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Thread: Financial Crisis - 2013 - ????

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    Default Re: Financial Crisis - 2013 - ????


    New Budget Deal Puts Final Nail in the Tea-Party Coffin

    The conventional wisdom among Washington Republicans is that populist conservative voters no longer care about spending or deficits

    July 22, 2019

    President Trump and congressional leaders are nearing a deal that would raise the discretionary-spending caps by $320 billion over two years and offset less than one-quarter of those costs (and even those offsets would take a decade to materialize). The budget deal would essentially repeal the final two years of the 2011 Budget Control Act and raise the baseline for future discretionary spending by nearly $2 trillion over the decade.

    This represents a fitting conclusion of the Budget Control Act — the crown jewel of the 2011 “tea-party Congress.” The decade-long shredding of these hard-fought budget constraints mirrors the shredding of Republican credibility on fiscal responsibility.

    The story begins a decade ago, when a budget deficit that had declined to a modest $161 billion by 2007 was hit with the Great Recession. While recessions always automatically raise budget deficits (fewer tax revenues, more unemployment and welfare costs), President Bush, President Obama, and both parties in Congress deepened the red ink with the TARP bailouts, which were initially expected to cost $700 billion, as well as with President Obama’s nearly $1 trillion stimulus law, which failed to rescue the economy even by the White House’s own metrics. By 2009, the deficit had exceeded $1 trillion for the first time, reaching $1.4 trillion. Horrified by Washington spenders, CNBC’s Rick Santelli stood on the floor of the Chicago Mercantile Exchange on February 19, 2009, and called for a “tea party” to end the bailouts, stimulus payments, and red ink. Grassroots tea-party groups formed — further enraged by the later enactment of an expensive new Obamacare entitlement — and helped Republicans capture the House in 2010 with a stunning 63-seat pickup and also pick up seven Senate seats.

    The new “tea party” House majority declared an end to deficit politics as usual. The new majority quickly banned pork-barrel earmarks and trimmed the 2011 appropriations bills that had been carried over from the previous year. The House then rallied around a budget produced by House Budget Committee chairman Paul Ryan (R., Wis.) that would gradually eliminate the deficit by converting Medicare to a premium-support model, repealing Obamacare, and cutting other spending. While Senate Democrats blocked these reforms, the need to raise the debt limit over the summer gave House Republicans unique leverage to force policy concessions from President Obama and Senate Democrats. The deficit-obsessed Republicans expressed a willingness to risk defaulting on national-debt interest payments in order to force spending cuts. And after months of intense negotiations, the two parties agreed to the Budget Control Act, which would cap discretionary spending through 2021 at much lower levels than the baseline, saving $2.1 trillion over that period.

    Unfortunately, this victory — which seemed like it would be the first of many — proved to be the apex of the tea-party movement. Without the leverage of the debt limit, President Obama and Senate Democrats could easily block House Republican spending reforms. The 2012 reelection of President Obama then cost the tea-party GOP some of the momentum that it acquired two years earlier.

    By 2013, even congressional Republicans were beginning to complain about the tight discretionary-spending limits brought on by the Budget Control Act. In particular, defense hawks chafed at the defense caps, and showed a willingness to give Democrats domestic spending hikes in return for defense hikes. The result was a deal negotiated between the House and Senate Budget Committee chairpersons (Ryan and Democratic senator Patty Murray) that would increase the discretionary caps by $63 billion over 2014 and 2015, in return for new user fees and cuts to mandatory programs. The fees and cuts would occur over the following ten years, and some were quite gimmicky.

    Once the 2014 and 2015 spending caps were raised, there was no way lawmakers would ratchet spending back down to the cap levels in 2016. So two years later, another “Ryan-Murray” deal raised the 2016 and 2017 spending caps by a combined $80 billion, once again with ten years of somewhat-gimmicky mandatory spending offsets.

    During that period, Senate Republicans tried again to use a looming budget deadline to force major budget concessions from President Obama. Led by Senator Ted Cruz (R., Texas), Republicans shut down the government in October 2013 to pressure President Obama into repealing Obamacare before it could be fully implemented. Their wild overreach failed and likely cost the tea-party movement support among increasingly skeptical moderates and independents.

