Inflation is serious stuff. It makes people`s money less valuable, and it means a lot of trouble for a lot of people. But I`m not shocked, because we knew it was coming someday. I wrote about nine years ago, and here we are.
Ronald Reagan was fighting against inflation in the ’80s, and he once said;
«Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.»
I bet Chair Powell thinks the same, as he raised the federal fund’s rate by 75 bps to the 3% – 3,25% range during its September meeting. This is the third three-quarter point increase, pushing borrowing costs to the highest since 2008.
Policymakers also anticipate that ongoing increases in the target range will be appropriate which was reinforced by Chair Powell during the press conference.
«We have got to get inflation behind us. I wish there were a painless way to do that. There isn`t. The so-called dot plot showed interest rates will likely reach 4,4% by December, above 3,4% projected in June, and rise to 4,6% next year.
Meanwhile, GDP growth forecasts were revised lower to show a 0,2% expansion this year, compared to 1,7% seen in June and 1,2% in 2023, below 1,7% seen in June. Inflation as measured by PCE is seen to reach 5,4% in 2022 (5,2% projected in June) and 2,8% in 2023 (vs 2,6%).
They also expect the unemployment rate to raise up to 4,4% next year. In August this year, the unemployment rate rose to 3,7%, which is the highest since February and above market expectations of 3,5%.
The number of unemployed people increased by 344 thousand to 6,014 million, while employment levels went up by 442 thousand to 158,732 million. Meanwhile, the labor force participation rate rose to 62,4% in August from 62,1% in July.
The unemployment rate was about 4% right after the dot com bubble, but it rose to about 6% a few years later. In 2010, the unemployment rate rose to about 10% but it peaked at an all-time high of nearly 16% after all the lockdowns.
Banks in nearly every country (not China and Japan) are facing similar trade-offs as they raise rates to combat their own inflation problems.
The inflation rate in the US is 8,3%. In the UK it`s 9,9%. Euro Area; 9,1%. In China and Japan, the inflation rate is 2,5% and 3,0%. But this is nothing compared to Turkey where the inflation rate rose for the 15th consecutive month to 80,2% in August of 2022.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
Investors don`t like higher rates. Normally, the higher the rates go the lower the stock market goes. The Fed needs to do something with the inflation, and raising rates is a tool they use, and this year they seem to be very aggressive.
In March, the Fed raised the fed-funds rate by a quarter of a percentage point, and that was the first increase in three years. Two months later, they raised the rates by another half-point. The Federal Open Market Committee has a meeting on Tuesday and Wednesday this week, so what now?
Experts claim the rate hike can be 50 points, but it can also go to 0,75% or as much as 1,00%
Nasdaq is already in a recession, and S&P 500 jumped into that territory a few days ago. Investors fear the Fed will be more aggressive than expected, as they are opting for the first three-quarter-point increase in the Fed-funds rate since 1994. That was 28 years ago.
Raising the rate 75 points or more is not what we often see, and the last time we saw that happen was in November 1994. The Fed hiked rates many times that year to try to fix the inflation. The problem for the Fed is that if they raise the rates too much and too fast, a recession can occur.
The Fed will look at Unemployment, GDP, and inflation. So, where do we go from here? The Fed Funds futures are now at a rate of 3,05% for December 2022, and it will peak at 3,65% for July 2023. As you can see, there is more hawkish Fed to come.
Will the Fed sacrifice employment and growth to bring down inflation? The higher the rate is, the more expensive the money is for borrowers. This means that people will save more as they borrow less. That can lead to slower growth and lower prices and inflation.
The risk here is that this will lead to a recession. Corporations’ earnings will fall, and so can the stock market. Let`s listen to FOMC and Powell on Wednesday.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
I need to follow up my recent article about tax, GDP, a free lunch and big governments. The Biden administration is calling for a tax hike and a much bigger government. Is the United States on the way to be a socialist country like France? If so, how would that be?
Let`s take a look at France. The biggest welfare state in the world. No other coutries in the world spend more money on welfare than the French government. No other coutries has higher taxes either.
But who is protesting a lot? No other countries in the world are protesting more than the people of France, and the yellow vest protesters showed us that. There were multiple reasons for all the protests in France. What they all had in common is that they were all dissatisfied.
Does the people of the United States really want to be a socialist state like France?
First of all; lets talk about tax. No other countries in the world have higher taxes than France. Personal income tax has dropped to 45%, down from 59,6% about twenty years ago. In other words; half of your hard earned money goes to the government.
