Nel's New Day

November 3, 2019

DDT Owns This Economy

Once again, Dictator Donald Trump (DDT) got his way with the Federal Reserve: it dropped interest rates by another quarter point at a time when the economy is supposedly strong. The reduction of the interest rate by three-fourths of a percent in just three months at a time when the country is not in an economic crisis is not only almost unheard of but also a source of more disaster. Interest rates are lowered to fight a recession, and the United States has lost the ability to do that by dropping the rates.

The good news, other than a rising stock market, is unemployment at a half-century low and inflation at its two-percent target. The bad news is the trade wars causing stock market volatility, investment insecurity, farm losses, shrinking manufacturing jobs, and rising consumer prices as well as slowing global economy. Spending on both structures and equipment was deeply negative from July through September, Commerce reported, and manufacturing is currently in a technical recession, at its lowest since the 2007-2009 recession. 

Eleven years ago, the Fed rate was .25 percent, and the cheap money promoted a borrowing frenzy. By now U.S. companies have borrowed $15.5 trillion, two thirds of the U.S. GDP, and used the money to increase stock prices, buybacks, and acquisitions. Any rise in interest rates will cause a financial crisis, similar to that 11 years ago. According to the International Monetary Fund (IMF), half of corporate debt outside small businesses is high risk or junk rated with a higher chance of default than investment grade debt. Even worse, $660 billion of leveraged debt is in collateralized loan obligations sold to investors and financial situations, threatening a rise in delinquencies and defaults. Selling this debt will accelerate a downward spiral.

The Fed’s meeting this past week, the second in three weeks, was to address the repo (repurchase agreement operations) market’s problems. In the repo market, banks, funds, and other large companies borrow money for a day and use short-term government bonds as collateral: Fed plan to buy $60 billion a month of these bonds through April 2020. After the last recession, the Fed bought long-term bonds and mortgage-backed bonds to prevent a worse economic collapse. The current repos are intended to make it appear that banks are complying with regulations.

Signs of the U.S. weakening economy:

U.S. business hiring has fallen to a seven-year low, and employer are not increasing wages because of slower growth of sales and profits. 

Consumer confidence in the United States has declined for three months in a row. 

Defaults on “subprime” auto loans are at the fastest pace since 2008. 

The percentage of “subprime” auto loans at least 60 days delinquent is now higher than at any time during the last recession. 

Retail vacancies at U.S. shopping malls are at the highest level since the last recession, up to almost ten percent. 

The Cass Freight Index has fallen for ten straight months

U.S. rail carload volumes are at the lowest level in three years

September orders for Class 8 heavy duty trucks were down 71 percent.  

September home sales in the United States declined by another 2.2 percent

New home prices have fallen to the lowest level in almost three years and the same median price as in 2014. 

Forty-four percent of people in the U.S. report that they don’t make enough money to cover their monthly expenses

In a recent survey, over two-thirds of all U.S. households, 69 percent, are taking steps to prepare for a recession. Recession fears can cause consumers to spend less, which can exacerbate the possibility of a recession.

September was the worst month for U.S. manufacturing in a decade as manufacturers laid off employees, and October was even worse.

 In September, 4,200 truck drivers lost their jobs after 5,100 were dropped in August while hundreds of trucking companies are going bankrupt.

Other figures from last spring that haven’t improved include continuing jobless claims at the fastest pace in ten years, retail layoffs at 92 percent higher than the year before, and economic numbers are at the worst start since 2008.  

More problems with the economy from Robert Reich:

Wages are still almost static with only $2,000 more than in 1979—even after DDT promised everyone $4,000 in tax cuts last year.

The low unemployment rate comes from people giving up searches for jobs; the labor-force participation rate is the lowest since the late 1970s.

Almost 4 million people are stuck in part-time jobs and can’t find full-time jobs. Their lack of rights and benefits adds to increased economic insecurity.  

More college graduates are overqualified for their current jobs with ten percent underemployed, much higher than 20 years ago, while college costs have skyrocketed and left students in massive debt.

Health care increases with average family premiums up 55 percent since 2008, three times more than inflation. Prescription drug prices went up 11 percent in the first half of 2019.

Almost 39 million American households pay more than they can afford on housing, and over 25 percent of the renters spend over half their income on housing.  

Consumer debt, excluding mortgages, has climbed to $4 trillion, the highest ever even after adjusting for inflation.

With the DDT-GOP tax cut, 83 percent of the gains go to the wealthiest one percent of people in the U.S.

The bottom half of all U.S. households, as measured by wealth, still have 32 percent less wealth, adjusted for inflation, than in 2003, and the top one percent has more than twice as much.

The federal government is also permitting the expansion of risky mortgages. The almost $7 trillion in mortgage-related debt by Fannie Mae, Freddie Mac, and the FHA is one-third more than before the housing crisis over a decade ago, and a large increase in loan defaults can cost taxpayers hundreds of billions of dollars. A growing number of homeowners face debt payments almost half their monthly income, and about 30 percent of Fannie Mae guaranteed loans last year were higher than this level, up 14 percent from 2016. At 57-percent loans over the high-risk level, FHA is up in this category by 38 percent from two years ago.  Two Freddie Mac officials said that they had been pushed into loans with a higher risk of default. DDT’s officials are trying to privatize Fannie and Freddie which can disrupt the housing market and make buying homes more expensive. At this time, most of the loans are packaged into securities and sold to investors. In 2017, FHA guaranteed 10.9 percent of all single-family mortgage debt, more than half to borrowers with extremely high levels of debt and over triple the rate ten years earlier at the beginning of the recession. 

Another sign that the U.S. is moving toward a recession is the slow growth of the nation’s economy, 1.9 percent annualized pace in the most recent quarter and over one-third less than the 3 percent that DDT promised from his 2017 tax law. Consumer spending has continued, but business investment contracted for six straight months, falling 3 percent in the third quarter, the biggest drop since 2015. Spending on both structures and equipment was deeply negative from July through September, and manufacturing is currently in a technical recession. Economic uncertainty has led to this drop in investment.

DDT promised to erase the federal debt in eight years, but the 2019 fiscal year deficit hit $984 billion—just $16 billion short of $1 trillion, a 26-percent increase from the previous year and up 50 percent since he was inaugurated. The loss comes from DDT’s massive spending increases, especially for the military and a border wall, and tax cuts for the wealthy and big business. Bush’s bad policies, wars, and tax cuts led to a ballooning of the debt which President Obama curbed before DDT’s election. DDT’s shortfall is the same as for 2012 when unemployment was twice the current rate and the economy was coming out of the worst financial crisis since the Great Depression over 80 years ago. 

The debt-to-GDP ratio of 105 percent for the last quarter, up from last year and the first year to be this high since 1945, the end of World War II. That figure comes from the $22.719 trillion U.S. debt as of September 30, 2019 divided by the $21.526 trillion nominal GDP. The World Bank states that any debt greater than 77 percent is past the “tipping point,” when it can’t be repaid. DDT promised to cut the debt, but instead of vastly increased it by giving trillions of dollars to the wealthy and corporations. With these disasters, DDT plans another tax cut to enhance his reelection campaign.

DDT plans to use this economy for his reelection campaigning.

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