Waffle House Economy

The difference between fantasy and reality is that in the real world real stuff actually happens to real people.  If you live in a fantasy world, you have lost touch with reality.  You have not, however, escaped reality.  Reality will, sooner or later, assert itself.  At that point, you will suffer a rude awakening.

Our country is poised to experience several rude awakenings as we discover that our President and those supporting him have lost touch with reality.

Russians
We now know that the Russians have been and are continuing an effort to disrupt our democracy.  We know the who, the why, and even the where.  Some of those who worked on disrupting the 2016 election, have since come forward to provide detailed accounts of what they did and how they did it.  Facebook and twitter have identified the accounts that they used.  Mueller has the evidence and indicted some of the perpetrators.  Our intelligence community has documented the hacking that occurred to voter records and electronic voting machines.  Our intelligence community continues to sound the alarm that these attacks are expanding and becoming more sophisticated.

Our President and the party that supports him live in the fantasy world that the whole Russian effort is a partisan witch hunt intended to discredit Trump’s election.  They attempt to deflect blame to Clinton, the Democrats, or the media.  The REALITY is that concerted efforts by the President and his supporters to discredit the media left us vulnerable to Russian spreading REAL fake news.  Conservatives were eager to spread whatever stories they read that confirmed their fantasies about Clinton and the Democrats even though they were fantasies.

The reality is that we have been attacked in no less a real way than we were attacked on 9/11.  Why hasn’t our President and our government responded?

According to Tom Friedman, there can only be two answers.  Either Trump is simply delusional or the Russians DO have something on him that he does not want others to know.  Neither choice bodes well for the country.

Tax Cuts and Government Spending and Economic Growth
We have never provided this large a stimulus to an economy that was this robust.  We are in completely new territory as far as what is going to happen.  The tax cut and the associated budget bill killed off the “Trump” stock market rally because of concerns about the Fed raising interest rates to combat inflation.  More concerning is this massive reduction in government revenues is happening at the same time as costs for Social Security, Medicare, and Medicaid are rising because of the baby boomer retirement.  The fantasy is that the tax cuts will pay for themselves, but even the Trump budget shows they don’t believe it.  The claim is that we will see 3% growth as far as the eye can see.  The reality is that there aren’t enough workers to support that sort of growth.  The worker situation grows worse each day that we actively discourage immigrants from coming here to work.  The second fantasy is that corporations will invest the tax cut in higher wages.  Wages are going up, but it’s because unemployment is so low.  Corporations have spent $6B in bonuses and wage increases.  They have spent $170B in stock buy backs.  That’s reality.

Tariffs
This is a terrible idea.  It based in Trump’s fantasy that trade is some sort of mano-a-mano wrestling match.  It’s not.  Even if other countries don’t retaliate, which the very likely will.  It will be a net looser for the economy.  Just like the tax cuts, nobody has tried to impose tariffs at time of very low unemployment.  That’s because the whole design of the tariff is to use price to replace imported products and services with domestic products and services.  The problem is that we do not have the employees to ramp up domestic production of much of anything.  How are steel producers and aluminum producers going to expand, if they can’t find skilled workers?  The result instead will be more pressure on wages AND more pressure on prices.  What’s that spell? INFLATION.  What happens when inflation goes up?  The dollar goes up.  What happens when the dollar goes up? Exports go down.  That’s why tariffs went out with the cold war.  The news suggests that Trump’s about face on tariffs was driven more by his frustration with his administration than a careful analysis of the subject.

So where does this leave us?

SNL said it best.  We hired a businessman to run the economy, and he’s running it like a Waffle House at 2AM.

16 Responses to “Waffle House Economy”

  1. Keith says:

    An economy that was growing at sub 2% you’ve described as robust?

    Tax cuts and budget killed off the Trump stock rally? It went up 45% in 14 months. You excepted it to keep going up?

    Jeff, your predictions remind me of and old saying, even a broken clock gets the time right twice a day.

  2. Keith says:

    313,000 new jobs

    Manufacturing jobs up 270k or so since trump started.

    I like Wafflehouse !!!!

    Let’s get infrastructure now!!

    Meet with Kim Jung Un get that behind us.

    Second term entitlement reform – Long term problem and also higher rates to borrow.

  3. Jeff Beamsley says:

    An economy that was growing at sub 2% you’ve described as robust?

    Don’t be a troll. The current economy is running out of workers. We’ve never stimulated the economy to the tune of $1.5T at a time when unemployement was so low.

