The Two Stooges of Finance: Larry and Moore
Laughable Larry Kudlow, as high priest of the Laffer Curve, has long been servant of “King Dollar,” as Larry has often reverently referred to US currency. The Laffer Curve is the central creed of trickle-down economics. It’s a bell-curve that demonstrates how lowering tax rates actually increases tax revenue to a certain point by stimulating the economy and then, beyond that point, lowering taxes lowers tax revenue. (If the latter were not true, the highest tax revenue would come in at a tax rate of zero, which is ludicrous. So, logically, you know at some point tax-rate reductions start to result in diminishing returns for revenue.)
Where there is room for disagreement is in determining where the high point for the revenue curve lies on that continuum between a 100% income tax and 0%. Larry places it a lot closer to a 0% tax rate than I would or than Larry’s former boss, David Stockman (head of Reagan’s budgeting office) places it. That’s because Larry lusts over tax rates that fill his own pockets, not rates that optimize the balance between government revenue and economic stimulus. (Just part of the voodoo in Voodoo Economics.)
Larry and his sidekick Stephen Moore are now on a journey to cajole the Fed into doing everything Larry has ever said the Fed should not do — dethrone King Dollar. Laffable Larry’s change of heart has come about because it is now unavoidable fact that the tax plan he concocted with Stephen Moore, based on Larry’s beliefs about the Laffer Curve, is not only failing to pay for its own tax breaks as Larry & Moore assured the world it would, but also not doing a whole heck of a lot to stimulate the economy any more.
Larry & Mo’s tax plan boosted the stock market … for awhile … but GDP got only one boost in the second quarter of last year and has been falling ever since.
This quarter, GDP growth is expected to come in well below where it was when Larry & Mo’s plan became law (diving to somewhere around 1%). And that is why Team Trump — the Trickle-down Trio of Larry, Mo, and Surly (the orange one) — is working the Fed to get some monetary salvation for their damned tax plan.
(I’m using the word literally because it is a tax plan from hell that is breaking the government financially, failing to stimulate the economy anywhere near as much as promised, and that ought to be damned because it is making the 1% wealthier at a faster clip than they have ever known while Larry is running at an even faster fast clip to the Federal Reserve for financial salvation in the form of more nearly free money.)
The White House pressure on the Federal Reserve heated up again on Friday after President Trump’s adviser Larry Kudlow said he wanted the U.S. central bank to “immediately” cut its benchmark interest rate by 50 basis points.MarketWatch
“Immediately” doesn’t sound like there is any great need, and Kudlow has often assured us the economy is going to come in like gangbusters.
The Fed, on the other hand, is only interested in holding interest rates right where they are now for the indefinite future, though numerous prognosticators, including those far more bullish than myself, are betting the Fed cannot. All the while, Chairman Powell insists he is paying no attention to the White House.
Krazy Kudlow’s prayerful petition to the Fed
King Dollar is the divine ruler in whom Larry Trusts. That is why the dollar has “In God We Trust” inscribed upon it. It is Larry’s god. It is many people’s god, but Larry is now beseeching the Temple of the Dollar, otherwise known as the Eccles Building (or the Fed’s HQ), to diminish the value of his god by dropping interest rates by the largest change in one drop the Fed has made in a long, long time.
Larry is begging. Never mind that only a few months ago Larry was pontificating about the superior health of the American economy. If you believed him then (in November) and now (when he blames economic decline on the Fed going to far with interest increases), then you are forced to believe a mere quarter-percent raise in the Fed’s target rate (in December) snuffed out a vibrant and potent economic expansion!
Right now Larry claims the economy needs the devotion of the Fed to greater stimulus to the tune of dropping its interest target half a percent. (Consider that, for the past seven years, the Fed hasn’t moved more than a quarter of a percent at a time.)
Axios reports that Kudlow “would love to see” such a downward move, adding that the central bank shouldn’t have ever set overnight interest rates past 2%…. The problem for Kudlow in calling for this immediate rate-cut is this – the last three recessions all saw a Fed rate-cut three months before they started.Zero Hedge
So, the economy that Larry has repeatedly said is doing admirably well under his plan cannot survive a Fed benchmark interest rate above a “highly accommodative” (as the Fed likes to call its relaxed monetary policy) 2%. What is Larry so worried about? Normally, the Fed has never dropped its prime lending rate down to 2% unless the nation is already deep in a recession.
You can see in the following Fed graph that a rate of 2% never happens outside of efforts to recover from recessionary times. In fact, a rate that low rarely happens at all. Moreover, as Zero Hedge noted above, the first drop in interest from any level after an extended period of rate increases almost always happens shortly before a recession. Never has a reversal from a protracted period of raising the Fed Funds rate to dropping that rate happened when the Fed’s rate is already this low:
Larry is imploring the Fed to do something it has never done before! How desperate is that?
Why the desperation?
Sven Henrich of Northman Trader calls out the obvious regarding Larry’s laughable claim that the economy is great but needs major stimulus:
My take here: The budget is blowing up in their face and they know it. The tax cuts did not pay for themselves and deficits are ballooning, federal spending is the highest in 10 years as tax receipts have been slowing. It’s a receipe for budget disaster. Don’t give me this two faced nonsense: “I don’t think the underlying economy is slowing” when everyone with a brain and basic understanding of data knows it is. It’s cheerleading and playing the confidence game, while at the same time demanding a 50bp rate cut by the Fed, an utterly ridiculous suggestion especially in light of the earlier statement.Northman Trader
As Sven goes on to argue, you have to be really “worried about a lot of things” in order to utter such a request out of one side of your mouth while you are praising the strength of the economy under your tax cuts out of the other side. You have to know that is going to look stupid and irreconcilable, so you have to be desperate to hope that somehow you can pull it off.
