CEA Chairman Kevin Hassett Discusses Main Street Growth and Fed Impacts…

Council of Economic Advisers Chairman Kevin Hassett appears on Fox Business news to discuss the impact of the Federal Reserve’s interest rate hikes on the Main Street economy and the state of the Wall Street stocks.

The key metric is to accept what’s happening around us.  Fed rate hikes are hurting Wall Street (investment class).  However, Fed activity is not yet impacting Main Street.  This is because the two economic engines (Wall St. -vs- Main St.) are so far apart.

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Part Two of this interview (and expanded review) is below:

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Three decades of monetary and administrative policy has favored Wall Street (globalism) over Main Street (nationalism).  Decades ago… Main Street and Wall Street used to be connected; stocks were evaluated on company performance; the companies were mostly American, and invested in the success of USA (middle class).

However, changes in monetary policy and political priorities, specifically to the benefit of Wall Street investment instruments (multinational global expansion), drove Wall Steet and Main Street ever further apart.

As a direct result when the Main Street economic engine becomes the focus of favorable policies (trade policy, energy policy, manufacturing policy, tax policy, deregulation etc.), the domestic US economy expands… bigly…

….AND now the Fed takes action in response to ever-expanding strength in our Main Street economy; but, that Fed action will take time to traverse the decades-wide gap… and the first impact will be negative to the original benefactor; the one closer to the actual monetary policy, that’s Wall Street.

I hate to keep harping the point, but this was predicted two years ago:

Understanding the distance between the real Main Street economic engine and the false Wall Street economic engine will help all of us to understand the scope of an upcoming economic lag; which, rather remarkably I would add, is a very interesting dynamic.

Think about these engines doing a turn about and beginning a rapid reverse. GDP can, and in my opinion, will, expand quickly. However, any interest rate hikes (monetary policy) intended to cool down that expansion -fearful of inflation- will take a long time to traverse the divide.  (more)

The Fed is using the opportunity of a strong national U.S. economy, and strong growth in U.S. wealth, to withdraw all of the underlying stimulus money (cheap money) that was needed to fill the gap during the global exfiltration of wealth under prior administration policies.

During the Bush, Clinton-Clinton, Bush-Bush, Obama-Obama years, Main Street middle-class Americans became more poor.   Wall Street investment class became more rich. Multinational corporate globalism drove the policy. The wealth gap is a direct result.

Over the past 30-years, increased income subsidies became a part of administration policy in an effort to fill a void from depressed wage growth. Welfare and food stamp distribution necessarily expanded.

President Trump’s economic policies are the exact opposite of globalism.  Policy to the benefit of working middle-class Americans (ie. America-First nationalism) is against the interests of the corporate multinationals.

Yes, it is unfair to President Donald Trump for the Federal Reserve to essentially buy back all the cheaply printed money used to prop up Wall Street’s schemes.  After all, it is a Fed action only possible because the U.S. economy is so strong.  President Trump’s success is essentially providing the Fed the opportunity to strengthen dollars and make them more valuable.  However, it is what it is…. though Trump’s annoyance is well understood.

Wall Street is getting hurt most; there is more pain ahead for those investment instruments on Wall Street that are dependent on globalism; but the negative Fed impacts to Main Street –as a whole– will not be felt in the aggregate until the two engines once again gain parity.

Again, as predicted: “Those who benefit from high-yield international investment instruments will see less wealth. Those who live on savings will see a benefit.  Those living day-to-day and week-to-week on their paychecks will see more income and wealth.”

2016 – […] Those global manufacturing economies will first respond to any increases in export costs (tariffs etc.), by driving their own productivity higher as an initial offset, in the same manner American workers went through in the past two decades.  The manufacturing enterprise and the financial sector remain focused on the pricing.

♦ Inflation on imported durable goods sold in America, while necessary, will ultimately be minimal during this initial period; and expand more significantly as time progresses and off-shored manufacturing finds less and less ways to be productive.   Over time, durable good prices will increase – but it will come much later.

♦ Inflation on domestic consumable goods ‘may‘ indeed rise at a faster pace. However, it can be expected that U.S. wage rates will respond faster, naturally faster, than any monetary policy because inflation on fast-turn consumable goods becomes re-coupled to the ability of wage rates to afford them.