    Tax cuts and budget killed off the Trump stock rally? It went up 45% in 14 months. You excepted it to keep going up?

    Nope, you expected it to go up past the 50% gain that the previous bull market delivered AND you said it was all because of Trump. The stock market corrected when it became obvious to investors that the Fed was going to have to raise interest rates to combat inflation caused by an overstimulated economy AND when they realized that the current administration doesn’t care about debt or about a rising dollar (which will hurt exports). Layer on top of that the threat of a trade war, and I would be nervous too.

    Jeff, your predictions remind me of and old saying, even a broken clock gets the time right twice a day.

    I was right about the air coming out of the balloon before it delivered a 50% gain. Let’s see you try to spin that. It will take a little longer for inflation to kick in, but I will be right about that too. And we will also see a recession before the next Presidential election. I’ll be right about that too. The risk that we currently run is another round of stagflation similar to what bounced Carter from office. Recession drives up unemployment. Hang over from the overstimulated economy and now higher prices caused by the trade war and collapse of the US global trading alliances continue to drive inflation.

    Honestly Trump doesn’t have a clue and that’s why his economic advisers are all quitting. They don’t want their name associated with the mess that is coming.

  4. Jeff Beamsley says:

    313,000 new jobs

    Manufacturing jobs up 270k or so since trump started.

    I like Wafflehouse !!!!

    Let’s get infrastructure now!!

    Yup. 4.1% unemployment. There is just not much left in the labor market.

    Riddle me this oh wise one. Even if you could find the money, which you can’t – where are the workers going to come from to rebuild our infrastructure? Where are the workers going to come from to expand the steel and aluminum industries supposedly helped by the new tariffs? Where are manufacturers going to find new workers? Who is going to buy all this new stuff if the dollar is going up and other countries respond by making it more difficult to sell our stuff abroad?

    Meet with Kim Jung Un get that behind us.

    Why do you think no other President has met with a North Korean leader? Because the precondition was that they shut down their nuclear program. Trump just gave that away FOR NOTHING. It would be wonderful if NK agreed to give up their nukes, but IT’S NOT GOING TO HAPPEN. That’s because KJU knows those nukes are the only thing standing between him and a military invasion. So instead he is going to get concessions from Trump in exchange for making Trump look good.

    Second term entitlement reform – Long term problem and also higher rates to borrow.

    There will be no second term. Mueller and Democratic control of at least the house, and maybe the Senate too will see to that. And yes we have darker economic days ahead of us because of inflation caused by irresponsible spending and an insane trade war.

  5. Keith says:

    I never predicted 50%. You said you wouldn’t be impressed until the rally hit 50%. I was keeping score for you.

    I don’t do predictions much. The only real one I did was suggesting companies would dump employees into the ACA because it would be cheaper to pay the fine then insure them. I was wrong.

    You are continuing to be niss lead by the unemployment rate. It is artificially low as so many dropped out of dire. Labor participation is a better indicator. It may have extra employees there. I do agree it is getting much more difficult to find employees for some jobs. We have a lot of problems filling our unskilled warehouse positions and truck drivers. One of my managers if found of saying “Trump is wrong. He won’t be able to create 5 million jobs for the simple fact I can’t find one person who wants a job!!! It’s very real. However if it’s soooooooo bad where did the 313k employees come from?

  6. Keith says:

    Also, the air didn’t come out of the ballon. We had a 10% correction barely. We might still get more. If you’re review my comments keep score of the markets increase since Trump was elected you’ll find I continually said it’s too high.

  7. Jeff Beamsley says:

    BTW, the White House had to walk back Trump’s statements regarding a meeting with KJU. No Trump isn’t going to meet with KJU, like he said, until NK demonstrates that they have taken steps to scale back their nukes. Wonder what KJU thinks about Trump now?

    Also those tariffs that are across the board with no exceptions. Guess what? Now there are exceptions and will likely be more in the future. Canada and Mexico are part of NAFTA which we are renegotiating. Imposing tariffs at this point would blow that whole deal up. Guess where most of our imported steel comes from? Yup, Mexico and Canada. Steel unions don’t want tariffs on those countries either because they are part of the union. Finally, Trump’s claims regarding Chinese steel are bogus, like much of what he says. Chinese steel is a very small amount of the steel that we import and there are already agreements in place that have been effective in balancing our trade with China.

    https://www.nytimes.com/2018/03/08/business/economy/fact-check-trump-steel-china-imports.html

    So who does this hurt most? Probably Germany who is supposed to be our ally and those who import steel from Germany. The problem is that the steel we get from Germany ISN’T MADE in this country. So those who build things with that steel, e.g. high priced cutlery, will still have to import it and will just end up paying more for it. Makes sense right?