Trump wants Moore, Moore wants more
The Fed already acquiesced to President Donald Trump’s efforts to humiliate Powell into stopping the Fed’s plan of raising interest rates and downsizing its balance sheet (methods of tightening the monetary system). The Fed learned a harsh lesson that the economy (fake as the recovery has been) cannot survive any more tightening so it abruptly curtailed its plans to continue down that path just as The Donald required.
Desisting from damaging the effete economy, however, was not enough capitulation to the president’s requests. So, now the president is appointing a henchman to infiltrate the Fed and cajole it internally into re-relaxing monetary policy. One might well say that, according to Larry, the nearly flatlining economy already needs a major shot of adrenaline to lift it back into the land of the living.
Stockman warned, as did I, that there was never a snowflake’s chance in a modern university (I mean hell) that the Trump Tax Cuts would ever pay for themselves or that the economy would ever survive a move back to normal monetary policy by the Fed. Yet, the government is even ramping up its deficit spending. It has spent more in the first five months of Fiscal 2019 than it did in any five-month period since 2009 during the Great Recession. (At the same time, federal tax revenue has hit a four-year low.)
Remember that was a time the Washington Post billed as “what may be the biggest government bailout in American history,” after the biggest economic downturn in modern history. That same fiscal year 2009 included the Obama stimulus package, which Obama called “the most sweeping financial legislation enacted in the nation’s history.” For further perspective consider that, at the time, the government believed the net longterm cost of its recovery programs would come to “increase federal budget deficits by … $787 billion over the 2009-2019 period.”
Hah! The federal government is now running at almost that deficit level every year now just to maintain normal annual operations. Its budget is a sea of red ink as far as the eye can see. Yet, the Trump government believes it needs to maintain that spending in order to get re-elected because … well, imagine how much worse the economy would be doing if all that fiscal stimulus ground to halt, stalling the great military-industrial complex and all the jobs created by creating all those weapons of mass uncreation.
So, it is no wonder that the Trickle-down Triumvirate is demanding more stimulus. More, more, Moore! Since Powell claims he is paying no attention to the White House, some infiltration was necessary that would put the Trump tax planners directly at the Fed’s cerebral cortex. Thus, Trump has anointed Stephen Moore to fill one of the empty posts on the Federal Reserve’s Board of Governors. (In the three-headed team’s defense, it is not as if they can make the Fed hydra any more of a monstrosity than it already is.)
To reassure us all that the White House is not staging a Fed coup, Larry said of Powell,
He’s our chairman. We’re not going to displace himMarketWatch
“Our chairman?” As if he’s wholly owned by the White House?
“Not going to displace him?” As if they believe they even can?
Moore has assured us all that his monetary policy is a perfect match to President Trump’s monetary policy. That assurance should not leave us thinking that Trump is trying to implement his own monetary policy for his own political reasons via an inside operator. To assuage our concerns, “Growth Hawk” Moore, as he calls himself, says repeatedly in the embedded video below that he believes in his own independence (though he says nothing about Fed independence, which must, therefore, be less important).
Am I distrustful of human sincerity or contemptuous or distrustful to think Moore is being embedded in the Fed to steer it by his own independent actions toward more economic stimulus throughout this laborious presidential election cycle? What incumbent president would want to do that? According to Trump’s endorsement, Moore is joining the Fed because he is “a very respected economist.” (Not by me. Moore is an economist from the trickle-down Heritage Foundation, and I find him as dizzy as Lunatic Larry.)
Federal Reserve nominee Stephen Moore called the Fed’s December interest-rate hike “a very substantial mistake” while adding that he looks forward to working with Chairman Jerome Powell to help ensure the U.S. economy continues to expand.Bloomberg
Sure he does because the plan he and Larry concocted certainly isn’t doing the trick! So, they need to get into the Fed to “help” make it happen there.
“I really believe we can have 3 to 4 percent growth for next five to six years.”
That’s what he said last time, and the Fed’s plans to keep raising rates and to start reducing its balance sheet were already widely known.
I’m glad, however, to hear all the president’s men declare the Fed’s monetary tightening was a “very substantial mistake.” I’ve said for years that the Fed will come to realize its tightening is a substantial mistake but will realize it too late. (Actually, the mistake was starting down the path to recovery that the Fed chose in the first place, but my point has been there is no exit that doesn’t crash this fake recovery, which is why I call it fake. It is dependent forever upon huge fiscal and monetary stimulus that is not sustainable, and THAT is what we are now seeing.)
With the president scurrying to insert his own tax planner into the Fed and Larry crying in public for the Fed to cut its interest rate target half a percentage point (a 20% reduction of the 2.5% rate), I’d say it sounds like they all believe the Fed learned too late and went too far.
Moore said that Powell and others members of the Fed board “should be thrown out for economic malpractice’’ after raising rates….
The Fed’s attempt to return to normal, not only killed its recovery (which was totally predictable) and cropped the stock market by 20% last fall, but it zapped all of the mojo out of the great Trump Tax Cuts. So, this is damage control by Team Trump — “substantial mistake” recovery time.
“I’m worried more on the deflation side right now than the inflation side,’’ [Moore] said
But, hold it, deflation increases the value of King Dollar, and Larry has always said he loves a strong dollar. So, why are they trying to create inflation with interest-rate reductions when that reduces the value of King Dollar?
These luminaries of irreconcilable interests and beliefs are our brilliant planners!