The monetary policy impact lag, caused by the distance between federal fiscal action and the domestic Main Street economy, will now work in our favor.  That is, in favor of the middle-class.

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35 Responses to CEA Chairman Kevin Hassett Discusses Main Street Growth and Fed Impacts…

  1. Sentient says:

    In the last month, 30 year fixed mortgage rates have dropped about 1/2%. That matters to Main Street.

    Liked by 3 people

    • fleporeblog says:

      SD is absolutely right about the disconnect between what the Federal Reserve is hoping to accomplish versus reality! They are truly eating their own. Meanwhile, the latest advance shows you how Main Street is not effected at all!

      The third and final estimate for the 3rd Quarter was released on Friday. The real GDP rate feel by 0.1% to 3.4%. A very solid number.

      You can find the report below:

      https://www.bea.gov/news/2018/gross-domestic-product-3rd-quarter-2018-third-estimate-corporate-profits-3rd-quarter-2018

      From the article linked above:

      The deceleration in real GDP growth in the third quarter primarily reflected a downturn in exports and decelerations in nonresidential fixed investment and in PCE. Imports increased in the third quarter after decreasing in the second. These movements were partly offset by an upturn in private inventory investment.

      PCS IS ANOTHER LOOK AT INFLATION USING A DIFFERENT LENSE THAN CPI

      The price index for gross domestic purchases increased 1.8 percent in the third quarter, compared with an increase of 2.4 percent in the second quarter (table 4). The PCE price index increased 1.6 percent, compared with an increase of 2.0 percent. Excluding food and energy prices, the PCE price index increased 1.6 percent, compared with an increase of 2.1 percent.

      THIS BELOW SHOWS YOU HOW MAIN STREET IS ABSOLUTELY KILLING IT!

      Real gross domestic income (GDI) increased 4.3 percent in the third quarter, compared with an increase of 0.9 percent in the second quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 3.8 percent in the third quarter, compared with an increase of 2.5 percent in the second quarter (table 1).

      Liked by 3 people

  2. Sentient says:

    The yield on the 10 Year US Treasury Note (now 2.80%) was 3.23% on November 8th. https://finance.yahoo.com/quote/%5ETNX/
    Mortgage rates tend to track the 10 year.

    Liked by 4 people

  3. MVW says:

    My issue is interest charged on Federal debt, interest on money created out of thin air. It is a multi $trillion scam on the taxpayer.

    Time to end it.

    Liked by 6 people

    • That should be an interest to anyone paying attention to things feral reserve related. Then there is the “little issue” that over most of our entire lives we’ve been screwed over, hard. Hence the line “the middle class became poor.

      To allow the scam of the “fed” to remain in place would be a grave injustice imo, paramount to all President Trump’s efforts “in the space between” being very short lived.

      I’m hoping that these maneuvers are heading toward ending the central “bank” nightmare of fractional banking manipulation and its creation of a nation of “interest” debt slaves that are “on the hook” by the force of those responsible for those trillions you mentioned.

      It’s the “greatest” financial crime in history imo & I’d rather not have to “hope” it’s ending… just sayn.

      Liked by 4 people

  4. Mark L. says:

    Sundance, do you ever sleep?

    Liked by 2 people

    • VoteAllIncumbantsOut says:

      Spot on Sundance!

      During Japan’s market yesterday, the Dow futures hit a low of 21452 and most of the time I’d take advantage of that. I could see the turn going to the upside but decided to wait until our markets opened and then I made my move. The next two days look good along with next week but be prepared, it ain’t over to the downside yet, Wall St.

      Liked by 2 people

    • no-nonsence-nancy says:

      I don’t think so.

      Like

    • nattyrem420 says:

      Sundance isn’t a person, it’s a group of people,very smart people with vast resources.

      Like

  5. Elric VIII says:

    Those who invested in American companies and workers will earn money, while those who invested in globalist companies and workers will lose money. Sounds fair to me. Now we need to get the globalist lobbyists and their money out of Congress so that Congress realizes where their true responsibilities lie.

    Liked by 6 people

  6. joeknuckles says:

    This is why investing in the stock market is so risky. Real Estate is the way to go, just make sure you have positive cash flow with a fixed rate loan (or pay cash) and you can weather any downturn.