Corporate tax rate in France dropped to 28% under president Macron. Do doubt that Macron is doing something right. A Trump strategy that is boosting the economy with lower taxes (but that was before the covid attack).
In the early 80`s, the corporate tax rate in France was at a record high with 50%. All that happened under President Fracois Mitterand who served as a President of France from 1981 to 1995, the longest time in office in the history of France.
Mitterand started political life on the Catholic nationalist right, but joined the resistance and moved to the left. He opposed Charles de Gaulle`s establishment of the Fifth Republic.
He invited the Communist Party into his first government, which was a controversial decision at the time. In the event, the Communists were boxed in as junior partners and, rather than taking advantage, saw their support erode. The left the cabinet in 1984.
Interestingly, right after that, the taxes started to decline. Mitterand followed a radical left-wing economic agenda, including nationalisation of key firms, but after two years, with the economy in crisis, he reversed course.
He pushed a socially liberal agenda with reforms such as the 39-hour week, and the end of a government monopoly in radio and television broadcasting.
His partnership with German Chancellor Hermut Kohl advanced European integration via the Maastricht Treaty, but he reluctantly accepted German reunification. By the way; he was also the only French President to ever have named a female Prime Minister; Edith Cresson.
Beyond making the French left electable, Mitterand presided over the rise of the Socialist Party to dominance of the left, and the decline of the once-mighty Communist Party (as a share of the popular vote in the first presidential round, the Communists shrank from a peak of 21,27% in 1969 to 8,66% in 1995, at the end of Mitterand`s second term).
As you can see, the popularity of the Communist Party declined from about 21% to 8%, but so did the corporate tax rate under Mitterand too.
But taxes need to come from someone, and that is the people. How is that going to work out if millions are unemployed? In France, the unemployment rate has always been high. It dropped to 8% in December of 2020, down from 9,1% in the previous period.
The number of unemployed people decreased by 340 thousand to 2,4 million. That sounds expensive. Someone has to pay for it.
France spend nearly one third of their GDP on social welfare, according to OECD. France are on top of the list (27,5) while the U.S is number 22 with 14,3% (as a percentage of GDP).
If we look at total net social spending, France is still at the top with 31,7%, but interestingly, the U:S is second with 30%. Total net social spending takes into account public and private social expenditure, and also includes the effect of direct taxes (income tax and social security contributions), indirect taxation of consumption on cash benefits, as well as tax breaks for social purposes.
Top 20 list of all the countries with tax revenue as a percent of GDP from 40% to 50% are all from Europe. except one; Cuba, at number 8 on the list. A communist country among all the European countries.
The debt in France is skyrocketing. Under Mitterand, the debt to GDP was about 20. Now, under Macron it has increased to 115,70 percent in 2020 from 97,60 percent in 2019.
At the same time, Government Budget in France decreased to -9,20 percent of GDP in 2020 from -3,10 percent in 2019. In other words; the government spends more money than it takes in from taxes and other fees.
So, socialist welfare state France has more debt than the United States. Devt to GDP in the U.S increased to 107,60 percent in 2020, up from 106,90 percent in 2019.
The unemployment rate is also lower in the U.S. The unemployment rate fell to 6 percent in March of 2021. The U.S government is also spending more money than they have. In 2019, the U.S recorded a government budget deficit equal to 4,60 percent of the GDP, but it`s expected to be about 13 percent in 2020.
On top of all the taxes, people in France also need to pay for the roads. A typical socialist country has toll roads. From Boreaux to Paris, you need to pay 55,60 euros for Classe A and 85,60 euros for Classe B.
All the money you earn from Janury to June goes to the government. The govenment will give the money you give them to sick people who ask for free healthcare. State healthcare insurance is available to everyone staying in France for more than three months.
The French Social Security system runs this insurance (called PUMA), and this insurance covers about 70% of the medical costs, and in some cases, even 100% of the costs. The state also pays for every child`s education from 6 to 16 years old.
So, if you pay nearly half of your hard earned money to your welfare state, and drive a car from Boreaux to Paris often, you have to ask yourself what your real tax actually is?
To contact the author: post@shinybull.com
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
Joe Biden was sworn in as the 46th president of the United States of America today. In his speech he said; «Today, we celebrate the triumph not of a candidate, but of a cause, the cause of democracy. The will of the people has been heard and the will of the people has been heeded.
We have learned again that democracy is precious. Democracy is fragile. And at this hour, my friends, democracy has prevailed.» (big applause)
Democracy is a form of government in which the people have the authority to choose their governing legislator. Joe Biden was the most popular candidate in the US and won the election in 2020. It is the people`s will. The people decided.
