The Fed’s Not Backing Off: Powell’s Standouts & Zingers at the Press Conference

US is “on an unsustainable fiscal path, there’s no hiding from it.”

I have to say, Fed Chairman Jerome Powell is a breath of fresh air when he talks, after the near-physical pain I experienced listening to his last three predecessors. I actually get what he is saying, even if it’s a little twisted. I can make out his veiled disdain for fancy but dubious economic theories and iffy forecasts. And I get to look forward to some zingers when I least expect them – such as at today’s press conference, when he valiantly defended the Fed’s preferred inflation measure, core PCE, by saying that it “tends to run a little lower, but that’s not why we pick it.”

About that wildly ballooning federal deficit:

Even though the question came at the end of the press conference, I’m pulling it to the top because it’s so important. Asked if fiscal policy – the ballooning deficit, after tax cuts and spending increases – comes up a lot at FOMC meetings, he said:

“It doesn’t really come up. It’s not really our job…. We don’t have responsibility for fiscal policy. But in the longer run, fiscal policy will have a significant impact on the economy, so for that reason, I think, my predecessors have commented on fiscal policy, but they have commented on it at a high level rather than trying to get involved in particular measures.

“My plan is to stick to the same approach, and stay in our lane. So I would just say, it’s no secret, it’s been true for a long time, that with our uniquely expensive healthcare delivery system and the aging of our population, we’ve been on an unsustainable fiscal path for a long time. And there is no hiding from it, and we will have to face that, and I think the sooner the better.

“These are good times. This is the economy in the range of full employment. Interest rates are low. It’s a good time to be addressing these things. So I put that out there and leave it at that.”

About that mysteriously vanished sentence:

A sentence that had vanished from the FOMC statement today, after having been standard for years – “The stance of monetary policy remains accommodative” – caused instant media speculation that the Fed would “pause” next year, in line with persistent bias in the media of seeing every vagueness as a dovish signal.

Powell shot this down several times, first in his prepared statement and then in the Q&A. In the statement, he emphasized, “overall financial conditions remain accommodative,” and specifically addressed the disappearance of that sentence:

This change does not signal any change in the likely path of policy; instead, it is a sign that policy is proceeding in line with our expectations. We still expect, as our statement says, “further gradual increases….”

During the Q&A, he was asked about it several times, from different angles. And he expanded on the theme:

“The point with ‘accommodative’ was that its useful life was over. We put that in the statement in 2015 just when we lifted off [beginning of rate-hike cycle]. The idea was to provide assurance that we weren’t trying to slow down the economy, but that in fact interest rates were still going to be pushing to support economic activity. That purpose has been well served, and that language now doesn’t really say anything that’s important to the way the committee is thinking about policy going forward. That’s why it came out.”

He was asked if the Fed’s policy is accommodative now – meaning if the federal funds rate is still below some theoretical “neutral” rate at which it would neither stimulate nor slow the economy. And he said:

“The federal funds rate, even after today’s move, is below the longer-run neutral estimate of every single participant who submits an estimate. So that’s why it’s the perfect time to take the language out because it’s perfectly clear that there can’t be a signal because by definition that means an accommodative policy. So it wasn’t because the policy is not accommodative. It is still accommodative.”

And just to make sure everyone got it, he threw in “another point too”:

“We don’t want to suggest either that we have a precise understanding of where ‘accommodative’ stops, or suggest that that’s a really important point in our thinking…. What we’re going to be doing is carefully monitoring incoming data from the financial markets and the economy and asking ourselves if our policy is achieving the goals we want to achieve: Sustain the economy, maximum employment, and stable prices. That’s the way we’re thinking about it. That does kind of amount to thinking less about one’s precise point-estimate of the natural rate.”

“You can think of it in different ways. Maybe we have underestimated the neutral rate, maybe we’ll be raising our estimate of the neutral rate, and we’ll just go to that. Or maybe we’ll keep our estimate of the neutral rate here [he made a precise gesture with both hands] and then go one or two rate increases beyond it. I think it’s very possible.”

What could change the rate-hike tango?

The FOMC would raise rates faster “if inflation surprises to the upside,” he said, but “We don’t see that.”

