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.
This is a warning. 3810 is a very critical level at the S&P 500, and futures are down more than 2% today. We`re flirting with a support level of around 3,900, but the real panic can set in at around 34,000. What is that supposed to mean? It means that the S&P 500 will go down in a bear market. And that is a sign of stocks that are going down in value.
Since 1928 and the big stock market crash, the S&P 500 has plummeted into a bear market 26 times. A bear market is where the market is down more than 20% or more than that in a two-month period.
Not only that. A bear market can also be part of a recession where the economy has high unemployment and negative GDP output.
The average decline in a bear market was 35,6% since 1928, and the average length of time was 289 days.
Trump cutted taxes and MSM said he was crazy. It is the republicans job to have as low taxes as possible. It is their policy. The same cannot be said about the democrats.The Biden administration will discuss spending with top lawmakers this week, and republicans think it sounds scary.
Biden wants to increase the taxes and that can have an impact on businesses and money makers. On top of that we also have inflation, which is also a hidden tax. Add higher interest rate on top of that. Bill Clinton did much of the same in the 90`s and as long as I can remember, it went well. But this time is probably different with covid-19 and lockdown.
Investors expected more than 1 million jobs in april, but only 266 thousand is what the Biden administration saw come in. They also expected unemployment rate at 5,8% but it jumped to 6,1% and all this was a big, big, big surprise to the market, and investors sent the market down on Monday.
Things have changed in the White House, and Maria asked Mr Mulvaney when was the last time the government gave $300 to people on a permanent basis. «If you pay people not to work, they are not going to work,» Mulvaney said.
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?
China`s growth plummeted -6,8 YoY in Q1. The growth in the U.S is still on the right side, coming in at 0,3 percent YoY in Q1. But if you look at the quarter, the growth in China is down -9,8 percent, while the U.S growth is down -4,8 percent.
The annulized 4,8 percent drop in Q1 of 2020 markes the end of the longest period of expansion in America`s history. The drop is the steepest pace of contraction in GDP since the last quarter of 2008 (financial crisis).
The Covid-19 pandemic forced several states to impose lockdown measures in mid-March and that pushed millions of people out of work. The unemployment rate go straight up while the pending home sales go straight down.
Contracts to buy previously owned homes in the US dropped 16,3 percent YoY earlier in March this year, and that is the biggest annual decline since April 2011, amid the Covid-19 crisis. On a monthly basis, pending home sales went down 20,8 percent, which is the largest drop since May 2010.
Unfortunately, it seems like this is just the beginning.
The next quarter can be very ugly, while the unemployment rate can go straight up to Great Depression levels. The growth in the US can plunge more than 30 percent. If that is happening, what do you thing will happen to the pending home sales?
The numbers are expected to get even worse in April as the government surveyed businesses and housholds for the report in mid-March, before majority of people was under some form of a lockdown.
Trump`s economic adviser Kevin Hassett said unemployment in the US can soar to 17 percent. In March the unemployment rate was 4,4 percent in the US.
During the financial crisis, the US lost about 9 million jobs, but now the US is losing that many jobs about every 10 days, Hassett told ABC on Sunday.
This is sad, because all the jobs created since the Great Recession (2008) have been wiped out. So far, we are talking about 26 million and it can be worse. Hassett told ABC the unemployment will surge to levels not seen since the Grat Depression (1929).
During the Great Depression, about 15 million jobs were lost.
So, we know what`s coming. People without job and money will not buy a house.
Pending home contracts generally are seen as a forward-looking indicator of the health of the housing market because they become sales one to two months later. This summer holiday will be very special.
To contact the author of this story: Ket Garden at email@example.com
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