    Liked by 4 people

  7. The Fed puts me to mind of the Boston Strangler. But it wants to strangle the economy rather than women..

    Liked by 1 person

  8. Dutchman says:

    “I hate to keep harping the point” no, Sundance PLEASE Harp away!

    This is yet another in your series of very fine lectures in MAGANOMICS 101coarse.

    I struggle to study each lecture, and have to read it over and over, till it finally sinks in. And then viol’a, suddenly I GET it.

    Obviously the,trillions at stake, that POTUS is taking away from multinationals and China, HAS to go someplace; Hello, mainstreet!

    How long till wall street influence on Congress decreases enough, and mainstreet increases enough, to turn the tide, and get Congress on board with voting for OUR best interests?

    Can’t come soon enough!

    Liked by 4 people

    • WES says:

      Dutchman: Funny but I haven’t been hearing very much news about how big Wall Street’s year end bonuses will be for 2018. Usually when big bonuses are expected there are plenty of articles talking about big parties, all the luxury items being bought, etc. but I have seen little of this. Maybe a sign Wall Street’s economy is already shrinking?

      Liked by 2 people

  9. WES says:

    While Wall Street’s blame game is pointing a finger at President Trump, don’t forget to remember three of Wall Street’s finger are pointing back at themselves!

    Liked by 3 people

    • Dutchman says:

      3 fingers? “Read between the lines”, perhaps?
      Wall street is screwed, dead,walking, if they can’t stop “Trump”.

      This definetly ain’t over, and gonna get dicey, before it is.

      Like

    • VoteAllIncumbantsOut says:

      This effects globalism yes but as far as a traders point of view we make money going long or short it does not matter if the markets go up or down, the folks on Wall St., win regardless, that is a true trader. The markets go up 1/3, downward 1/3 and sideways 1/3 so we take advantage of 2/3rd’s of the moves. That is the factual truth like it or not.

      Liked by 1 person

      • WES says:

        Vote : True to some extent but I believe trading revenues have been disappointing for many banks on Wall Street in 2018.

        Like

      • VoteAllIncumbantsOut says:

        I’m just sick and tired of the Main Street folks who invest getting hammered every time the media spins the narrative. It is pushing more and more to start teaching the ins and out of markets. Does not matter if it commodities, equities, indices or anything else, the only way to join Wall St., is to understand their game playing on our field, Main St.

        Like

        • Frankly, “The Big Club” isn’t going to be passing out any formal invitations to come take advantage of the scam with them.

          What’s going to stop the same money changers from killing main street right back off when President Trump has finished his eighth year in office if the “fed” is still in place?

          Like

    • kinthenorthwest says:

      Love how Obama put all the blame for bad on GW & now tries to take all the credit for Trump’s good…

      Liked by 4 people

  10. V.I.G. says:

    I will wait for Q1 earnings and jobs to come out, before responding to this one. I agree with Sundance on the matter, but it will take a decade to see the results and Trump does not have that long.
    This market downswing, has been 100% controlled…400-600 points a day. That is somone controlling the fall. The Fed does not have that kind of power, but the financial elites, who hate Trump, DO.
    THEY jusy keep putting pressure on him and nothing has worked, but what we are seeing since October. Has been talked about for close to 3 years now. With Q1/Q2 2019 being the demarcation line, for Wall Street.
    My wife and I, stopped putting into our 401k’s when the market hit 22k. We are saving up, to buy a rental property. As the 100 basis point in the last 14 months, means one of two things:
    -50 year mortgages
    OR
    -Price of Homes, has to come down…we will know more in March.

    Liked by 1 person

    • VoteAllIncumbantsOut says:

      V.I.G. Years ago I used to think that same way (manipulations), but that is not the case.

      You ever wonder why gold promoters always want you to buy gold when it’s going to the moon according to them? If you have gold great, why would you yourself sell it knowing it’s going higher, that would be foolish don’t you think? There is a time and a price when you sell things but never because someone tells you too, that’s the rub.

      When you understand the markets, media and the game you make money.

      Liked by 3 people

  11. Ghost says:

    I’m having a lot of fun!

    big smile!

    Liked by 1 person

  12. QUESTION: Will [Manufacturing] Corporations SPLIT their stocks into USA and Non-USA listings to attract investors who recognize the PREMIUM PROFIT POTENTIAL that President Trump is creating with MAGAnomics?