And the FOMC would raise rates more slowly if there is:

  • “A significant correction in the financial markets,” which, as he explained later, is one that causes consumers to spend less, such as the mortgage meltdown did during the Financial Crisis, while a standard sell-off in the stock market would not qualify.
  • “A slowing down of the economy that is inconsistent with our forecast.”

The risk after the Financial Crisis is to “forget things we learned”:

Asked about the biggest lessons learned from the Financial Crisis, he listed some of the big changes in the financial system since then, such as higher capital, more liquidity, better regulation, etc., and then added:

“Those are the really important lessons. We were determined not to forget them. And I think that’s a risk now, is to forget things that we learned. That’s just human nature over time.

No problem that higher rates whack consumers:

Asked if he was concerned about the impact of higher rates on consumers, with credit-card rates having reached “17%,” he replied:

“Interest rates are going up across a broad range of consumer borrowing…. But they’re still quite low by historical levels.

“And the other thing I’ll say, if you take housing, if you look at the NAR affordability index, housing is still more affordable now than it was before the Financial Crisis. So the cost of borrowing is going up, but it’s going up from what were extraordinarily low levels.

Being “humble” about productivity forecasts:

“We’re so bad at forecasting productivity, it’s just very hard to know when productivity is going to arrive and in what quantity…. So I think we have to be humble about how little we really know about where these variables either are, or are going.”

Core PCE inflation “tends to run a little lower, but that’s not why we pick it”

In response to a question about wage growth, he explained as an aside, how wage growth is adjusted for inflation to get “real” wage growth.

The indicators of nominal wage and benefit growth are “clustered around 3%,” he said. But then you have to figure inflation into it to get real wage increases.

“And there you have to pick an inflation measure. Some people pick CPI [= 2.7%]. We of course pick Personal Consumption Expenditures [core PCE = 2.0%] because we think it’s a little better measure, it’s a little broader, and it tends to run a little bit lower as well, but that’s not why we pick it…”

Darn, and I thought all along that’s precisely why they picked it.

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  67 comments for “The Fed’s Not Backing Off: Powell’s Standouts & Zingers at the Press Conference

  1. Powell is trying to reverse some of the damage Bernanke did but due to all the damage Bernanke caused it’s like trying to bring a dead person back to life.

    • Chris says:


    • van_down_by_river says:

      Well said. Bernanke made currency almost free and encouraged governments, individuals and corporations to amass enormous mountains of debt. The debt can’t be paid off without devaluing the currency even further. The problem is: as central banks devalue to make debts manageable they encourage ever more debt, Bernanke kicked off a monetary death spiral.

      Powell is tasked with trying to fix a broken machine but the parts to fix it are no longer available. So far I admire his attempt to right the ship but unfortunately it’s simply too late, the die has been cast and the dollar cannot be saved. Too late means too late.

    • mike says:

      Power is one Republican that speaks the truth at least as to that statement about the path we are on as a nation being unsustainable. However, while Bernake and his predecessor and successors all bear part of the blame, let us not forget our absolutely corrupt congress and its enabler in corruption the U.S. Supreme court.

      If the Supremes had not ruled that the ultra rich can buy Republicans and other corrupt politicians without limits on their pocket books, through campaign contributions, so that even (relatively honest) Obama may not have prosecuted the banksters due to the huge contributions that they gave him (or his reported friendship through his mom with Republican Geithner’s banker father), we would have a relatively honest government. Health care expenditures grew for decades as ludicrous rates.

      Other governments were able to deal with it. Ours cannot due to its being so influenced that it is effectively controlled by health insurers, banksters, etc., anyone with money or ability to influence elections (maybe even Russia, et al.)

      Powell is right about health care costs. However, as a former Republican, I must point out that their party is the central cause of our problem, along with various, corrupt Democrats also beholden to special interests.

  2. John Taylor says:

    Those are good quotes. He mentions the “uniquely expensive” healthcare system as boomers are aging, the idea that a stock market selloff would have to be significantly reflective of future consumer spending to change course, and he even roughly acknowledges the lack of wage growth by mentioning the old inflation measure next to it. He even acknowledged that their models to predict future productivity don’t work.

    I’d have to say I’m glad he replaced Yellen early on, he seems to be less likely to fall in the trap of putting worthless models ahead of measured economic trends.

    I seemed to get the impression that Yellen, Bernanke, and perhaps even Greenspan were both unable to acknowledge any significant negative side effects of easy monetary policy, and thoroughly convinced that an increasingly accommodative policy could always reliably stave off recession.

