Trump officials preach optimism and offer little other good news.
Recessions come about every 8 - 10 years so we are somewhat over due. I mean what goes up does come down. The only question usually is how deep will it be and how long will it last?
Now Bush and crew minimized the 2001 recession with a big tax cut which drove a huge increase in the national debt when the consequences of all that optimism caught up with us in 2008. There is some hope that a 2020 recession may not be too deep due to the Trump tax cut, but the consequences to the National Debt will be huge due to his excessive spending.
The big question is did people learn from the 2008 Recession and save for the next rainy day?
Of course Trump wants blame others for his excessive spending, erratic policies, his trade wars, normal market volatility, etc. And unfortunately his brain washed True Believers will probably believe him. This weekend a couple of them were praising him for the tax cut he signed, and blaming others for the spending increases he signed. It was so surreal and aggravating !!!! He is the POTUS and owns the good and the bad !!!
Recessions come about every 8 - 10 years so we are somewhat over due. I mean what goes up does come down. The only question usually is how deep will it be and how long will it last?
Now Bush and crew minimized the 2001 recession with a big tax cut which drove a huge increase in the national debt when the consequences of all that optimism caught up with us in 2008. There is some hope that a 2020 recession may not be too deep due to the Trump tax cut, but the consequences to the National Debt will be huge due to his excessive spending.
The big question is did people learn from the 2008 Recession and save for the next rainy day?
Of course Trump wants blame others for his excessive spending, erratic policies, his trade wars, normal market volatility, etc. And unfortunately his brain washed True Believers will probably believe him. This weekend a couple of them were praising him for the tax cut he signed, and blaming others for the spending increases he signed. It was so surreal and aggravating !!!! He is the POTUS and owns the good and the bad !!!
34 comments:
Trump's demand for lower interest rates, had it come from a conventional politician, would certainly indicate serious concern about a possible slowdown. But I am not sure Trump understands that.
I do not understand why so many people believe that Trump's policies have had some hugely beneficial effect on the economy. The economy was doing well, contrary to his claims during the campaign, before he entered office and that trend has mostly continued. The one major piece of legislation he enacted, the tax cut, seems to have had minimal positive impact on the economy, it's effects largely countered by rising levels of uncertainty. His trade wars aren't helping. Now that a cloud or two is appearing on the horizon, no one seems confident in the ability of the president to create any effective strategy or response to deal with it. In public, his response is to blame everyone besides himself.
--Hiram
Trump blames fake news
Possible Patroll Tax Holiday
Hiram,
I do believe that the tax cut has kept us out of a recession, I mean the government is borrowing ~$1 Trillion more dollars per year so we can keep living high on the hog.
However you are correct that the various trade wars he has started are slowing everything.
I wish he would have gone after China with the assistance of the EU, Japan, etc. Instead he chose to anger them and go it alone.
I do agree with him that China is too dangerous to be given a continued free ride.
The tax cut went to business and business is sitting on the money.
It's the hallmark of Trumps politics to be divisive. As a negotiator, he understands that there is weakness in disunity, so he reflexively seeks to divide those he deals with. In the early days, he simply could not figure out why he couldn't do a trade deal with Merkel, and couldn't figure out why.
As for China, it's like Amazon. I have a trade deficit with Amazon. I buy far more stuff from Amazon, than Amazon buys from me. Is there a solution to this? Is there even a problem? China is a communist country. It is, like Amazon, a single enterprise, like Amazon selling it's products to the world. What is the big problem Trump has with China? It's that like Amazon, it sells products cheaply that people want to buy. It is an effective competitor. Would Americans who like to buy things from China an Amazon be better off if they were made less effective? Do we benefit by imposing taxes on China? Would Americans be better off if we imposed punitive taxes on Amazon? Would all those small and inefficient businesses it put out of business return?
--Hiram
Hiram,
Businesses usually do not sit on cash, it is too expensive.
They did buy back their stock which helps investors and retirees by increasing the stock market values.
If you think Amazon is like China, I think you are very mistaken. Please remember that China is a very nationalistic self focused country, they urgently want to over take the USA as the primary world power.
Where as Amazon still employs lots American citizens, pays lots of taxes, drives down costs to consumers, etc.
And a portion of every dollar we send to China goes to helping China achieve their global dominance goals. I love my Chinese friends, however they truly believe China and its people are the greatest. (ie "society started with China")
They did buy back their stock which helps investors and retirees by increasing the stock market values.
Businesses don't sit on cash so lacking anything better to do, they buy back stock. They do that because they don't want to invest in the business, and that's been the problem with this economy.
I think Amazon is pretty self focused too, and they want to take over the world also. It's surely the case that when we buy stuff from China, we help them achieve their global dominance goals. The difference is that Amazon can't shoot it's shareholders.
--Hiram
What seems to be bothering Trump, et al. is that China is dumping their product into the world economy. By this I mean, China is selling their product too cheaply driving competitors out of business. While I do understand the issue, and it often is regarded as "unfair", it's hard to know what the solution might be. Price competition happens all the time in capitalist economies, and is generally seen as a good thing. Note how Trump deferred his tariffs until after Christmas, evidently on the theory that low Chinese prices are good at the time of year when we buy things, but not at the time of year when we don't.