    He has created massive STRUCTURAL advantages for USA-centric Manufacturing:
    • Tax Cuts (Individual) that will spur DEMAND in a consumer-driven economy
    • Tax Cuts (Corporate) that will retain more EARNINGS and fund EXPANSION in USA production
    • Tax Reform that is boosting CAPITAL INVESTMENT with first-year write-offs
    • Bilateral Trade Deals that are cutting IMPORTS & expanding EXPORTS with a level playing field

    He is now creating additional PRODUCTIVITY advantages for USA-centric Manufacturing
    • Border & Immigration Control that are expanding citizen EMPLOYMENT & TAX RECEIPTS
    • Deportation of Illegals that is ending their UNFUNDED COST BURDEN for Education & Welfare
    • Job Openings that create LABOR SHORTAGES that drive PRODUCTIVITY INVESTMENTS

    He will ultimately create massive COST advantages for USA-centric Manufacturing
    • LOGISTICS, TARIFF & IMPORT-TAX savings from displacing imports with domestic production
    • Domestic ENERGY advantages with lowest-cost production, refining and distribution
    • Domestic ENERGY security as a net exporter no longer subject to OPEC-driven price spikes
    • Domestic STEEL & ALUMINUM self-sufficiency protected from Chinese subsidies & supply cuts
    • Litigation Loser-Pays Reform to cut LITIGATION COSTS of insurance, adjudication & settlement
    • Government Enforcement to cut Waste, Fraud, Abuse & Staffing that will fund TAX CUTS 2.0

    Liked by 1 person

  13. Quick Take on Sundance’s post:

    MONEY fills the GAP between the Wall Street and Main Street Economies:

    Illegals’ Labor BLEED Main Street Workers’ Wages & fund Wall Street Profits
    • Federal Income Subsidies through Welfare & Food Stamps to MASK the BLEEDING

    Anti-American Trade Deals EXFILTRATE Wealth to BLEED our Money Supply
    • Fed QE Stimulus Money and Zero Fed Funds Rates to MASK the BLEEDING

    =====
    TRUMP’s MAGAnomics close the GAP but trigger Fed actions to thwart their impact:

    Border and Immigration Enforcement RESTORE Main Street Worker’s Wages.
    • So the Fed’s makes EIGHT hikes in the Fed Funds Rate to fund Bankster Profits.

    Tariffs and Bilateral Trade Deals STABILIZE our Money Supply
    • So the Fed withdraws QE at $50 Billion monthly to BLEED more Money Supply

    Like

  14. During a period of relatively low interest rates, increases in rates should have much less impact on Main Street businesses as compared to Wall Street businesses.

    The investment bankers are often leveraging underperforming firms to the hilt in a low interest rate environment to optimise valuations and maximise their fees. The result is that somewhat minor interest rate increases have a significant impact on costs given the debt load and can trigger all sorts of undertakings in financing agreements. Wall Street is very sensitive to interest rates.

    However, your average Main Street business will have a comparatively much larger equity position so is geared more conservatively and so interest expense should be a much smaller component of the firm’s cost structure. Also, profit margins are generally higher with performance more contingent on management of operating costs in addition to general activity in the economy. Therefore, Main Street is not nearly as sensitive to interest rates.

    Where interest rates have a greater impact on Main Street is at the small business end where personal residential property is used to finance the family business and business management skills may be less sophisticated.

    Like

  15. SOTM says:

    “I hate to keep harping the point, but this was predicted two years ago:”
    You could not “harp” on this subject enough. So many people are blind to these aspects of our economy and unaware of how higher policy has far-reaching effects on us all. I started becoming aware of this when I was writing a dissertation three years ago and was learning about NAFTA…and learned that it was ripping off our country, especially our rural communities. So when the presidential election started and ONE candidate said he would reject TTP (NAFTA on steroids), I knew we had someone different. He has not disappointed!

    “If people desire the qualities that make a healthy community, then they must learn how to abide in a place. People must learn again to “live at home.” There is a need to return to the land. But how did this basic principle get lost? Part of a person’s identity comes from their community, connections, and their “place.” Many are detached from that place; therefore, detached from that part of who they are. The cultural impact of the global economy and the rise of digital technology within it have blurred too many lines causing a values shift.”

    Liked by 1 person

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