Economic Tug-O-War

This just in:  I want to be clear…this post is NOT about politics.  It might feel that way but it’s not.  It’s about economics.

There are two basic ways to control the pace of growth, or fight off a recession: (1) fiscal policies – government spending or (2) monetary policies – the Federal Reserve raising or lowering interest rates.

Over the last year, including last week, the Federal Reserve has been raising the interest rate.  They do this for two basic reasons: (1) keep the economy from growing too fast – overheating and (2) prevent inflation.

Raising the rates encourages saving instead of borrowing.  This is true for companies and individuals.  By saving, like in a bank, we take money out of circulation and make it more scarce.  The more scarce it is, the more valuable it is and thus, stops inflation (the devaluation of money).

The fact that the Fed is doing this now is their way of saying “The economy has too much cash and is growing too fast.”

Let’s also add a bit of other current information: (1) There are 6 million unfilled jobs in the United States today, (2) American companies are sitting on $2 trillion in cash and (3) the last time their was this much income inequity between the rich and the poor was the months leading up to the Great Depression in 1929.

Now, let’s consider the current tax plan.

It’s stated goals are to create jobs and to give companies more cash so they can create even more jobs.  All of this is supposed to put more money in the hands of consumers and to stimulate the economy.

In short…it’s stated intent is to do THE EXACT OPPOSITE OF WHAT THE FEDERAL RESERVE IS TRYING TO ACCOMPLISH.

We don’t need the jobs and the economy is flush with cash as it is.

The economy is growing at a borderline “too fast” rate as it is.

Most of the tax cut goes to the ultra wealthy, thus increasing the already gross amount of income inequality.

So…This current tax proposal is not something an economist would consider “well thought out.”

Just sayin…

Cute clip of the day…

Quote of the day: “Don’t walk behind me; I may not lead. Don’t walk in front of me; I may not follow. Just walk beside me and be my friend.”— Albert Camus

On politics…If I had voted for a politician because they promised to Repeal and Replace Obamacare, I would not consider replacing it with something “worse” to be keeping that promise.  If I had voted for a politician because they promised Tax Reform, I would not have considered Tax Cuts that increase the deficit by $1.5 trillion be be keeping that promise.   But hey…that’s just me.

Time to save the world.

Up, up and away…

Jim

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