    • Tom Kauser says:

      He is good at telling you what you want to hear but cant doing anything about it until you allow him to produce another round of QE? The Federal Reserve did everything to save the value of your assets while you heckle them? You owe alot to persons you never will have the pleasure to meet or even know their title or their proper names?

    • Ted Freeman says:

      Conventional academic economics is a failed social science, so anyone with a past career in that field should be immediately disqualified from a position at the Federal Reserve. Appointing an economist to the Fed would be akin to appointing an acupuncturist to lead the CDC or a chiropractor as Surgeon General.

      • TXRancher says:

        Since CDC lead and Surgeon General are basically echo chamber jobs I think acupuncturist or chiropractor could perform. I agree with your Economist disqualified from Fed.

      • d says:

        “Conventional academic economics is a failed social science, ”

        Its not A “Science” never has been, or will be.

        Its a collection of theories, based in Historical behaviors, and the basics of supply and demand.

        When you add variables “QE” that have not been tried in a particular environment you actually have no idea what will really happen or what teh side effects will be as you have “NO HISTORICAL MODEL”.

        when the last of the treasuries issued under QE and NIRP are redeemed, if no other insanity’s have ensued, and the Balance sheet has been normalised for some time, there may exist then, a vague historical model for that form of QE.

        What we do know is that the form of QE used 08 – current, was nowhere nears as effective as the other form used by FDR which directed most stimulus to the bottom of the pile. For the BOTTOM of the pile.

    • Mike says:

      Powell criticized but it is his corrupt Republicans who killed true health care reform since 1990s… Obama ACA is blamed but his error was to compromise with those crooks. Single payer systems in other countries can force all healthcare costs down.

      Our system is going to become more and more expensive as baby boomers must retire and need it. I hope President E. Warren someday creates 99% inheritance tax on estates over $3M until US debt is paid off… That is my dream… Will only work if EU and Japan and other countries join in. Otherwise, billionaires will flee to EU, etc.

      • Naomi says:

        As somebody who grew up with the single payer system in Britain and saw my mother die needlessly under it, I would just say be careful what you wish for… It’s failures may not be as heavily documented, but I doubt any American would swap what their health insurance gives them for what the NHS would give. Americans have no idea of the conscious or not so unconscious rationing of medical care that goes on the other side of the pond.

        • Jim Lauder says:

          I live in Canada with a single payer system. It has flaws as no system will ever be perfect. However, it is a hell of a lot cheaper than the US ‘non-system’ and my 70 years of experience with it has always been positive. My wife and friends would agree.

  3. James says:

    Am I the only one who thinks that Powell had a lot more to say and do but the FED’s legal mandate prevents him from doing so?

    I mean, he did speak about tariffs but didn’t say how it might affect the economy. He spoke about core inflation but didn’t say how that would affect housing affordability going forward.

    I suspect he has opinions and does care about the economy. He just can’t say things before they occur because of political fallout or without causing some crashes.

  4. Joel Peralez says:

    The dude’s a puppet too.

  5. Gunther says:

    What about the unaccounted 22 or so trillions extra from pentagon and housing and Urban development?
    The numbers are put together by Catherine Austen Fitts and a professor from a Michigan University.
    That is more than unsustainable.

    • Paul says:

      Sorry, but that is fake news being hyped by the lunatic fringe.

      The government never said any money was missing.

      What was said was that they use multiple accounting systems that cannot be integrated.

      When a summary report requires numbers to be manually extracted from such systems and put into such a report, they are no longer in the context of their “substantiation”, and are therefore “unsubstantiated”.

      Those same numbers are then “unsubstantiated” in the next year’s report and added up are huge numbers.

      The people that claim it is all missing are either DFs that don’t even understand the vocabulary involved, or people trying to get some attention by deliberately making wild, totally false claims that would attract the attention of the lunatic fringe.

      Fitts now derives a significant part of her income writing for the “prepper community”, some significant part of which is lunatic fringe.

      • steve says:

        Is this the same lunatic fringe that said LIBOR was being manipulated as well as gold and silver. If they were wrong, they wouldn’t have pulled down the info, they would have just said the analysis was in error.