    But the election of President Trump — with the tea-party Senator Ted Cruz, among others, defeated in the process — may have finally killed the tea party as a whole. Trump, who called himself the “king of debt,” deemphasized spending restraint and even promised that Social Security, Medicare, and Medicaid, the overwhelming drivers of long-term deficits, would be off limits to reform. His surprising election marked a replacement of the GOP’s free-market conservatism, exemplified by Ryan, with a more populist, big-government conservatism. By 2017, a Pew poll showed that just 15 percent of Republicans supported paring back the escalating costs of Medicare or Social Security to bring down the deficit.

    With a president not focused on deficit reduction, and even Republican voters opposing many spending cuts, congressional Republicans largely surrendered on spending and deficit restraint. Instead, they passed a $2 trillion tax cut that represented solid economic policy but did not even attempt to offset the new cost with spending cuts. And in contrast to “starve the beast” rhetoric, these tax cuts led to more — not less — federal spending. Once you’ve cut taxes for corporations, it would be political suicide to turn around and tell seniors that they must now accept cuts to Medicare. Instead, all groups demand their own share of the new benefits.

    By early 2018, surrendering Republicans raised the 2018 and 2019 spending caps by a staggering $296 billion, this time with less than $50 billion in offsets over ten years. An effort by conservative House Republicans in 2017 and again in 2018 to trim the growth rate of entitlement spending from 5.9 percent to 5.8 percent per year was rejected by Republican senators for being too radical. Even a rescission bill that would reduce unnecessary spending by a mere $1 billion over ten years — or 0.002 percent of the budget — was defeated in the Republican Senate. Instead, lawmakers renewed billions in new farm subsidies for wealthy farmers and considered bringing back pork-barrel earmarks. Legislation to repeal and replace ObamaCare was defeated in the Republican Senate.

    And that brings us to 2019, when the return of trillion-dollar deficits has been met with a collective shrug from Republican leaders. The conventional wisdom among Washington Republicans is that populist conservative voters no longer care about spending or deficits and that Democrats and hostile media would savage any attempts to rein in government. So the debt limit is now regularly suspended, and the final two years of the Budget Control Act, 2020 and 2021, are poised to see a spending-cap increase of $320 billion with only minimal offsets. At one point, Republicans discussed extending the spending caps beyond 2021. Now, they will skip the charade.

    The tea party burst into Washington pledging spending restraint, balanced budgets, and accountable government. Even the possibility of defaulting on the national debt was an acceptable price of reform. Roughly a decade later, budget deficits are again reaching $1 trillion, spending is soaring, Obamacare remains on the books, and Republicans are raising the debt limit and eviscerating their lead accomplishment, the Budget Control Act.

    With Republicans like these, who needs Democrats?

  2. #542
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    Default Re: Financial Crisis - 2013 - ????

    America is spending itself into oblivion with welfare drones being paid to not burn the cities leading the way with hands out. At some point the tribute money runs out and one side or the other is beaten permanently.
    Don't like Fascists of any kind, Marxist, Islamist, red white black or brown, they can all take a long walk off a short pier.

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    Default Re: Financial Crisis - 2013 - ????


    Trump Can’t Be Both The President Of Growth And The President Of Debt

    July 26, 2019

    With the unemployment rate below 4 percent for 16 consecutive months, one would expect economic growth to be soaring. Yet even as we experience the best job market since the late 1960s, this is the first time in modern history that we have not experienced a year of 3 percent GDP growth. What gives?

    Earlier today, the Bureau of Economic Analysis announced that the economy had grown just 2.1 percent during the second quarter of this year (ending June 30). It also revised Q4 of 2018 down to just 1.1 percent, which now means that growth during the 12 months ending Q4 of 2018 was only 2.5 percent, not 3 percent as previously thought. This means that the U.S. economy has now gone 14 years without a year-over-year growth of 3 percent. It’s been 19 years since we’ve hit 4 percent, which was during 1997-2000.

    While the numbers don’t portend a coming recession, it is highly unusual for us to go for 16 consecutive months with unemployment below 4 percent and 43 months below 5 percent, yet never attain 3 or 4 percent annual GDP growth. In fact, that has never happened before. During the late 1990s, the unemployment rate ranged from 5.3 percent to 3.9 percent – not even as good as today’s 3.7 percent – yet GDP growth was over 4 percent. Ditto for the late 1960s, when we saw years of 6 percent growth. During the mid 1980s, we saw this growth even with higher unemployment rates.

