part 3)

Yesterday (Part 2) we documented the vast difference between the Reagan Tax Cut of 1981 and the GOP Tax Bill of 2017—-both as to scale and potential to stimulate supply-side growth of output, investment, jobs and earnings.
In a word, the Reagan tax cut averaged 4.0% of GDP over a decade and was predominately focused on supply-side incentives via a 25% marginal rate cut for individuals and a giant business cut. The latter would amount to $300 billion per year at today’s economic scale, and, crucially, was also tightly linked to CapEx via the 10-5-3 depreciation incentive for new plant, equipment and technology purchases.
By contrast, the current GOP Tax Cut is just one-tenth the size (o.4% of GDP) of the Reagan cut over the next decade and has virtually no supply-side incentives at all. The individual income tax cuts are temporary and reflect a Keynesian purpose to put “money in the pockets” of workers via, for instance, doubling the standard deduction and child credit.
At the same time, the heart of the GOP tax cut is a wholly misguided $1.4 trillion 10-year reduction of the corporate tax rate to 21%. But under the deformed monetary and financial conditions of the present, that will actually just put money in the brokerage accounts of the wealthy and Wall Street speculators.

This post was published at David Stockmans Contra Corner on Friday, December 22nd, 2017.

Good Riddance!

CNBC’s Fed fanboy, Steve Liesman, accidentally knocked one out of the park yeserday when he lured Janet Yellen into a quip that will surely go down as the signature insanity of her baleful tenure. Liesman thus queried:
“Every day it seems the stock market goes up triple digits… is it now, or will it soon become a worry for the central bank that valuations are this high?”
After a bit of double talk interspersed with gobbledygook, Yellen uttered the money quote:
”There is nothing flashing red there or possibly even orange,” on asset valuations…
Holy cow!
Surely our soon to be pensioned-off Keynesian School Marm was not thinking about the fact that the S&P 500 stood at 2662 as she spoke, which amounts to 24.9X the $107 per share of earnings posted by America’s leading companies for the LTM period ending in September 2017.

This post was published at David Stockmans Contra Corner on Thursday, December 14th, 2017.

The Chinese Economy’s Fatal Flaws

Dr. Per Bylund’s recently published article poignantly states one of the core problems in the Chinese economy and its the state-manipulated Keynesian foundation. I do agree with his opinion. And if we dig deeper into the exact situation of Chinese economy, we will find that it’s a typical failing of the Keynesian, cronyist system.
By using the perspective of Austrian business cycle theory, lets take a look at China’s real estate industry, which is suffering more and more painfully from artificial credit issued by China’s central bank, the People’s Bank of China (PBC). During the 2008 global economic crisis, China’s central government issued the famous RMB 4 Trillion Stimulus Package Plan (equaling to $586 billion). Since 2009, the Chinese real estate economy has already suffered from three small economic cycles. As it is becoming more difficult for real estate companies to live on artificial prosperity, the duration of every business cycle has become shorter than the previous one. We also see more and more ghost cities because of the economic boom in every sub-economic cycle. There were at least 12 ghost cities founded in 2013, and the number of them jumped to at least 50 in 2017! Bankruptcy is happening more frequently among Chinese real estate enterprises. Since 2016, at least three real estate companies – with a combined debt of at least RMB 763 million – have gone bankrupt. The story of bankruptcy is continuing, with one of the biggest real-estate-driven enterprises, Wanda Group, facing financing problems. If Wanda no longer has access to cheap debt, it might not be able to refinance or roll over all its debt again. If Wanda has to face bankruptcy, it could possibly accelerate an end of the the current Chinese boom.
The data from the Chinese local governments is also not optimistic; their debt levels have reached almost RMB 25 trillion (US$ 4 trillion) at the end of 2014. In 2015, even the PBC admitted in one of its annual reports saying that China’s financial system is facing higher instability and uncertainty.

This post was published at Ludwig von Mises Institute on August 22, 2017.