        • Dave says:

          Funny you should mention that. I first noticed that LIBOR is a scam back in, um, 1989. Didn’t see any good way to short it. . .

          I hear that the rest of the world noticed, eventually.

      • Mike says:

        Back when i studied accounting and finance at USC, my professor was already telling of corporate and government accounting tricks and deceptive practises. Enron did not invent such corruption.

        Forbes article said US total liabilities exceed $1M per taxpayer. Our future is predictable like the Titanic’s after it hit the Iceberg… But many live to deny and pretend there is no corruption or problems. They insult doubters that think the iceberg might have caused a problem.

  6. james wordsworth says:

    In the past year, US government debt outstanding up by $1.25 trillion.
    According to DJT, best economy EVER.
    Now Fed pulling back, DJT pumping more.
    In reality, the Potemkin economy.
    We will see what happens when the Fed keeps pulling and DJT runs out of more pumping tax cuts.
    When the facade falls away, unlikely to be pretty.

    • Paul says:

      I don’t know how old you are, but I studied economics back in the days when the conceptual basis had been developed before the age of global fiat currencies which started about 1970.

      If the world was still using hard currencies, discussing such things as you mention would be a lot easier.

      It all got much harder to understand when “money” could suddenly be created in infinite amounts out of nothing independently by over 150 governments of the world.

      Now I struggle with many what were once very simple concepts.

      Sometimes I find it helps to try to conceptualize flows of goods and services as a separate issue, and then to try to visualize how that relates to flows of money.

      Fiat currencies add an entire new dimension to the subject, and few can visualize anything beyond three dimensions.

      • Crysangle says:

        So true.

        I have come to look at fiat as an administrative currency that is obliged into use by the population for their private business.

        As it is an administrative currency it will not follow free or open market choices, unless anyone thinks voting should be part of those. Instead it will impose a view of its own, based on political and social ambitions, including the rewards of corporate activity.

        So as a whole for a nation, it is like a directive that people then trade with, or a set of accounts that get used as medium of exchange. The meaning of the directive, or how the accounts used in exchange are composed, is the choice of the administration. Previously with hard currency there was a seperation of power, and so more transparency, more individual choice, but less wider organisation.

        Internationally you have different nations all doing this, sometimes in a coordinated way, sometimes in competition. So the exchange value between them, how international valuation is measured, remains notional, and even more complex to understand, but for the proclaimed agreement and management where national policy is knowingly tailored to achieve a certain end, or to fit into advertised parameters.

        When national needs come into conflict with international reality, for example deficits, fx value, current account, trade patterns and so on, well I think there is no telling what the outcome would be. The older system was self limiting , the new system is beyond an understanding of limits, which is its frailty, because resources, human endeavour, economic and social reality, have some very hard limits.

        When someone at the controls is seen to devastate the efforts of own others, or simply because there is someone at the controls to blame for failure, then the whole show takes a further life of its own.

        It is incalculable, or at best/worst the calculations remain in the hands of others.

      • Wisdom Seeker says:

        Amen. Much of economic lore predates the fiat-currency era and no one (publicly at least) has properly wrapped their head around the impact of that change. People still plot prices vs. “the dollar”, even though “the dollar” no longer IS anything, whereas previously “the dollar” was a fixed weight of gold.

        But then again, Economics isn’t really a science, is it? The most widely used theories fail to predict the most important observable events – recessions, market crashes… Can you imagine if weather forecasters were catastrophically wrong once every few years, causing millions of people to lose their life savings? Or if engineers built cars that would, every few years, randomly explode and endanger people? That’s the state of Econ today. In genuine science and engineering fields, such a situation would be considered a crisis, and everyone would be focused on addressing the issue. In econ… not so much.

        • Maximus Minimus says:

          if the alchemists knew about the economics, they would go green with envy. No burden of proof necessary, and the target audience is as gullible as ever.

        • John Taylor says:

          When I took Macro Economics at my USC MBA program I was fascinated by it. With my engineering background I thought ‘wow, no one seems to question these assumptions when applying these models – I could really add a lot to this field!’

          After reading a lot more on my own, I discovered that my thoughts were not original and many have questioned those assumptions – but those ideas and following suggestions never get mainstream acceptance. In that way it’s almost like a parallel with Galenic medicine, which was mainstream for nearly 2000 years despite periodic bouts of disagreement and questioning by medical practitioners.

