Personal Economics 101

1. Biden Budget Would Raise Income Tax Rates to Highest in the Developed World Sensible message, not so sound policy: President Biden’s budget came out this week with a sensible message about the need for stronger economic growth and sound fiscal policy. Unfortunately, the actual policies laid out in the budget would reduce economic growth and create unsound fiscal policy, with no real evidence provided to support claims to the contrary. Not good to be number one: The budget proposes several new tax increases on high-income individuals and businesses, which in combination with the Build Back Better Act would give the U.S. the highest top tax rates on individual and corporate income in the developed world. Several questions also remain about the OECD global tax deal’s prospects, implementation, and effectiveness, which could affect the administration's tax plans for U.S. multinational companies doing business abroad. On the spending side: The budget proposes increased spending for ...

(Updated at 2:13 PM CDT) The Biden Administration, and Democrats in general it looks like, just don't understand good governmental policy or basic economics. The Federal Reserve is no better, and may yet push us into a recession, at the least.  The Biden administration plans to release around 180M barrels of oil from the Strategic Petroleum Reserve, in what be the largest release from stockpile since it was created in 1975. WTI crude futures tumbled 6.7% to $100.53 on the news, The coming SPR decision would likely see 1M barrels released daily over the course of six months, but analysts are still debating the benefits and whether it would put a dent in the inflationary forces seen in the current environment. "Stocks of strategic oil have a limit and flows of commercial oil do not. Flows that stop are a bigger problem than strategic stocks can solve over time," said Kevin Book, energy policy analyst at ClearView Energy Partners. "Historically, SPR releases have tempo...

President Joe Biden’s budget proposal , which the president released today, calls for the federal government to collect a record $4,638,000,000,000 ($4.6 Trillion) in taxes in fiscal 2023. At the same time that the federal government is collecting those record taxes, according to Biden’s proposal , it would also spend $5,792,000,000,000 ($5.8 Trillion) —resulting in a fiscal 2023 deficit of $1,154,000,000,000 ($1.2 Trillion). According to Table S-4 in Biden’s budget proposal, the federal government will run a cumulative deficit of $14,421,000,000,000 ($14.4 Trillion) in the ten years from fiscal 2023 to fiscal 2032. The $1,154,000,000,000 ($1.2 Trillion) deficit the Biden budget proposes running in fiscal 2023 is the smallest federal deficit it anticipates in any of the next ten years. In fiscal 2021, according to Table S-4 in Biden’s budget proposal, the federal deficit was $2,775,000,000,000 $2.8 Trillion). In fiscal 2022, the Biden budget proposal estimates it will drop to $1,415,00...

States around the U.S. are resorting to a gas tax holiday to lessen the impact of rising oil prices due to the foreign policy decisions levied by the west. Here are a few examples: Maryland stepped up to suspend the gas tax for 30 days; net savings per gallon will be 36.1 cents Georgia did the same until May 31, saving 29.1 cents a gallon From April 1–June 30, Connecticut is reducing state gas tax by 25 cents a gallon Many more states may follow. And California, of course, has no desire to be outdone by any other state. Its governor is planning on an $11 billion package, not all of which is gasoline. $9 billion of the package will come in the form of sending $400 debit cards to registered vehicle owners. While the move may save drivers around 30 cents per gallon at the pump, economic and policy experts warn that it is only a stop-gap solution. "They may not lower [gas] consumption and they might increase it," Patrick De Haan, the head of petroleum analysis at gas price app Ga...

The final March results from the University of Michigan Surveys of Consumers show overall consumer sentiment fell again, hitting the lowest level since August 2011. The composite consumer sentiment decreased to 59.4 in March, down from 62.8 in February, a drop of 5.4 percent. The index is now down 41.6 points from the February 2020 peak. The current economic conditions index fell to 67.2 from 68.2 in February. That is a 1-point decrease for the month and leaves the index with a 47.6-point drop since February 2020. According to the report, “Consumer Sentiment remained largely unchanged in late March at the same diminished level recorded at mid month. Inflation has been the primary cause of rising pessimism, with an expected year-ahead inflation rate at 5.4%, the highest since November 1981. Inflation was mentioned throughout the survey, whether the questions referred to personal finances, prospects for the economy, or assessments of buying conditions.” One positive note in the survey wa...