    The debt is not just a problem for future generations in terms of a fiscal cost that will be borne by taxpayers. The exclusive focus on the future is what has fostered the Louis XV mentality of “after me, the deluge.” Let’s face it, we are a nation that doesn’t care about the future of our children. What is missing from the discussion is that the debt is permanently weighing down economic growth now.

    Let’s peek into the numbers behind today’s topline GDP report. GDP comprises personal consumption expenditures, gross private domestic investment, government spending, and net exports. Seventy percent of the equation is consumption, and the robust 4.3 percent growth in consumption this quarter is a big part of what is keeping us even at 2.1 percent growth. This is not artificial and is good news. Consumption is a sign of a healthy job market, with more people earning money, as well as the tax cuts putting more cash in people’s pockets to spend. No matter whether our economy is fully free market or quasi-socialist, whenever there is more money in people’s pockets, these numbers will go up. We are now in a boom period, and the numbers are good.

    But what else is propping up the number? Government spending! Gross government spending, which accounts for about 17.5 percent of the GDP pie, spiked 5 percent. Non-defense spending rose by 15.9 percent!

    Thus, without the spending binge, which will be accelerated by the budget betrayal promoted by the president and backed by more Democrats than Republicans in the House, the topline number would have been lower.

    But here’s the problem. While government spending juices up the economy in the short run, the debt that we must incur to continue that spending is permanently weighing down the economy in the long run.

    Which leads us to the third component – gross private domestic investment. That is the engine of a supply side economy. Those numbers contracted by 5.5 percent this past quarter, the worst showing since 2015. Investment in non-residential structures plummeted by 10.8 percent, highly unusual with such a good job market.

    Then, of course, there is the final component: exports. Net exports were down 5.2 percent because of the tariffs.

    Here’s the reality: Our economy is nothing like it was in the 1980s or 1990s. We have a huge misallocation of resources, with all sorts of capital going into government-mandated schemes that increase dependency programs or debt, rather than the most efficient investments.

    Then the debt itself is hurting us. So much money is now spent on paying off interest. As interest rates are pushed higher, more private money is used to purchase higher-interest Treasury securities rather than invest in capital goods, such as factories and plants. The more government is desperate to service this debt, the more it will drive up interest rates, which in turn will divert and misallocate more investors into Treasury bonds. This further makes interest on the debt even more expensive, constantly reinforcing itself in a vicious cycle of debt and higher rates.

    At some point over the past decade, we crossed the Rubicon of irrevocable lethargic growth because of debt. Interest on the debt is the fastest-growing expenditure of government. That is a problem now. So, we can create jobs and wages even in a centrally planned economy, but the debt and market distortions are creating so much inefficiency and waste that they are permanently capping our growth. I don’t believe we will ever achieve protracted 3 percent growth until the debt crisis is solved.

    The president has been convinced that we can grow our way out of the debt. The problem is the debt itself is weighing us down from growing!

    With two months left until the budget deadline, the president could have spent the entire summer recess building the case for a better debt deal. Instead, he chose to support a bill nearly unanimously supported by House Democrats that will add almost $2 trillion more in debt over the next 10 years.

    If Trump wants to be the president of growth, he can’t have it both ways and be the president of debt.

  4. #544
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    Default Re: Financial Crisis - 2013 - ????


    Trump Reverses Course, Seeks Negative Rates From Fed 'Boneheads'

    September 11, 2019

    U.S. President Donald Trump on Wednesday called on the “boneheads” at the Federal Reserve to push interest rates down into negative territory, a move reluctantly used by other world central banks to battle weak economic growth that risks punishing savers and banks’ earnings in the process.

    Trump, in a pair of Twitter posts, said negative rates would save the government money on its debt, which including Social Security accounts has reached a record $22 trillion on Trump’s watch. He did not address the risks or financial market tensions that central banks in Europe and Japan have confronted as a result of their negative rate policy, or the larger issue that negative rates have not secured higher growth or higher inflation for those economies.

    “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term,” Trump tweeted. “We have the great currency, power, and balance sheet... The USA should always be paying the ... lowest rate. No Inflation!”

    “It is only the na´vetÚ of (Fed Chairman) Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing,” added Trump, who has repeatedly noted that rates are negative in Germany, Europe’s trading powerhouse.

    The president’s comments precede a week in which the world’s major central banks, including the Fed, are expected to lower rates or otherwise loosen monetary policy in what is widely seen as a move to protect the global economy against risks partly rising from Trump’s trade war with China.