  8. Keith says:

    To the steel tariffs. (My business) the price will start coming down soon. There has been a run up of the last few months as very little import has been ordered because of the unknown result of the 232’s. The end result is exemptions will be given, trump will negotiate country by country, as he’s done now with Australia and will with Canada and Mexico, they will pay for the wall, lol, product by product, industry by industry. The mills will produce at 80% or so.

  9. Keith says:

    President Obama said he didn’t see anything wrong with having discussion with Iran NK etc. with no preconditions. I agreed with that. I agree with accepting Kim’s offer to discuss. I’m wondering if trump disarms him if you’ll give him credit.

  10. Keith says:

    Don’t we already have a trade war? Lol “fair and reciprocal trade” I believe is trumps motto.

    A note about Steel this number moves around a bit but we need to import about 30 million tons per year as a we short of capacity.

  11. Keith says:

    https://mobile.nytimes.com/2008/05/29/us/politics/29obama.html?referer=https://www.google.com/

    So the liberal guests and Obama administration officials on CNN the past couple evenings were left to say “Trumps not Obama.” They went on to say, he won’t be prepared, he’s stupid, he doesn’t read, etc.

    Jeff, what if nothing you suggest happens? Now not suggesting nothing bad is going to happen, it will. What if we get GDP of 3% over the course of trumps term/terms? After all “it’s the economy stupid!”

  12. Jeff Beamsley says:

    President Obama said he didn’t see anything wrong with having discussion with Iran NK etc. with no preconditions. I agreed with that. I agree with accepting Kim’s offer to discuss.

    President Obama DID NOT say what you quoted. Candidate Obama did say that. President Obama never agreed to meet with NK because they failed to meet the preconditions for the meeting. The White House has walked Trump’s comments back to basically the same position. As a result, I’m not sure that a meeting will ever happen. Are you disappointed?

    I’m wondering if trump disarms him if you’ll give him credit.

    Certainly. I would be like Jesus rising from the dead. I would play the part of doubting Thomas. NK is an existential threat. Why wouldn’t any fair-minded person feel the same way.

    I can ask the same question regarding Iran. They HAVE suspended their nuclear program. All external investigations confirm that. You willing to give Obama and the rest of the world credit for that accomplishment? If so, then how do you feel about Trump’s threats to dismantle that agreement?

  13. Jeff Beamsley says:

    You are continuing to be niss lead by the unemployment rate. It is artificially low as so many dropped out of dire. Labor participation is a better indicator. It may have extra employees there. I do agree it is getting much more difficult to find employees for some jobs. We have a lot of problems filling our unskilled warehouse positions and truck drivers. One of my managers if found of saying “Trump is wrong. He won’t be able to create 5 million jobs for the simple fact I can’t find one person who wants a job!!! It’s very real. However if it’s soooooooo bad where did the 313k employees come from?

    Here’s a little tutorial for you from Fortune Mag (hardly a bastion of liberal thought).

    To economists, full employment means that unemployment has fallen to the lowest possible level that won’t cause inflation. In the U.S., that was thought to be a jobless rate of about 5 percent — above the February rate of 4.1 percent.

    Here’s your argument.

    U.S. Treasury Secretary Steven Mnuchin argues that a fuller unemployment measure should include “discouraged workers” who have stopped looking because they thought there were no openings. That rate, the BLS’s alternative U-5 index, tends to run a full percentage point higher than the commonly cited U-3 index.

    Using that logic, we are .1% away (4.1%+1%) from when the alarm bells should start going off. That’s what Fortune thinks too.

    Some economists think that the official rate of unemployment can fall further — say, to 4 percent — before inflation concerns need to be addressed.

    Discouraged workers are coming back into the market. Part-time workers are returning to full-time employment. We may not be at the point yet when a worker shortage will start to put serious pressure on wages, but we also may be very close. And it is at this point that we pumping more money into the economy? DOESN’T MAKE SENSE.

