Saturday, April 24, 2021

Biden Tax Plan is Part of Intentional Effort to Force The U.S. into a Service Driven Economy, Again

Obamanomics  vs  MAGAnomics


Let’s start by being intentionally direct with each other. The JoeBama tax proposals are not accidental or misguided; far from it.  The intent of Obama’s third term economic policy is to return to forced globalism and diminished U.S. middle-class prosperity…. the often mentioned “service driven economy.”

There is nothing of value behind the obtuse term “service driven economy.” The multinationals are paying for this administration, just like they paid the Obama administration; paying for economic policy that advances their interests.

Congress goes along with the K-Street demands because Wall Street is now the primary benefactor of legislative intent. Nothing about their effort is done with American interests in mind.

Let me also be clear… Ever since I put forth the explanations of “A New Dimension in American Economics” I have been contacted by several prominent people within the financial institutions and academic sphere who agree with the principle. However, every single person states there is too much risk in explaining the intent and motive behind the curtain.

What JoeBama is proposing in his tax plan is specifically intended to rapidly advance the interests of Wall Street and corporate multinationals. Before getting to the baseline of how, let’s first look at his proposals as purposefully leaked:

WASHINGTON (Reuters) -President Joe Biden will roll out a plan to raise taxes on the wealthiest Americans, including the largest-ever increase in levies on investment gains, to fund about $1 trillion in childcare, universal pre-kindergarten education and paid leave for workers, sources familiar with the proposal said.

The plan is part of the White House’s push for a sweeping overhaul of the U.S. tax system to make rich people and big companies pay more and help foot the bill for Biden’s ambitious economic agenda. The proposal calls for increasing the top marginal income tax rate to 39.6% from 37%, the sources said this week. It would also nearly double taxes on capital gains to 39.6% for people earning more than $1 million.

That would be the highest tax rate on investment gains, which are mostly paid by the wealthiest Americans, since the 1920s. The rate has not exceeded 33.8% in the post-World War Two era. […] Sources said details would be released next week before Biden’s address to Congress on Wednesday. Details of the plan may change in coming days. (read more)

We do not need to guess what the impacts would be; we have already seen exactly what results they generate.  We have specific examples from both state domestic (see the Connecticut example), and national outcomes.  The “rust belt” was created by these policies that incentivize off-shoring and outsourcing that benefits multinationals and hurts U.S. based national companies.

Do not get caught up in the leftist narrative about ‘spreading the wealth‘ between the rich and poor.  That is a distractive misnomer created by K-Street as an advanced -albeit false- talking point to deflect political consequences.  The JoeBama goal has nothing to do with supporting poor Americans; the goal is to make everyone in the United States less wealthy, including the “poor”.   The goal is to assist the multinationals; they are paying for this economic policy.

To understand the baseline, let me repost the explanation from four years ago when candidate Donald Trump outlined his “America First” economic policies.  The Trump-era policy was intended to remove the tentacles of the multinationals and support the U.S. middle class.  Again, we don’t have to guess whether Trump was right, because we saw the incredible economic growth his policies (regulatory and treasury) generated.

FIRST, THE PROBLEM:

Anyone thinking Donald Trump was not intensely serious about America-First economics received a massive dose of reality when they realized Donald Trump put reinstatement of Glass-Steagall into the 2016 Republican Platform:

We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment,” said the platform released by the Republican National Committee. (link)

Trump thumbs up

CONTEXT – Beyond the larger context of Globalists VS Nationalists (Americanism), the internal opposition to Common Sense economic conservatism (Americanism) can be broken down into two categories:

Never trump crowd

♦ The first group are those who are fundamentally naive about large and historic economic issues; and how the economy was changed, forced to change through the past forty years, by financial interests who created a second, “false“, paper economy.

This first group is generally young, pseudo-intellectual, and their only reference is while formally educated within the last thirty years (they’re under 50). Most of the oppositional (conservative) punditry falls into this category. [Important to note, this group is also joined by the majority of politicians who are approximately the same age.]

♦ The second group are those who truly know better. They are older and wiser, they know the truth because they saw it unfold. However, they are also financially dependent on retention of a global narrative that sold the change in the past 40 years. These are the willfully blind who have sold-out to the benefit of, and enrichment from, the false economy.

This second group is intent on retaining a historic set of false assumptions by fraud and deception.  There motives can be debated, but most conservatives as well as almost all democrats in media punditry fit into this second grouping. Their false economic framework is then echo-chambered through think-tanks, and passed down to the younger group #1.

ben shapirorich lowry

Exhibit “A” would be conservatives standing at CPAC to applaud Speaker Paul Ryan who passed a $2+ trillion Omnibus spending bill to ensure 8 straight years without a budget. See the disconnect?