    But the quarter of a percentage point cut expected by the Fed is not likely to satisfy Trump, who has called on Powell and the Fed to quickly and dramatically cut rates as a way to boost slowing U.S. economic growth ahead of his re-election bid next year.

    Last month, however, Trump told reporters at the White House that he did not want to see negative rates in the United States, and analysts on Wednesday said the still-growing U.S. economy would be put at risk if the Fed pursued them.

    While perhaps appropriate in “recessionary” conditions, zero or negative rates in a growing economy with record-low unemployment “may ultimately create the next financial crisis - people taking on more risk than they would otherwise because money is even cheaper,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

    Trump has bragged about his use of debt as a real estate investor. As far as managing the federal government’s affairs, interest on outstanding U.S. Treasury securities will be nearly $400 billion in the current fiscal year and rise to more than $914 billion by 2028, according to the Pew Research Center. ​

    Still, interest accounts for about 8.7% of all federal outlays, down sharply from the mid-1990s when it accounted for more than 15% of spending following an era of ultra-high interest rates in the 1970s and 1980s, the Pew data showed.

    A White House official who asked to speak on background said in response to the president’s tweets that “the president is looking at every tool available to lower the national debt and we ask Congress to join us in cutting back on wasteful spending.”

    “ENEMY” POWELL TO SPEAK NEXT WEEK

    Trump handpicked Powell as head of the U.S. central bank, but quickly soured on his by-the-book approach and insistence on Fed independence.

    The president last month referred to him as an “enemy” on par with the head of the communist-led Chinese government and kept up his personal line of attack on Powell and the Fed in his tweets on Wednesday: “A once in a lifetime opportunity that we are missing because of ‘Boneheads.’”

    On Friday, Powell said the Fed would act appropriately to help maintain the U.S. economic expansion and that political factors played no role in the central bank’s decision-making process.

    He will hold a news conference next Wednesday at the end of the Fed’s two-day policy-setting meeting.

    The Fed cut interest rates in July for the first time in more than a decade. Financial markets expect the Fed to again lower its benchmark rate, currently at 2.00-2.25%, when it meets Sept. 17-18.

    Despite Trump’s name-calling, U.S. Treasury Secretary Steve Mnuchin told reporters at the White House on Monday he expected Powell’s job was safe, despite months of speculation that the president could seek to oust him.

    RISKY MOVE

    Fed officials have downplayed the idea of setting their target policy rate below zero as politically untenable and not worth the risks. The policy is meant to account for extremely weak economic conditions by, in effect, charging banks to hold reserve deposits at the Fed.

    In theory those banks would put the money to more productive uses. But it raises risks.

    Banks might pay less to savers as a result, and it can make it more difficult to operate at a profit. In addition, while the Fed’s policy rate influences other borrowing costs, the interest rate on long-term government bonds Trump alluded to in his Tweet are set by larger market forces and depend mightily on perceptions about economic growth.

    The yield on 10-year Treasury notes has collapsed by half in recent months to a near record low — a reflection of doubts about the global economy and the impact of Trump’s trade war as much as of Fed policy. Trump has cited the negative yield on Germany’s 10-year bond approvingly, but it is a product of an economy nearing or perhaps in recession.

    The Washington Post, citing public filings and financial experts, reported last month that Trump could also personally save millions of dollars a year in interest if the Fed lowers rates, given the outstanding loans on his hotels and resorts.

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    Fed Pumps $75 Billion Into Financial System Again

    September 19, 2019

    The Federal Reserve Bank of New York once again stepped into the money market to supply additional liquidity on Thursday morning.

    The N.Y. Fed injected $75 billion into the market for overnight repurchase agreements, known as repos. The Fed had intervened in the market on Tuesday and Wednesday after interest rates spiked higher at the start of the week.

    The repo market is at the center of the U.S. financial system but it is little understood even by most people working in finance.

    Big Wall Street banks borrow cash to finance their securities portfolios by selling securities and promising to buy them back the following day. The cash comes from investors with lots of dollars looking to make a little extra interest, such as money-market funds and government-sponsored housing agencies such as Fannie Mae, Freddie Mac, and the Federal Home Loan bank. Typically, the interest rate on repos falls within the Fed’s target range for the fed funds rate, the rate banks pay to borrow reserves from each other.