    As Fortune Mag warns, we can’t wait until wages start to kick off a new round of inflation. As a result, the Fed will likely start getting more aggressive in the very near future in taking air out of the balloon. They are going to have to be more aggressive now than they might have been without a big tax cut and a big government spending bill. Trump and Republicans are entirely responsible for that. Whether the Fed will be able to raise interest rates and slow the growth of inflation sufficiently to prevent another bad recession, we’ll see. But raising tariffs at this point only makes things WORSE. So it doesn’t appear that Trump has any intention or idea that perhaps it might be time to prepare for a recession.

    Just as you claim that you were aware and prepared for a stock market correction. How are you preparing for the next recession?

  14. Jeff Beamsley says:

    https://mobile.nytimes.com/2008/05/29/us/politics/29obama.html?referer=https://www.google.com/

    So the liberal guests and Obama administration officials on CNN the past couple evenings were left to say “Trumps not Obama.” They went on to say, he won’t be prepared, he’s stupid, he doesn’t read, etc.

    They are right. He doesn’t prepare. He doesn’t read. He doesn’t depend on the advice of experts. That’s not partisan.

    You can claim that it is a particular style. As you say, results are really all that matters. Obama was able to negotiate an international nuclear treaty (including Russia) with Iran which they are abiding by (so far). They have suspended their activities. That result was based on best advice from experts and precise diplomacy to get the rest of the international community (including Isreal) on board.

    Let’s see if Trump can accomplish something even close with his VERY DIFFERENT approach.

    What if we get GDP of 3% over the course of trumps term/terms? After all “it’s the economy stupid!”

    If we are able to get that sort of growth without significant inflation, I’ll be amazed. In part that’s because the 2017 annual growth rate was 2.3%. Fun with numbers tells us that in order to AVERAGE 3% over the remainder of his first (and only) term, he is going to need to have three years that AVERAGE greater than 3.23%. The BEST quarter last year was 3.3%

    It might have been possible if he didn’t just throw a monkey wrench into the process with his suggestions of higher tariffs. That monkey wrench is that his tariff plan will reduce domestic production of goods that depend on foreign raw materials. That means that we will increase imports for those goods that can no longer be produced here without any significant increase in exports because of the likely retaliation from the affected countries. The net will be no significant gain in our balance of trade and a net decrease in domestic manufacturing. Not the best formula when you’re trying to grow at 3%+ every quarter.

  15. Keith says:

    Yep. President Obama did a deal which Iran is hopefully obiding by. Good!!! President Obama did it his way now allow Trump his. It’s really that simple. He first has greatly strengthened sanctions and now hopefully, allows me my La la land dream world, Kim says “Uncle.” We’ll see.

    What am I doing to prepare for the next recession? As a Christian it’s not really relevant as our salvation and work isn’t effected. It’s still about saving souls.

    Humanly, and I’m certainly not making light of one, but it will merely be the 11th since WW2. Not really sure what answer you’re looking for. 70 some years, 10 recessions, the 11th should be expected. If anything I’m generating cash to deploy on large industry leading companies that pay consistent dividends that will be on sale. Not sure what else to do. Thoughts?

  16. Jeff Beamsley says:

    Yep. President Obama did a deal which Iran is hopefully obiding by. Good!!! President Obama did it his way now allow Trump his. It’s really that simple. He first has greatly strengthened sanctions and now hopefully, allows me my La la land dream world, Kim says “Uncle.” We’ll see.

    Funny, strengthening sanctions is what Obama did too, with the help of a lot of other countries. The same thing is happening in NK. We’ll see if there is a meeting, though the White House has certainly lowered the bar from a commitment to denuke to simply no testing. So maybe we will have a meeting, but I will be SHOCKED if there is any substantive progress. I heard an interesting interview on NPR the other day with one of the people who had the responsibility to inspect the NK nuke facilities under previous presidents. This guy said that NK has some of the most modern facilities in the world, and more importantly, those facilities employ a lot of people who are very well compensated (at least in NK). So nukes are not only a weapon, they are also the prime national industry.

    Humanly, and I’m certainly not making light of one, but it will merely be the 11th since WW2. Not really sure what answer you’re looking for. 70 some years, 10 recessions, the 11th should be expected. If anything I’m generating cash to deploy on large industry leading companies that pay consistent dividends that will be on sale. Not sure what else to do. Thoughts?

    Stock market strategy sounds wise.

    I’m concerned that this recession will be another long one if Trump is still in office because he won’t know what to do. So I would certainly also suggest that you de-leverage yourself. Clean up debt. Get out of short-term leases. Sell investment property. Cut your fixed operating expenses and don’t make any long term capital investments.

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