  A client called one afternoon and said, “I need $50,000 out of my IRA account.” “Uh, ok. Why?” I responded. “To pay off my credit cards. The interest is killing me.” “Yeah, I get that. Why are your credit card debts so high?” “Well, I just don’t make enough money to pay for the things I need.” “Ever thought about getting another job or moving to a less expensive house?” “Nah, I like my job and house.” I fulfilled her request and a year later it repeated. Eventually, her nest egg was, well like Humpty Dumpty. Not exactly sure what she did after that. She never calls. I kind of feel lonely. Now, my wife and I use credit cards. She has a wallet full of them. Different ones for major companies we buy from. They give us discounts or we build points. But every month we pay off the balances. No carryover and no interest. Just convenience and rewards. The credit card companies have a name for people like us: “deadbeats”. No kidding. My wife was talking with a credit card service person r...

Has the housing market reached its limits? When you imagine a $2 million house, it’s probably big and fancy. Well, here’s what that kind of money gets you in a “middle class” suburb in the San Francisco Bay Area: The house is just what it looks like: An ordinary 3-bedroom home. And it sold for $2.23 million in December 2021. This is the sort of astronomical price that has investors wondering if housing prices will crash like they did in 2007/2008. We are certainly hearing echoes of the housing bubble. In the five years before the housing crash, US homes prices soared 60%, according to the S&P/Case-Schiller Home Price Index. In the past five years, housing prices have soared 51%. The key difference is: This time there is no concrete catalyst to push housing prices lower. The MBA Mortgage Application Index declined 8.1% last week, following the prior week's decrease of 1.2%. The downward move came as a 14.4% drop in the Refinance Index was accompanied by a 1.5% fall for the Purch...

A bond selloff (lower prices means higher yields) is deepening after Monday's (March 21) comments from Jerome Powell, which said the Fed is prepared to act even more aggressively to tackle inflation. The yield on the 10-year Treasury has soared 20 basis points to 2.32% since the remarks, leading to the worst month for the asset class since 2016. Meanwhile, the 2-year Treasury yield broke above 2%, jumping almost 24 bps over the past 24 hours to reach 2.19%, as the yield curve hurtles towards an inversion (or one of the best indicators of a coming recession). Stocks are hanging in there despite the latest comments - closing in positive territory yesterday - while futures linked to the major averages are up another 0.4% Tuesday morning. Quote: "If we determine that we need to tighten beyond common measures of neutral (i.e. an interest rate that neither hinders nor fuels economic growth) and into a more restrictive stance, we will do that," Jerome Powell announced during a s...

Biden's chart is wrong. The second chart shows price of gasoline futures, April contracts. The third chart shows price of oil, WTI, April contracts. There is always a time-lag between what is paid at the well-head or by the refinery.  Individual retailers set gas prices based on what they expect their future fuel deliveries to cost. But they have no clue right now due to all of the global uncertainty. Oil prices have plunged this past week in part because the United Arab Emirates said it would urge OPEC to pump more. But the cartel might not.  Another thing that the graph tweeted by Bloomberg's Blas shows is that the national average for gas did not jump as high as the cost of oil. In fact, it shows that oil and gas companies would have been generating less profit as oil prices spiked. Another inconvenient truth for Biden's attempt to make boogeymen out of oil and gas companies? "The vast majority of the nation’s 150,000 gas retailers are mom-and-pop operations" a...

Florida has passed a “Parental Rights in Education bill” - and the Disney corporation, which of course has Disney World in Orlando, is livid. The left has, all too predictably, nicknamed the bill the “Don’t Say Gay” legislation. Disney, mind you, is the company that focuses on turning out entertainment for kids. And the Florida law is designed to protect kids from kindergarten through third grade from classroom instruction on “sexual orientation” or “gender identity.” Democrats and the Left are demanding that children between the ages of 5 and 8 receive indoctrination - ah, that would be “classroom instruction” - on, yes, sex and, transgenderism. This at an age when most normal children have zero inkling about sex of any kind. And if they do, parents want to make sure it is they themselves who are teaching their own kids about the birds and the bees. But in the day and age of woke corporations, even Uncle Walt has become Uncle Woke. As noted here at CNBC : “CEO Bob Chapek said he will ...

With inflation running at percent 8 percent annually, according to CPI numbers released March 10, and energy prices at nearly all-time highs, some in Congress want to impose a windfall profits tax on crude oil.  The Consumer Price Index (CPI) rose 0.8% month-over-month (m/m) in February, in line with the Bloomberg consensus estimate, and up from January's unrevised 0.6% gain. The core rate, which strips out food and energy, increased 0.5% m/m, matching forecasts, and slightly below January's unadjusted 0.6% rise.  Compared to last year, prices were 7.9% higher for the headline rate—again the fastest pace since 1982—in line with estimates and an acceleration from the prior month's unrevised 7.5% rise. The core rate was up 6.4% y/y, matching projections, and rising from January's unrevised 6.0% rise. Initial jobless claims came in at a level of 227,000 for the week ended March 5, versus estimates calling for 217,000, and above the prior week's upwardly-revised 216,000...