    Here’s how it works. Traders at the big Wall Street firms put in bids to borrow cash overnight and cash investors accept bids, typically striking deals by 10 a.m. The bids are promises to pay an interest rate and a pledge to post securities as collateral. After the market closes at the end of the day, the securities get allocated to the cash investors. The following day, at 8:30 in the morning, the repos get unwound. The cash investors get their cash back and the Wall Street banks get their securities back. Then it starts all over again.

    Why do the big Wall Street banks fund themselves this way? It’s really just a more intense version of the basic model of banking: borrow short-term, lend long-term, and make your profit on the difference between the rates. In this case, however, the big banks are borrowing the cash overnight and using it to buy longer-term bonds paying higher rates of interest. If collateralizing a loan with securities that were purchased with the loan sounds strange just remember that this is not really that much different than how a car loan or a mortgage is collateralized.



    Usually, the repo process is nearly seamless. Most of the previous day’s trades just get rolled over into the next day’s repos, with a slight tinkering of the rates and slight shifts in the collateral. But this week has been unusual.

    At the start of the week, the repo rate unexpectedly jumped higher, indicating that there was a shortage of dollars compared with demand. On Tuesday, the Fed stepped into the market by supplying $53 billion of cash in exchange for securities. On Wednesday, the Fed supplied $75 billion of cash–and said it had bids for an additional $5 billion of repos. On Thursday, the Fed supplied $75 billion again and said this time the facility was oversubscribed by nearly $9 billion.

    The cause of the spike in rates is still a mystery. The theory now with the most currency (excuse the pun) on Wall Street is that the Fed, by unwinding its quantitative easing and shrinking its balance sheet, has removed too much liquidity from the financial system. If that is the source of the problem it would be ironic because the Fed has spent a good deal of time over the last few years worrying about how to conduct monetary policy in a world of “ample liquidity.”

    No one looking at the repo market this week would characterize it as having ample liquidity.

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    Repo Madness Day 7: Banks Seek $92 Billion Of Repo Funding From NY Fed

    September 25, 2019

    The New York Fed received $92 billion of bids for its overnight repo facility on Wednesday, far outstripping the $75 billion the bank offered to provide liquidity to the short-term funding market.

    The oversubscription is an indication that the stress on the repo market has not lifted despite the central bank’s intervention, now in its seventh day.

    The Fed has been intervening in the repo market, which provides short-term funding vital to the largest Wall Street banks, ever since interest rates spiked on at the start of last week. The cause of the interest rate spike remains a matter of speculation. The most popular theory on Wall Street is that the Fed’s earlier balance sheet reduction has left the market with too few dollars relative to Treasuries held by financial institutions.

    The repo market is at the center of the U.S. financial system but it is little understood even by most people working in finance.

    The word repo is short for repurchase. In a repo, one party sells another a security while promising to buy it back at a later date, often the very next day. The repurchase price is a bit higher than the initial sale, creating a positive return for the cash provider. Although technically structured as sales and repurchases, essentially what’s going on here is the creation of short-term loans collateralized with Treasuries, mortgage-backed securities, and agency debt. The higher repurchase price is equivalent to earning interest on the loan.

    Big Wall Street banks borrow cash to finance their trading activity, for themselves and for clients, by selling securities and promising to buy them back the following day. The cash comes from investors with lots of dollars looking to make a little extra interest, such as money-market funds and government-sponsored housing agencies such as Fannie Mae, Freddie Mac, and the Federal Home Loan banks. Typically, the interest rate on repos falls within the Fed’s target range for the fed funds rate, the rate banks pay to borrow reserves from each other.

    Here’s how it works. Each morning, traders at the big Wall Street firms put in bids to borrow cash and cash investors accept bids. The bids are promises to pay an interest rate and a pledge to post securities as collateral. Later the day, the securities get allocated to the cash investors. The following day, the repos get unwound in the morning. The cash investors get their cash back and the Wall Street banks get their securities back. Then it starts all over again.

    Why do the big Wall Street banks fund themselves this way? It’s really just a more intense version of the basic model of banking: borrow short-term, lend long-term, and make your profit on the difference between the rates.

    Usually, the repo process is nearly seamless. Most of the previous day’s trades just get rolled over into the next day’s repos, with a slight tinkering of the rates and slight shifts in the collateral.

    But the market started to malfunction last Monday, with the implied interest rate rising far above the Fed Funds target. Ever since, the Fed has intervened to hold the rate down. It now seems increasingly likely that this will become a permanent feature of the market.

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