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Political dysfunction in the United States is at an all-time high.
Republicans and Democrats are fighting pitched battles on immigration, Obamacare, tax cuts, regulation, infrastructure and just about every other major policy issue you can name. These fights are bitter, involve a lot of name-calling and show no signs of abating soon.
The stakes could not be higher. These policy fights are a prelude to the congressional elections in November 2018 when the entire House of Representatives is up for grabs. Right now the Republicans are in control, but a loss of 24 seats will put the Democrats in charge and hand the gavel over to Nancy Pelosi as the speaker of the House.
Once that happens, the impeachment of Donald Trump will begin within a matter of weeks.
In this toxic environment, it seems that Republicans and Democrats cannot find common ground on anything. It turns out that’s wrong; they can agree on something. More spending!
The Republicans have thrown in the towel and given up any pretense of being fiscally conservative. Republicans have joined forces with Democrats to eliminate budget caps on defense and domestic spending.
Entitlements were already out of control because they’re on budget auto-pilot and don’t require new appropriations or votes. Now even the budget items that were subject to votes are out of control.
The bad old days of $1 trillion annual government deficits of the Obama administration (2010, 2011, 2012) are back under a Republican administration. Of course, none of this spending is paid for, because the recent tax cuts already increased the deficit before the new spending spree took effect. Many economists try to find a silver lining by saying spending will be stimulative for the economy.
This is part of the “tale of two markets” narrative I relayed last week.
The first narrative could be called “Happy Days are here Again!” It’s being offered by much of the mainstream.
It goes like this: We’ve just had three quarters of above trend growth at 3.1%, 3.2% and 2.6% versus 2.13% growth since the end of the last recession in June 2009. The Federal Reserve Bank of Atlanta GDP forecast for the first quarter of 2018 is a stunning 5.4% growth rate.
This kind of sustained above-trend growth will be nurtured further by the Trump tax cuts. With unemployment at a 17-year low of 4.1%, and high growth, inflation will return with a vengeance.
This prospect of inflation is causing real and nominal interest rates to rise.
That’s to be expected because rates typically do rise in a strong economy as companies and individuals compete for funds. The stock market may be correcting for the new higher rate environment, but that’s a one-time adjustment. Stocks will soon resume their historic rally that began in 2009.
In short, the Happy Days scenario expects stronger growth, an improved fiscal position due to higher tax collections, higher interest rates, and stronger stock prices over time.
Don’t believe it.
We’re past the point of no return. With …read more
Source:: Daily Reckoning feed
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