          I’ve come to adopt the conclusion that economics, like statistics, is mainly used for two reasons … Sales to impress unsophisticated customers with math, and political justification for what those in power to do what they want to do anyway.

        • Jim Lauder says:

          Correct me if I’m wrong but hasn’t every fiat currency in the past failed?

        • Wolf Richter says:

          Except the ones that haven’t failed and are still in use.

  7. jb says:

    now will congress get the message ? I like this Powell .

    • Setarcos says:

      My liberal friends for a myriad reasons like the handouts and spending, regardless of where the $ goes. My conservative friends don’t like tax-funded spending but when they are benefitting from it, their IQ goes down 50 points when you discuss a particular line item. So the answer to your question is no, because Congress is essentially a mirror. They are virtually all career pol’s and getting reelected is the # 1 priority.

      Public service should revolve around people electing worthy leaders who do what is needed, not what is wanted. Knowing the difference is what qualifies them as worthy to serve. There was a time when the most worthy leaders were truly humbled by being selected because they knew it is was not intended to be a popularity contest ( but at least service was only temporary). So the direction towards the cliff is clear …it is a matter of speed.

      Virtually all appointments to the FED are also a mirror of those who select them and by an large it “ain’t us”.

  8. Paulo says:

    It sounds like he will be impervious to the calls and accusations from over-wrought Stock Market ‘investors’ and hedge fund owners. (I hope).

    Housing problems, not so much.

    “Take your medicine,__________. I know it tastes yucky but we have to take our medicine”.

    Hang on and be prepared as this unfolds. There are always unintended consequences and it is a rare person who doesn’t answer to someone.

    • a reader says:

      >over-wrought Stock Market ‘investors’

      What do you invest *your* surplus into, Paulo? Construction materials and tools are looking ever more appealing to me. The real, tangible ones, that is – not some market-traded “investment vehicle”.

      • Paulo says:

        @ a reader
        Being retired, I don’t have a bunch of surplus cash these days, but still manage to save out of our current income while living a good life. I bought land and built a small rental. My wife and I have some money squirreled away for another home (neighbours) when it comes up for sale…(Neighbours, she 81, he 90). Mostly, to protect where we live by being able to choose our neighbours.

        My son says our financial planning is like the book, The Wealthy Barber….

        We have 16 acres zoned residential that just sits there with the rental, and our own home is across the street on a river. Being rural, our taxes on the home are approx $900/year, and the property is approx $1500/year. So, it is affordable to just sit on. I understand and accept this is very low compared to other places.

        No debts and accumulated savings in term deposits
        skills (carpenter and welder)
        greenhouses and extensive gardens
        etc….lots of tools and stores.

        Oh yeah, helped my two children through post secondary training and helped them with their house downpayment about 15 years ago. Daughter went to university and son went into an apprenticeship.

        I hope this is what you asked for. regards

        • a reader says:

          Paulo, thank you. I was asking because the more I learn the less I am inclined to be exposed to the financial markets.

          “Come, let’s play. Bring your life’s savings.” Thanks, I’ll just watch. Let someone else play their rigged game with their loaded dice.


  9. Saving Joe says:

    Meet the new boss, same as the old boss(es).

    Wolf, you are a Fed apologist :)

    Markets? Hilarious.

  10. Kent says:

    “So I would just say, it’s no secret, it’s been true for a long time, that with our uniquely expensive healthcare delivery system and the aging of our population, we’ve been on an unsustainable fiscal path for a long time.”

    Refreshing that a top public official is willing to say “uniquely expensive healthcare delivery system”. It’s a wonder what you are capable of doing when you are not beholden to the AMA, AHA, Big Pharma, and Insurance lobbies. Now if we could just find a way to get Congress and the President in that boat.

    • MB732 says:

      Yes my healthcare premium went up 30% last year and the out-of-pocket went from $8k to $12k…Guess those are not figured into CPI or PCE.

    • polecat says:

      CONgress, and by extention mr. ‘Presidential’ .. regardless of whoever holds That title, AND, I might add .. the FEDheads, have boarded the most exquisitely expensive yachts .. which long ago sailed in the opposite direction of the menacing iceberg ..
      Those leaky ‘Life boats’ are left for us ‘boot-strappers’, who are presently locked in streerage … with the key just out of arm’s reach !!

