When do you think the US economy will tank?

The US economy will tank when the false perception of a great economy catches up with the reality of mathematics. Trump predicted economic growth of 4 percent due to his business acumen, success in the real estate market and a “great brain.” However, recent revelations by the New York Times contradicts this assertion by saying that Trump inherited over $400 million dollars using fraudulent schemes to avoid paying taxes and then squandered most of that wealth in bad business decisions only to be rescued by Russian “credit lines” that will become due during his time in office.

Economic forecast for gross domestic product, is that it will rise to 2.4 percent in 2019 according to the Federal Reserve which is 1.6 percent Trump’s wishful prediction. Moreover, the U.S. debt exceeded $21 trillion in 2018 although it had remained stable after sequestration was activated requiring a mandatory 10 percent federal budget cut through 2021. Moreover, Trump might repeal it as tax collections fall below projections from his tax largess for wealthy Americans. Never mind that he promised to reduce the debt as his policies may increase it by $5.6 trillion.

The U.S. debt-to-GDP ratio is forecast to hit 108 percent by the end of 2018, a level that is not a sustainable and well above the 77 percent benchmark that the International Monetary Fund recommends for a healthy economy.

The appointment of Lawrence Kudlow as head of the National Economic Council indicates how firmly Trump and supply-side economics control the republican view of wealth distribution and the how it should take place. However, lowering taxes can create a budget hole that can only be filled by printing new money which many economic researches agree on the notion that new printed money becomes proportional to inflation. These supply-side view ignores that it doesn't work when the maximum tax rate is below 50 percent, according to the Laffer Curve which Kudlow argues as his basis for the economic policy!

On another front China is the world's second-largest economy, behind the U.S. since 2014. Notwithstanding, China's economic growth is slowing from double digits to 7 percent annually but proportionally to its size it will continue to affect the U.S. economy with a higher influence than in the past. One reason is of course the U.S. debt to China which still is larger than to any other country while China continues to accumulate US treasuries for its international trade needs.

Another economic pressure comes from energy price inflation. The International Energy Forum projected, in 2007, that by 2030, oil prices will be $95 a barrel in nominal dollars. “The EIA's Annual Energy Outlook predicts that U.S. shale oil production will level off after that. As a result, oil prices will rise to $114 a barrel by 2050.”

One of the most important functions of the Fed is managing public expectations of inflation for once the public expects inflation, “it becomes a self-fulfilling prophecy.” Confidence in the current economy is Trumpian and the Feds must walk a high rope balancing act managing Trumpian politics with economic reality in order to moderate public behavior. But as the Fed continues to raise interest rates even though at a slow pace, it knows that mortgage rates will rise, and housing prices will drop to offset the higher cost to home buyers. The public on the other hand, thinks the real estate market will crash in the next few years as housing prices rise, combined with raises in interest rates by the Fed. To many observers, it looks simply as an asset bubble that will be followed by a collapse.

As of July 2019, is the economy of the United States stronger than ever before?

https://twitter.com/realDonaldTrump/status/1019230023897833479

When Trump says that Americans never had it so good, his republicans supporters certainly will agree. For many years people’s partisan loyalties adhere to whether the economy is doing well. However, in Trump’s case, his single biggest economic initiative has been a complete failure.

The tax cut bill republicans passed last year, which favors corporations and the rich but not the majority of Americans. Republicans’ worn out sales pitch for the tax cut was that it would promote immense economic growth and prosperity for all but as most economists predicted, corporations took the money and put it into historic stock buybacks, and not into higher wages or better paying jobs. As a result we now have the lowest corporate taxes as a proportion of gross domestic product in the developed world but with no gain transfer for the average Joe. In general the result has been that most Americans don’t believe it boosted their paychecks, and think the tax cut was a terrible idea.

Moreover, now we have Trump’s trade war, which as a symbol of power wielding might have approval from his fringe supporters but the likely damage to the economy is a reality that would take a long time to repair. It follows that it will hurt the hardest Trump’s most zealous supporters in the grain growing and exporting belt of the country his claiming to defend.

Many Americans are aware that statistical low unemployment rate is not enough as a good measure for paychecks, opportunities, or inflation rates that can erode meager gains on wages that could make life miserable for many and a rise in poverty levels at the expense of a shrinking middle class.

The Trump administration has weaken worker’s rights either for collective bargaining or as a subset of the working class not to mention loses in health care benefits and his sabotage of the Affordable Care Act which guarantees the most needy Americans with pre-existing medical conditions some measure of health security. He has sought to undermine the environment and worker safety protections making the work place meaner and more cruel that it has ever been only for the benefit of his corporate supporters and cronies.

Trump wants to trumpet success with North Korea’s nuclear disarmament, brotherly relations with Vladimir’s Russia who is a thug and who still is a murderer KGB operative. On the other hand, he undermines relations with our closest allies and starts a trade war conveying great uncertainty for the country and western democracies. These set of actions has many legislators and former government officials questioning Trump’s loyalty to America as he continues his relentless drive towards the abyss on a course of collective suicide.

What is the economic concept of money and credit?

In in a dissertation paper about the theory of money and credit professor Ludwig Von Mises makes many insightful arguments, his paper was published by Yale University Press in 1953, and today, the principles dissected remain unchanged.