--Hiram
I often hear complaints that China steals intellectual property. I suppose they do, but that's a different problem from dumping. I have a lot of thoughts about that, but I was most recently struck by a article in the New York Times about what Amazon is doing or at least allowing to be done to the copyrighted works of George Orwell.
https://www.nytimes.com/2019/08/19/technology/amazon-orwell-1984.html?searchResultPosition=1
--Hiram
NYT Amazon / Orwell
Amazon does have a challenge on their hands since they often act more like an intermediary than an actual book store, since they often never own the product.
I think a lot of companies are re-investing also.
My employer has purchased 3 additional businesses and re-organized our China operations since the tax cut occurred. Hopefully that leads to more employees in the USA and in Eden Prairie.
Yes Trump wants to keep the American Consumers happy and the economy booming.
Mostly the business models are unfair because employers in the USA face higher wages, costly regulations, taxes, union head aches, etc that companies in low cost countries do not.
And though many Liberal voters say they value those things, they have no problem paying less to avoid paying for them. :-)
I think a lot of companies are re-investing also.
Somebody is always doing something, but the stock buybacks are what people do instead of investing. With huge tax cuts and massive deficit spending, the economy should be booming, and the fact that it really isn't is what's troubling a lot of people. We seem to be investing huge amounts of money on pushing on a string.
Trump faces the usual problem. He wants to win both sides of a zero sum game. He wants to make our economy less efficient, but he doesn't want to pay what that costs, higher prices, and lower quality product.
--Hiram
As Krugman is pointing out this morning, it's interesting that Trump is now proposing measures which Republicans opposed during the Obama administration when the economic crisis was much more severe.
Trump has been accusing Democrats of rooting for a recession and trying to sabotage the economy. Conscious as a I am of the risks of projection, I can't help thinking about the Obama years when the economy was really in bad shape, Republicans proposed not lowering interest rates which they are doing now, but raising them.
--Hiram
Hiram,
A stock buy back actually is investing. One is investing in their own company.
The economy is pretty much booming. Low unemployment, rising wages, rising GDP, etc... What more do you want from it?
He is definitely not the traditional Republican. :-)
"A stock buy back actually is investing. One is investing in their own company."
No, it isn't. When a company buys its own stock on the open market, it's not paying itself.
"The economy is pretty much booming. Low unemployment, rising wages, rising GDP, etc... What more do you want from it?"
The real question is what did we get for Trump's investment of a couple hundred billion dollars per year. The answer to that is precious little. We recall how Republicans gleefully recounted how Obama's stimulus promises came up short. Well, none of Trump's tax cut promises have come true. The deficit isn't going down, it's going up. We've had one quarter of 4%+ growth, not years of it. In fact, 2018 GDP growth was less than 3%. Filing on a postcard? Nope. Flood of repatriated money? Not yet. Surge in investment? A short burst that has already petered out.
We've blown up the deficit to keep the Obama economy.
A stock buy back actually is investing. One is investing in their own company.
No. When a company buys back it's own stock, it is paying money, not to itself but to someone else. It's out the price it paid. If it resells the stock, than it has the money.
Companies can do different things with the stock they buy. They can retire the shares, or they can use them for business purposes. They can pay them to executives or they can use the shares to to perhaps buy another company.
--Hiram
The benefits of buy backs for the economy and investors.
Economy reverts
The writer of the article doesn't know how stocks work.
--Hiram
Sean,
That assumes that we could have kept the Obama economy with out the tax cuts.
Remember that we should have a had a recession last year.
I am kind of hoping we have one sometime. I have a real itch to replace my 2002 beloved Suburban with a new or newer crew cab pickup since I am now an empty nester.... :-)
And right now even the used ones are outrageously expensive. :-(
The Tax Cuts and Jobs Act, by lowering the corporate tax rate from 35 percent to 21 percent, will cause two things to happen: a lower tax burden on old capital, leading to higher profits on existing investments; and a lower tax burden on new capital, incentivizing businesses to make new investments.
Not relevant to buybacks.
Higher profits on existing investments provide a cash infusion to those businesses, which we expect will, at least in part, be returned to shareholders through stock buybacks.
Some of the largest shareholders and beneficiaries of stock buybacks are institutional investors, such as pension funds for public-sector employees, and other types of retirement funds.
Doesn't make buybacks more attractive.
s of 2017, the top 1,000 retirement funds in the United States had total assets of $10.3 trillion. Public funds, such as those benefiting teachers, police officers, and government workers, held 41 percent of these assets, or $4.25 trillion. Union funds, representing private-sector union employees, held 4 percent, or $0.41 trillion, and miscellaneous funds, such as those benefiting university and hospital workers, held 12 percent, or $1.21 trillion.
So?
Stock buybacks do not displace long-term investment. Rather, stock buybacks can supplement capital investments, as they can help reallocate capital from old, established firms to new and innovative firms.
What they don't do isn't a reason for doing them.