As the Russia-Ukraine war continues to shatter whatever hopes remained of Europe’s post-pandemic economic recovery, Brent prices are already trading near $130 per barrel. Biden's announcement of a ban on Russian energy imports, including oil, coal, and LNG, has only added to the upward pressure in oil markets.  While European powers have made it clear they will not ban Russian energy imports (the U.K. will restrict imports), European natural gas prices are at all-time highs, dragging coal along to unprecedented levels as well. Moreover, with hopes of a quick Iranian deal cooling, there is no sign of relief for the current oil price rally. In a speech on Tuesday morning, President Biden confirmed that the United States would ban Russian energy imports. In his speech, Biden confirmed that its European allies will not be joining the U.S. in this measure due to their relative lack of energy security. Oil prices and gasoline prices both climbed on the news. He also addressed the US oil ...

President Biden at his State of the Union address vowed to fight inflation, though that has been a struggle, with consumer prices soaring 7.5% over the past 12 months.  Biden said during his speech before Congress: "My top priority is getting prices under control. We have a choice. One way to fight inflation is to drive down wages and make Americans poorer. I think I have a better idea to fight inflation: Lower your costs, not your wages. Make more cars and semiconductors in America. More infrastructure and innovation in America. More jobs where you can earn a good living in America instead of relying on foreign supply chains, let's make it in America. My plan to fight inflation will lower your costs and lower the deficit." Even if making it (supplies?) in America would work, it would take several years, but that is not the underlying cause of inflation. Inflation is caused by two major factors: Too much money in the financial system and more demand than supply.  U.S. Inf...

Nonfarm payrolls rose by 678,000 jobs month-over-month (m/m) in February, above the Bloomberg consensus estimate of a 423,000 rise, while January's figure was adjusted higher to an increase of 481,000 from the initial reading of a 467,000 gain. Excluding government hiring and firing, private sector payrolls advanced by 654,000, versus the forecasted rise of 400,000, after increasing by 448,000, revised higher from the preliminarily reported 444,000 gain in January. The labor force participation rate ticked higher to 62.3% from January's unrevised 62.2% figure, where it was expected to remain. The unemployment rate declined to 3.8%, from 4.0%, with forecasts calling for it to dip to 3.9%. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—rose to 7.2% from the prior month's 7.1% rate. Average hourly earnings were flat m/m, below of projections calling for a ri...

Fed chair Jerome Powell was appeared before Congress yesterday to give his semi-annual monetary policy report. In no uncertain terms, he backed a rate hike at the Fed's upcoming meeting on March 15-16. Specifically, Powell said he was "inclined to propose and support a 25 basis-point rate hike"-- the kind of plain-speak you rarely hear from Fed chairs, ever, about future tightening plans. Goldman Sachs reiterated their call for seven hikes -- one per meeting -- this year soon after Powell's remarks. The market isn't fully pricing that in yet. Of course everybody is extremely nervous about how poorly events could play out in Ukraine, or even closer to home, based on Russia's continued military action. But as Powell himself noted, we have no idea how those events will play out. What we do know is the impact they already having -- an impact that is undoing the Fed's efforts to tighten and lessen inflationary pressures in the U.S. economy. How so?  (1) Interes...

Oil's price ascent is showing no signs of slowing down ahead of one of the most important OPEC+ meetings since the beginning of the pandemic. WTI crude futures ( CL1:COM ) climbed another 6.6% overnight to top $110 per barrel, and that was despite the U.S. and other members of the IEA agreeing to release 60M barrels from the Strategic Petroleum Reserve and other emergency stocks. The coordinated drawdown would be only the fourth in the agency's history, sending a "unified and strong message to global oil markets that there will be no shortfall in supplies as a result of Russia's invasion of Ukraine." Analyst commentary: "Although the sanctions are still being crafted to avoid energy price shocks, we believe this aggressive-but-not-maximalist stance may not be sustainable, with disruptions to oil and gas shipments looking increasingly inevitable," Evercore ISI wrote in a note to clients. "Russia is casting a long, dark, unpredictable, and very compli...