The world-view of the first group (younger voices, CPAC seal-clappers) is fundamentally seeded on social issues.

They are in no position to speak accurately about economic matters because they don’t have a reference point underpinning their expressed outlook. Their Gen-X and Millennial economic arguments are esoteric opinions . They never experienced the era of industrial giants; they have no form of reference.

♦ In most of the modern post-war industrial era (1950-1980) banking was a boring job and only slide rule bean-counters and actuarial accountants moved into that sector of the workforce. Most people don’t like math – these were not exciting jobs. Inside the most boring division of a boring banking industry were the bond departments within the larger bank and finance companies.

The excitement was in the actual economy of Main Street business. The giants of industry created businesses, built things, manufactured products, created innovation and originated internal domestic wealth in a fast-paced real economy. Natural peaks and economic valleys, as the GDP expanded and contracted, based on internal economic factors of labor, energy, monetary policy and regulation.

Main Street generated the pool of political candidates – because the legislative conduct of politicians had more impact on Main Street. Simply, the business agents had a vested interest in political determinations. Political candidates courted industrialists, business owners, and capitalist giants to support them. As a consequence Main Street USA was in control of DC outcomes.

Despite the liberal talking points to the contrary, this relationship was a natural synergy of business interests and political influence. It just made sense that way, and the grown-ups were generally in charge of it.

government-money♦ Commercial banks courted businesses because bankers needed deposits. Without deposits banks could not generate loans; without loans banks could not generate profits…. and so it was. By rule only 10 percent of a commercial bank’s income could stem from securities.

One exception to this 10% rule was that commercial banks could underwrite government-issued bonds. Investment banks (the bond division) were entirely separate entities. The Glass-Steagall banking laws of 1932 kept it that way.

However, mid 1970’s bank regulators began issuing Glass–Steagall interpretations -that were upheld by courts- and permitted banks and their affiliates to engage in an increasing variety and amount of securities activities. After years of continual erosion of the Glass-Steagall firewall, eventually it disappeared.

This became the origin of the slow-motion explosion of investment banking. If you look back historically from today toward 1980 (ish) what you will find is this is also the ultimate fork where economic globalism began overtaking economic nationalism.

Banks could now make money, much more money, from investment divisions issuing paper financial transactions, not necessarily dependent on actual physical assets; or actual profits and loss. The transactions grew exponentially.

The bond market portion ultimately led to the ’07/’08 housing collapse, and derivative trading (collateralized debt obligations or CDO’s) generated trillions of paper dollars. Long before the ’08 collapse, business schools in 1980 began calling this the second economy (a false economy, or the invisible economy).

The second economy, which ultimately became the global economy, is also the Wall Street investment economy. Two divergent economies: Wall Street (paper), and Main Street (real).

There is no real property, real capital, real tangible assets in the Wall Street economy. The false economy is based on trades and financial transactions, essentially opinions. Paper shifts, and buys and sells based on predictions and bets (derivatives).  Insurance products create an even larger subdivision within the false economy as hedgers wagered on negative outcomes. The money wagered is exponential – some say more than a quadrillion currently floats.

♦ Now you realize, in hindsight, there had to be a point where the value of the second economy (Wall Street) surpassed the value of the first economy (Main Street). Investments, and the bets therein, needed to expand outside of the USA. hence, globalist investing.

However, a second more consequential aspect happened simultaneously.

a17b2-hip-replacement-recall-briberyThe politicians became more valuable to the Wall Street team than the Main Street team; and Wall Street had deeper pockets because their economy was now larger.

As a consequence Wall Street started funding political candidates and asking for legislation that benefited their interests.

When Main Street was purchasing the legislative influence the outcomes were beneficial to Main Street, and by direct attachment those outcomes also benefited the average American inside the real economy.

When Wall Street began purchasing the legislative influence, the outcomes became beneficial to Wall Street. Those benefits are detached from improving the livelihoods of main street Americans because the benefits are “global” needs. Global financial interests, investment interests, are now the primary filter through which the DC legislative outcomes are considered.

There is a natural disconnect.

♦ When former House Speaker Paul Ryan said: “Donald Trump and I come from two different wings of the party”, he is specifically pointing out this disconnect, yet few drew attention to it.  Yes, it is true – Trump represented the Main Street wing, Ryan represented the Wall Street wing.