When thinking through how stock buybacks will affect the economy, it is important to remember that it is the final use of money that determines the economic impact, not the initial.
To the extent that means anything, it's wrong.
--Hiram
At this point, it probably would have been better to have had the recession last year than doing a bunch of ineffective stimulus that took away the deficit headroom we're going to need to stimulate the economy when the recession finally does hit. Because at this rate, we're going to be pushing $2B deficits when the recession does come.
Hiram,
That whole piece is about buy backs. When the company pays to someone for their stock, that individual has money to re-invest (enable other companies to grow) or spend (stimulate economy).
It seems pretty correct to me.
Sean,
The scary thought is that I think you meant $2T deficits. :-(
Let's hope consumers stay optimistic and keep spending.
That whole piece is about buy backs. When the company pays to someone for their stock, that individual has money to re-invest (enable other companies to grow) or spend (stimulate economy)
When you buy a share of stock, just about in every instance the money goes to some private individual who is selling his share to you. The company doesn't benefit from the transaction.
The idea behind buybacks is to reduce the number of outstanding shares while keeping
earnings are constant. This, in theory, lowers the price to earnings multiple which means in terms of earnings, each share is more valuable which, it is hoped, increases it's price. As a fundamentalist in these matters, I regard this transaction as illusory, a matter of fiddling with earnings to make them look better in ways that don't improve the business. Me and people like me, are skeptical when we read about stock buybacks in the news. One thing a buyback indicates is that the company doing it has run out of ideas for using the money it earns, not in itself, a bullish signal.
--Hiram
The stock market is what you hear about in the news, but in economic terms, it isn't that big a deal. The bond markets are vastly largely and far more central to the operations of businesses. Once a company sells a share of it's stock, it belongs to someone else and the company isn't directly affected by what happens to it. The company would be concerned if it were selling shares to raise money for business operations, but that is actually pretty rare. But companies are constantly borrowing money and paying it back, so interest rates matter a lot.
--Hiram
Yes the money does go to another individual or fund.
Then that individual or fund has cash that it did not have before the transaction.
Then they will either spend or invest it elsewhere. (maybe in bonds)
And reducing the number of shares outstanding can increase the stock price, which is appreciated by folks like me.
You are correct that buy backs and dividends are signs that the company has more cash than is wise given the market, their growth ideas, etc. And thank heavens they invest in themselves or pay out to their owners rather than squandering it on "de-worsification". :-)
The Hill Trump Flips and Flops
Then that individual or fund has cash that it did not have before the transaction.
If selling stocks were good for the economy, the stock market would crash. If buying back stock makes sense, it means that company management thinks their stock is undervalued by the market. That's fine, but remember they were hired to make widgets, not to be wizards of Wall Street.
The purpose of buy backs is to raise stock prices. But I assure you, my skepticism about whether earnings fiddling should be a positive for stock prices isn't original with me, and in fact pretty widely shared. I think corporate managements should be focused on business, not stock speculation.
Contrary to Mitt Romney's assertion, corporations are not people, they are legal fictions. They don't invent things, they don't make thing, and they don't buy or sell things. When a corporation uses money that could be used by people to build the business to buy stock instead, something that used to be so much paper but now not even that, which then goes away, they are disinvesting, not investing in the business of the company.
--Hiram
Crusty old guy that I am, my comment to corporate managements is that if you want your company's stock price to go up, try selling more widgets at higher profit margins. Don't fiddle with the books.
--Hiram
That does seem like a simplistic view of what companies do...
"make widgets, sell more widgets, higher profit margins"
From my perspective, in this modern world companies end up spending A LOT of time on finance, accounting, human resources, compliance, import / export, legal issues, etc.
One of the ways that General Mills generates higher profits is to borrow a lot of it's money. Where as more risky companies carry less debt.
What do you think a company should do if they end up with too much cash because times are good and / or they get a tax cut?
What do you think a company should do if they end up with too much cash because times are good and / or they get a tax cut?
As an outsider, it's not my job to tell them what to do, it's to evaluate what they are doing. The Bill Gates's of the world don't need my advice, and wouldn't be that interested in any advice I might give.
What do companies do with extra cash? They can pay it out as dividends. They can put the money back in the business, either by maintaining it or expanding it. They can buy another company, in whole or part. There are many things companies can do and what is a good option depends always on it's unique set of circumstances. And buying back stock isn't always the worst option, it just has its downsides which I don't like but that's just me.
--Hiram
Here is one of my favorite videos.It's hardly his fault, but in retrospect has anyone been so clueless?
https://www.youtube.com/watch?v=VIcXkROQRZQ
While I am sure positioning the company was one way to go, why not revolutionize the industry and the world instead? If Amelio did go back to Apple's roots, wouldn't he find that revolutionizing the world was something Apple and Steve Jobs had already done?
--Hiram
Amelio Speech
It sounded like a normal CEO speech.
I am curious what you hear as "clueless"...
Steve Jobs was a very special person, I am not sure if the Gil Amelio's over the world can work the same miracles.
Wiki Gil Amelio
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