The stock market has been soaring, and Donald Trump, whose economic policies (tax cuts for the rich and corporations and deregulation) have yet to be enacted is taking credit.
Meanwhile, the real economy is tanking, with 1.9% growth in the 4th quarter of 2016 and today's report of growth of 0.7%.
You don't have to be an economist (which may actually be a disadvantage) to understand that stock prices, to be valid, must be based on actual growth; when they diverge, that is a bubble.
How will the tax cuts for corporations (down over 50%) be used: to expand, to hire more workers? No, they will be used, if history is our guide, to buy back stocks and boost stock prices, thus intensifying the bubble and moving towards another major bust, the last time taxes for the rich were cut and deregulation enacted under Bush II.
Is there anything to undermine this likelihood? Trump says that his tax cuts will increase business activity, but that is to believe that what failed before (both under Reagan and Bush II) will this time work: that is magical thinking, delusional logic.
Trump's tax plan will drop taxes on the wealthiest Americans by 16% but only about 1% for ordinary Americans. An individual making $25K a yr will pay no taxes(except regressive payroll taxes) but most already pays no income taxes at that level.The savings for a family making $50 to 100K a year will be about $1 a day while giving those making over 3 million get a cut of $500 a day, or $166.000 a year. In addition, deductions on state and local taxes will no longer be able to be claimed, thus increasing taxes on those areas where such taxes are high. In other words, this tax plan transfers money from the many middle-class workers to the rich.
Instead of being spent, as ordinary workers are forced to do with their incomes, thus stimulating the real economy, in which increased spending on goods and services creates jobs, the excess savings by the rich will be used to invest in the overheated stock market (thus exacerbating the bubble) or invested in faster-growing economies such as India or China, where 7% is the growth rate, compared to the anemic US economy. The money transferred up will leave the real economy of production and consumption and thus depress economic growth even further.
What goes up fast comes down even faster................
Brookings Institute summarizes the conclusions of several analyses: "Donald Trump's plan would sharply reduce the top tax rate on individual income from 39.6% to 25% and broadly reduce rates for individuals with lower incomes. His plan would also lower the tax rate on corporate income from 35% to 15%, and apply this 15% to other "business income."
While his plan limits certain tax preferences and deductions, it does not include any reductions in federal spending. As a result, the Trump plan increases the federal deficit over the next decade by $10 trillion or $12 trillion," (sources: Tax Foundation and Tax Policy Foundation)The CBO forecast that $8.6 trillion will be added to the federal debt over the next 10 years.Trump claims the tax cuts will stimulate the economy and thus bring in more revenue and create jobs, but that is what Bush II said and his plan, nearly identical to Trump's led to the Great Recession and in 8 yrs, Bush lost private sector jobs with 23 million new Americans.
The CBO and other studies, all but the Republican Rassmussen study, dismiss Trump's magic tricks to make the cuts "revenue neutral." which means that the only way to prevent massive debt (and we haven't mentioned his trillion dollar deficit to fund his infrastructure program, which is currently on the back burner) is to cut spending on assistance to the poor. Thus the poor will pay for tax cuts for the rich. And this is not just a question of moral depravity, but it foreshadows a consumption deficit, which leads to recession or worse.
.When stocks rise (as tax cuts to the rich will surely cause, based on recent history) while the economy sinks, you don't have to be an economist to see that this situation is like a giant Ponzi scheme and can be propped up temporarily with more and more borrowing and fiat money creation by the Federal Reserve, but this only makes the problem worse in the longer run: collapse, based on these contradictory directions, is inevitable.Trump cannot see this because as a private businessman, he has always made money on failing businesses, calling himself The King of Debt.
George W Bush to President Lula of Brazil: "War is the best solution to recession."
In this case, it is not his business partners who lose their shirts as he dances off with their money, it is the public who will suffer...........and when the collapse comes, as a sinking economy and rising stock prices ensures, Trump will blame the Democrats, who are currently without power, and other groups, as his political fortunes tank along with the economy.This will likely happen before the 2020 elections so be prepared to unite behind a popular progressive leader to take back the White House, as the nation teeters, as it did in 2008, on the edge of financial ruin.Here is a summary of the results of massive tax cuts for the rich and deregulation: a booming stock market, as tax cuts are used to by back shares, massive debt to fund the government programs as revenue plunges, and, as a distraction and stimulus, further wars and borrowing to fund them.
This is Bush 2.0. It's deja vu all over again.The end result of this perfect storm is economic collapse and the ways that leaders respond to them, from wars to bailouts to blame-shifting. It also presents the perfect opportunity to change both leadership and direction, as we seize opportunity out of crisis to usher in a new progressive era.
retired, working radical egalitarian/libertarian socialist old school independent, vegan, survivor