Going back to the opening paragraphs. The news and opinion punditry never take the time to explain the root cause of the disassociation, because: A) Group one doesn’t understand it; and B) Group two is compensated to remain willfully blind, and to ignore it.

Yes, there was a fundamental ideological conflict within the 2016 election, and Wall Street fought Donald Trump hard.  However, for the first time in decades the American middle-class assembled and MAGA Main Street finally beat Wall Street.   Every single attack on Trump from that moment forth was created by this shockwave.  There were trillions at stake.

So that takes us to the next phase of the dynamic…. What did Trump see that politicians were intent on hiding?

WHAT WAS THE PROBLEM?

Traditional economic principles have revolved around the Macro and Micro with interventionist influences driven by GDP (Gross Domestic Product, or total economic output), interest rates, inflation rates and federally controlled monetary policy designed to steer the broad economic outcomes.

Additionally, in large measure, the various data points which underline macro principles are two dimensional. As the X-Axis goes thus, the Y-Axis responds accordingly… and so it goes…. and so it has historically gone.

trump convention 2Traditional monetary policy centered upon a belief of cause and effect: (ex.1) If inflation grows, it can be reduced by rising interest rates. Or, (ex.2) as GDP shrinks, it too can be affected by decreases in interest rates to stimulate investment/production etc.  However, against the backdrop of economic Globalism -vs- economic Americanism, CTH is noting the two dimensional economic approach is no longer a relevant model. There is another economic dimension, a third dimension. An undiscovered depth or distance between the “X” and the “Y”.

I believe it is critical to understand this new dimension in order to understand Trump’s MAGAnomic principles, and the subsequent “America-First” economy he was building.

As the distance between the X and Y increases over time, the affect detaches – slowly and almost invisibly. I believe understanding this hidden distance perspective will reconcile many of the current economic contractions. I also predict this third dimension will eventually be discovered/admitted, and will be extremely consequential in the coming decade.

To understand the basic theory, allow me to introduce a visual image to assist comprehension. Think about the two economies, Wall Street (paper or false economy) and Main Street (real or traditional economy) as two parallel roads or tracks. Think of Wall Street as one train engine and Main Street as another.

The Metaphor – Several decades ago, 1980-ish, our two economic engines started out in South Florida with the Wall Street economy on I-95 the East Coast, and the Main Street economy on I-75 the West Coast. The distance between them less than 100 miles.

As each economy heads North, over time the distance between them grows. As they cross the Florida State line Wall Street’s engine (I-95) is now 200 miles from Main Street’s engine (traveling I-75).

As we have discussed – the legislative outcomes, along with the monetary policy therein, follows the economic engine carrying the greatest political influence. Our historic result is monetary policy followed the Wall Street engine.  THIS PART IS CRITICAL:

[…] there had to be a point where the value of the second economy (Wall Street) surpassed the value of the first economy (Main Street).  [This important acceptance is just common sense.  The U.S. GDP is currently around $20 trillion, but the total valuation of the Wall Street stock market is much larger than our GDP.  Wall Street is more valuable than Main Street.  It is a simple albeit important reality to accept.] 

Investments, and the bets therein, needed to expand outside of the USA. Hence, globalist investing.

However, a second more consequential aspect happened simultaneously. The politicians became more valuable to the Wall Street team than the Main Street team; and Wall Street had deeper pockets because their economy was now larger.

As a consequence Wall Street started funding political candidates and asking for legislation that benefited their interests.

When Main Street was purchasing the legislative influence the outcomes were beneficial to Main Street, and by direct attachment those outcomes also benefited the average American inside the real economy.

When Wall Street began purchasing the legislative influence, the outcomes therein became beneficial to Wall Street. Those benefits are detached from improving the livelihoods of main street Americans because the benefits are “global” needs. Global financial interests, investment interests, are now the primary filter through which the DC legislative outcomes are considered.

There is a natural disconnect. (more)

Here is an example of the resulting impact as felt by consumers:
economy-1
♦ TWO ECONOMIES – Time continues to pass as each economy heads North.

Economic Globalism expands. Wall Street’s false (paper) economy becomes the far greater economy. Federal fiscal policy follows and fuels the larger economy. In turn the Wall Street benefactors pay back the politicians.

Economic Nationalism shrinks. Main Street’s real (traditional) economy shrinks. Domestic manufacturing drops. Jobs are off-shored. Main Street companies try to offset the shrinking economy with increased productivity (the fuel). Wages stagnate.