      Ain’t things grand ! ..

    • Setarcos says:

      Agreed, especially if the actual results match any promises made.

  11. Sam Lowry says:

    Fed Chairman Jerome Powell as quoted in the article on the question of the ‘wildly ballooning federal deficit’: “It doesn’t really come up. It’s not really our job…. We don’t have responsibility for fiscal policy.”

    The first function of every central bank in all of history is to provide the government that created it a means of spending money (typically on war) without the political inconvenience of taxing people for the money first.

  12. safe as milk says:

    thanks, wolf. it does seem like powell is an improvement.

    however, it’s one thing to talk the talk and another to walk the walk… when the next crisis comes, will he just drop everything back to zero all over again?

    • Tom Kauser says:

      YUP (and like last time and the time before ) YOU WILL BE JUST AS WILLING TO WRECK YOUR FUTURE by going along as each time before?

    • Mr. Knoss says:

      Of course they will. It’s the only tool they have.

      • Wisdom Seeker says:

        Not anymore. Now, if they want to stealthily recapitalize the banks, they can do QE + IOER independently of raising and lowering interest rates.

    • polecat says:

      “is an improvement.” ..

      Sure is it .. wink wink !

      ‘We’ collectively get to walk the plank, while Powell, et. al. get to dine in the Captain’s state room .. where the pork has no maggots !

    • raxadian says:

      Zero rates was a mistake. A 1% rate should be more than enough at most. If you can’t afford a 1% rate then you should not be getting that money.

  13. Bologna says:

    Bring on 20 percent interest rate just like in the 80s only this time that would hyperinflate the entire world currencies .
    And then the us wins ww3 without even one bullet fired
    The art of war sun tzu

  14. Tom Kauser says:

    They steal us blind and than go to commercial (saaaaammmme asssss ittttt eeeeevvvver wwwwwwas)

  15. Citizen AllenM says:

    LoL, he just pulled the Fed put. Simply amazing that we get plain speech, and Wall Street just ignores it all.

    Nothing until houses go splat. In short, we are deflating the money hangover, and devil take the hindmost.

    In short, stocks and bonds can fall, as long as main Street ignores it.

  16. Dis says:

    Because interest rates were driven to low levels by central banks in Europe and the USA, those who need yield ran off to the EM field – including the Insurance Co.’s, asset managers, pension funds – and shale plays.

    Will be interesting to see how rising rates impact the oil & natgas patch in the midwest U.S. and the black-gold sands of Canada. Isn’t the old saw that when NY does well TX drops and vice versa? Wolf – any view on this?

  17. Maximus Minimus says:

    A standard sell-off in the stock market might not qualify, by that always was followed by a recession, at the very least. Remember the phony wealth effect.
    A bursting housing bubble would also sink the economy which has been buoyed by this phony economic activity which contributes nothing to the economy but inflation.
    Both, in tandem, would show who was swimming naked.

  18. Escierto says:

    Interesting how Jerome trashes health care spending but I bet he has the cushiest health plan available. He reminds me of all the old farts out voting Republican and whining about socialized medicine when they are the ONLY ones who actually get socialized medicine. Hypocrites, all of them.

    • Wolf Richter says:

      What he says is that “healthcare delivery” in general is very expensive in the US, a reference to the fact that healthcare consumes about 17% of GDP. This is like a tax on households and businesses that goes to the healthcare sector.

      • Paul says:

        I believe the last numbers I saw said 19%, but why quibble over a couple of percent of GDP?

        In rough numbers, it is nearly equal to the sum of defense spending, Social Security, and all the food Americans eat.


    • WGAF says:

      Great insight . May we direct you to the Bernie Sanders 2020 website

  19. Ambrose Bierce says:

    Maximum employment? He’s willing to overheat. Sustain the economy (not grow?) This is not a “stable” market, which would be a market growing closer to historical rates, with fewer financial distortions. Accommodation is the preferred term over liquidity. I understand the mention of the term liquidity strikes fear into crisis managers. The tradeoff in rates, bad for borrowers, good for bond buyers, represents some appeasement of Main St. I always thought that’s what Yellen was hired to do, but she didn’t. The stock market crash that hurts consumers is bad, the stock market crash that hurts no one is okay. Why not appoint this guy to SCOTUS, the place where rational thought goes to die.