The economic theory of money is generally stated in a terms that are not economic but jurisprudence. This terminology has been updated by merchants, judges, and others whose interests have legal tenders characteristics as well as their substitutes. In earlier times coins circulated by weight and not by count but money nowadays consist of specific units of value that is assigned to them by law. The standard units of value mean the many names given to currency such as francs, marks, dollars etc., that might have been adopted as measures of value.

The value of money is however, determined by the State, by statute, by the legal system ignoring the most -important facts of monetary history; the artificial network fallacy that collapses upon the question: What exactly are we to understand by a unit of value of such money? But these questions can only make sense to those who are aware of the theory of prices. Mises states that money is neither a production good nor a consumption good and fluctuations in the objective exchange value of money is induced by changes in the ratio between the supply and demand for it given by the Total Volume of Transactions + Velocity of Circulation (velocity=the number times the same currency is used in a period of time). For a definition of the demand for money an individual must start with the considerations that receiving and paying out money stops when the public loses faith in an issuer of fiduciary currency at a time of crisis, and when the fiduciary media ceases to have circulation value. Many examples of this sort are known in history like the experiences of the United States in the late 1907, Germany in the late 1930’s and other more recent cases like Venezuela. In all the branches of economic the most studied is money which also has the longest history and the most extensive literature. The elements of the “Quantity Theory” were established at a time when speculation and other types of economic problem had yet began cataloging. When ‎John Maynard Keynes published his Treatise on Money in 1930 he lamented the absence, not only of an established tradition of arrangement, and of a systematic treatment of the subject on a scale and of a quality comparable with that of the standard discussions of the central problems of “pure equilibrium theory”. It states that ‘the balancing of production and consumption takes place in the market, where the different producers meet to exchange goods and services by bargaining together’. In these actions of the market the function of money is to facilitate the transactions that take place by acting as a common medium of exchange. In such arrangement the functions of money is to transmit value through time and space.

In this particular category money is being used as a price index and commodity credit. Then there is Fiat money which is the currency that a government declares to be legal tender, but it is not backed by any physical commodity. The value of fiat money results from the relationship between supply and demand rather than the value of the material from which this money is made. The law regards money only as a means of cancelling outstanding obligations that has important consequences for the legal definition of money.

Cooperating jurists supported the attempts to discover a philosophical basis for the right of kings to degrade the coinage and to prove that the true value was that assigned to them by the ruler of the country. But as mentioned before money is neither a production nor a consumption good furthermore, this same assertion is to be made to the means of transport among instruments of production on the basis that transport is not in its self an act of production but a means of transfer and that the nature of goods is not altered by transportation any more than by a change of ownership.

How does our national savings rate impact our trade deficit?

Some economists claim U.S. trade deficits are caused by the low savings rate of Americans. But mainstream trade journals continue to assert that trade deficits don’t really matter.

On June 20, 2017, the Coalition for a Prosperous America released a research paper, “Do Savings Rates Cause Trade Deficits?” by CEO Michael Stumo and Research Director Jeff Ferry that shows why globalist economists are wrong about what causes trade deficits, offshoring and job losses.

They write, “A popular, but misleading, claim is that low U.S. savings, relative to investment, causes our trade deficit. For example, Harvard professor and former Reagan administration advisor Martin Feldstein has said that the U.S. fiscal deficit, which indeed reduces national savings, is the cause of the trade deficit. ‘If a country consumes more than it produces, it must import more than it exports.’”

Other economists view the issue of trade deficits with a different lens. They say that America is exporting its paper money for goods made in China and other countries that need reserve currencies such as dollars, to purchase raw materials from other countries.

The traditional macroeconomics equation of basic Gross Domestic Product does not reflect the issue of currency markets or exchange rates. For instance the recent tax cut Trump instituted in the American economy places the GDP to debt ratio at 106% which inflates the value of the dollar or undervalues the dollar reserves many countries are already holding. In contrast the EU has a GDP to debt ratio of 81% making it a more desirable reserve currency.

Everybody agrees that reform is needed in currency exchange markets and not only in merchandise trade markets for as long as budget deficits and national debt continue to rise, specially, in the USA for its dollar preferred place in the world as a reserve currency retracts while other currencies begin to displace it.

These real-world changes directly impact one or more variables within the identity GDP equation, transmitted through by mathematical necessity. In short, national savings is related to the trade deficit in an accounting sense but it is not its causation.

The relationship between savings and trade deficits can be best explained in a mathematical accounting identity but this do not reflect the causal relationships between savings, investment, and trade flows. A merchandise trade deficit reduces the incomes of domestic workers however; exporting paper money reduces the cost of imports which benefits the lower income brackets.

In 2005, the Federal Reserve Board chairman Ben Bernanke argued that “the large and growing U.S. current account deficit is caused not by anything happening in the U.S., but by decisions taken by emerging economy nations to run very high savings rates, pursue export-led growth, and lend money to other countries, especially the U.S. He called the situation a global savings glut. These excessive inflows of foreign savings raise the U.S. dollar exchange rate, drive down our interest rates, and force our economy into a trade deficit.”

Tactics of Surplus Producing Countries Use

Many authors agree that “Export-oriented or investment-oriented countries can utilize domestic and foreign policies to reduce consumption, increase production and export at very competitive prices.”

In the case of China:

Wage growth is constrained to below the growth of worker productivity

Undervalued exchange rate

Government subsidizes to Chinese manufacturers

Vast amounts of surplus labor that produces more than it consumes

Unethical accounting practices for valuation and investment