The most popular president in US history was inaugurated today. He got more votes than Obama and Clinton. Biden won despite the fact that Trump got 10 million more votes in 2020 than he did in 2016.
The streets in Washington during the inauguration ceremony were empty. Instead of thousands of Americans cheering, we saw thousands of flags on the streets. Instead of happy American people on the streets in Washington we saw 30,000 armed soldiers behind a massive 12-foot electric wall.
The love for Joe Biden was huge in the Hate Trump Media today. «The reason Biden has to do this is that he`s just so incredibly popular,» Don Lemon said on CNN. «The lights from Lincoln Memorial were like Joe Biden`s arms stretching out to all American,» CNN said.
The incredibly popular president is considered to construct economic policy around issues like race, gender, equality, and climate change, rather than around traditional indicators like GDP or deficit ratios.
According to Axios, Biden is charting an economic policy that`s visible to the left of Bill Clinton and Barrack Obama. Biden proposed a $1,9 trillion economic stimulus plan and a $15 minimum wage. Employers, employees, and economists warned it will kill millions of jobs.
Joe Biden signals a shift away from fossil fuels and rejoins WHO and Paris climate agreement. Trump walked away from Paris agreement because he said it was too expensive for American workers. He wanted people to keep their jobs.
It will be difficult for Biden to balance the need to address the climate crisis without worsening the jobs crisis facing the United States. But his plan calls for pouring trillions of dollars into clean energy, creating millions of union jobs while slashing carbon emissions.
European commission president Ursula Von Der Leyen tweeted this; «The United States is back. And Europe stands ready. To reconnect with an old and trusted partner, to breathe new life into our cherished alliance. I look forward to working together with @JoeBiden.
President Joe Biden calls for unity. Good luck!
To contact the author: post@shinybull.com
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
The Japanese economy shrank -7,8 percent in Q2 and that is the steepest decline ever. This was the third straight quarter of contraction which means Japan is in a deep recession amid the severe impact of the COVID-19 crisis.
Private consumption fell -8,2 percent vs -0,8 percent in Q1. Exports plummet -18,5 percent which is the most since Q1 2009. The economy collapsed 27,8 percent in the June quarter, and that is the deepest on record.
Japan was the tech darling in the 80`s. Their consumer electronics industry was once considered the strongest in the world. But now the tech giant is in a state of decline as consumption arises in countries like China, the United States, and South Korea.
However, video gaming in Japan remains a major industry. Japan became a major exporter of video games during the golden age of arcade video games, an era that began with the release of Taito`s Space Invaders in 1978 and ended around the mid-1980s.
Japan dominated the industry until Microsoft`s Xbox consoles began challenging Sony and Nintendo in the 2000s. That being said; Japan is now the world`s largest market for mobile games.
Japan`s strong economic growth ended with a big crash in the late ’80s and early ’90s. In the late 1980s, abnormalities within the Japanese economic system had fueled a speculative asset price bubble of a massive scale.
The bubble was caused by the excessive loan growth mechanism known as the «window guidance». As economist Paul Krugman explained; «Japan`s banks lent more, with less regard for quality of the borrower, than anyonw else`s. In doing so they helped inflate the bubble economy to grotesque proportions.»
Trying to deflate speculation and keep inflation in check, the Bank of Japan sharply raised inter-bank lending rates in late 1989. This sharp policy caused the bursting of the bubble and the Japanese stock market crashed.
Equity and asset prices fell, leaving overly leveraged Japanese banks and insurance companies with books full of bad debt. The financial institutions were bailed out through capital infusions from the government, loans and cheap credit from the central bank, and the ability to postpone the recognition of losses, ultimately turning them into zombie banks.
The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and Japan`s economy stagnated.
The bubble was characterized by the rapid acceleration of asset prices and overheated economic activity, as well as uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time.
As a result of all this mess, Japan started to «print money» like never before, and now Japan recorded a government debt equivalent to 236,60 percent of the country`s GDP in 2019. Someone has to pay for this, but who? The people of course.
The Personal Income Tax Rate in Japan stands at 55,95 percent, which means more than half of the people`s hard-earned money goes to the Government in Japan. On top of that; their interest rate is negative at -0,1 percent which means people have to pay money to the bank and not otherwise if they have money stored in the bank account.
Policymakers noted that the outlook for economic activity and prices are extremely unclear, depending on the consequences of the virus and the magnitude of their impacts on domestic and overseas economics.
To contact the author: post@shinybull.com
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure the accuracy of the information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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