Now it’s 1990 – The Wall Street economic engine (traveling I-95) reaches Northern North Carolina. However, it’s now 500 miles away from Main Street’s engine (traveling I-75). The Appalachian range is the geographic wedge creating the natural divide (a metaphor for ‘trickle down’).

By the time the decade of 2000 arrives – Wall Street’s well fueled engine, and the accompanying DC legislative attention, influence and monetary policy, has reached Philadelphia.

However, Main Street’s engine is in Ohio (they’re now 700 miles apart) and almost out of fuel; there simply is no more productivity to squeeze.

From that moment in time, and from that geographic location, all forward travel is now only going to push the two economies further apart. I-95 now heads North East, and I-75 heads due North through Michigan. The distance between these engines is going to grow much more significantly now with each passing mile/month….

However, and this is a key reference point, if you are judging their advancing progress from a globalist vessel (filled with traditional academic economists) in the mid-Atlantic, both economies (both engines) would seem to be essentially in the same place based on their latitude.

From a two-dimensional linear perspective you cannot tell the distance between them.

It is within this distance between the two economies, which grew over time, where a new economic dimension has been created and is not getting attention. It is critical to understand the detachment.

Within this three dimensional detachment you understand why Near-Zero interest rates no longer drive an expansion of the GDP. The Main Street economic engine is just too far away to gain any substantive benefit.

Despite their domestic origin in NY/DC, traditional fiscal policies (over time) have focused exclusively on the Wall Street, Globalist economy. The Wall Street Economic engine was simply seen as the only economy that would survive. The Main Street engine was viewed by DC, and those who assemble the legislative priorities therein, as a dying engine, lacking fuel, and destined to be service driven only….

Within the new 3rd economic dimension, the distance between Wall Street and Main Street economic engines, you will find the data to reconcile years of odd economic detachment.

Here’s where it gets really interesting. Understanding the distance between the real Main Street economic engine and the false Wall Street economic engine will help all of us to understand the scope of the economic inflation lag during the Trump administration.  Which, rather remarkably I would add, was a very interesting dynamic.

Trump was in charge… Now think about these engines doing a turn about and beginning a rapid reverse. GDP could, and as we saw did, expand quickly. However, any interest rate hikes (monetary policy) intended to cool down that expansion -fearful of inflation- would take a long time to traverse the divide.  That is exactly what happened.

Jerome Powell attempted to block the America First program with interest hikes; however, his efforts were futile because of the distance between the two economic engines.  President Trump was focused on assisting Main Street, and Powell’s attempts at impacting Main Street growth couldn’t impact Trump’s program.

During the Trump era we actually imported deflation because China and other nations were attempting to avoid tariff cost increases; so they devalued their currency.  The problem for them was that devaluation of their currency not only made their tariffed goods cheaper, it made the non tariff goods cost less.   As a result we were importing deflation from around the world.

Inflation on durable goods could not be significant until those nations stopped devaluing their currency.  Simultaneously, as international trade agreements were  renegotiated the originating nations of those products were forced into the same type of economic detachment described above.

The global manufacturing economies first responded to increases in export costs (tariffs etc.), by devaluing their currency; then they began driving their own productivity higher as an offset, in the same manner American workers went through in the past three decades. The manufacturing enterprise and the financial sector (connected to the consumer) remained focused on the pricing.

♦ Inflation on imported durable goods sold in America, while necessary, was -as we expected- ultimately minimal during this initial period of Trump policy.  Predictably, if we stuck with the program inflation would have expanded significantly as time progressed and off-shored manufacturing found less and less ways to be productive. Over time, imported durable good prices would increase – but it was going to come much later; and by that time our own industrial base would be re-established.

♦ Inflation on domestic consumable goods ‘would’ likely rise at a faster pace. However, as we saw U.S. wage rates were respond faster, naturally faster, than any monetary policy because inflation on fast-turn consumable goods became re-coupled to the ability of wage rates to afford them…. and the labor market was on fire.  Wages were factually growing faster than inflation during Trump’s term in office.

The monetary policy impact lag, caused by the distance between federal monetary action and the domestic Main Street economy, was -under the Trump policy- now working in our favor. That is, in favor of the middle-class.  Within the aforementioned distance between “X” and “Y”, a result of three decades traveled by two divergent economic engines, that was our new economic dimension….

Trump thumbs up

What JoeBama 3.0 is proposing now is a return to the prior economic model where Wall Street multinationals benefit and the U.S. middle-class is pushed into their intentionally created “service driven economy”.

Hope that helps.