  20. GP says:

    Nice article. Astute observations and commentary.

    Let me go on a tangent about the argument that tax cuts contribute to deficits.

    Deficit increases are caused by either increased spending or reduced revenue.
    Tax cuts can only affect tax revenue, not spending.
    Tax revenue for this tax year has been 1% higher (

    Let us not ignore the sheer cost of entitlement programs. Medicare cost in 2017: $700B. Social security payments in 2017: $1T Medicaid cost: $550B. None of these are paid out as a percentage of GDP, but as absolute dollar amounts adjusted to inflation. (I am not at all discussing whether there should or shouldn’t be entitlement programs; just pointing out how much they cost and how much they contribute towards the deficit).

    One can not separate out tax cuts from the growth of GDP. Tax cuts boosted economy causing a higher GDP.

    Smaller percentage of bigger GDP is still bigger than a higher percentage of smaller GDP.

    • Bobber says:

      The deficit is a function of both taxes and spending. It’s not just the spending that is the problem.

      Once our legislators decide to spend, we need to cover that spending with taxes to avoid a deficit. It’s as simple as that. If legislators spend without taxing, it puts the future of the country in jeopardy and causes generational wealth transfers. Only a feckless country would agree to a certain level of spending, then refuse to fund it via taxes. In an individual context, that would be like ordering you meal, then dashing.

      It’s fair to say spending should not exceed some percentage of GDP, but that also means taxes should adjust to that same percentage to avoid a deficit. Both taxes and spending should have an enduring relationship to GDP.

      Let’s not give our incompetent and self-serving legislators a break by suggesting they are doing the right thing by cutting taxes when 100% of it simply gets tacked onto the national debt for the next generation to pay. Everyone in Congress seems to lack any fiscal responsibility these days, whether it be on the taxing or spending side. They are screwing future generations.

      Talk of tax cuts spurring growth that pays for the cuts is ridiculous. Any growth from deficit spending is reversed when the debt has to be paid back. The tax cuts now cause negative growth effects in the future when the debt has to be repaid. I often wonder if the growth talk used by legislators is the result of ignorance and wishful thinking, or blatant deception. Either way, they have no clue how to manage a government budget.

      • Ambrose Bierce says:

        The constitutional crisis is that we have “representation without taxation”. Our elected officials have no obligation to their constituents.

      • GP says:

        Phrase ‘tax cuts’ is misleading in the sense people think of it as reduction in tax revenue. But ‘tax cuts’ just means reduction in tax rate.

        As in the CBO report I pointed to earlier, tax revenue has actually increased, not decreased due to the recent tax cuts.

        • Wolf Richter says:

          GP, Let’s look at some data from the CBO:

          For the first 11 months of the fiscal year, total tax revenues inched up only 1% though the economy grew at about a 3% clip.

          Individual income and payroll (social insurance) taxes together rose by $105 billion, or 4%. Based on wage increases (not adjusted for inflation), increases in employment, similar as in every year since the Great Recession.

          Corporate income tax receipts fell by $71 billion or 30%. “About one-third of the decline occurred in June,” when estimated payments for tax year 2018 were made.

          Revenues from other sources fell by $16 billion or 6%. “Declines in revenues from fees and fines and remittances from the Federal Reserve were partly offset by higher receipts from excise taxes and customs duties.”

          So yes, Corporate America got a huge tax cut, both in percent as well as dollars. Workers however made up for it.

        • GP says:

          Workers paid higher taxes because their tax rate went up?

          No, they paid a smaller slice (percentage) of bigger pie (paycheck).

          You open the door for a completely different topic – taxation of corporations.

          Taxes on corporations are paid by a combination of: shareholders (lower profits) consumers (higher prices), employees (lower wages). Lower corporate taxes imply the inverse.

  21. Cmoore says:

    There is no easy solution. Just passed a huge budget. No accountability to the money spent. Medicare ss Medicaid and defense are too huge to be able to have a balanced budget and nobody wants to be austere. Too much money is spent waste fully and as long as we can print money it doesn’t really matter. Americans have no idea what would happen if the dollar was not King. Things would come to a complete halt until the new system took over. The new system is coming and it will hurt a lot of people but it will be better for America in the long run. Everybody has to carry their own weight.

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