FOMC Minutes — 2 PM Wednesday
Fed Monetary Policy Report — 11 AM Friday
2019 U.S. Monetary Policy Forum, New York, NY:
Fed Vice Chair Clarida, 12 PM Friday, “The Federal Reserve’s Review of Monetary Policy Strategies, Tools, and Communications,” and
Fed Vice Chair Quarles, 1:30 PM Friday, “The Future of the Federal Reserve’s Balance Sheet.”
Congress is on recess this week, except for pro forma sessions. The House will return next Monday afternoon, but no details have been released yet. The Senate will return at 3 PM, Monday, February 25th, at which time Senator Fischer will deliver Washington’s Farewell Address. Following the address, the Senate will resume consideration of the motion to proceed to Calendar #17, S.311, Born-Alive Abortion Survivors Protection Act. At 5:30pm, there will be a vote on the motion to invoke cloture on the motion to proceed to S.311.
President Trump’s schedule (EST):
MONDAY: Gave a speech to the Venezuelan American community in Miami.
TODAY: 11:30 AM: Meets with Secretary of State Pompeo;
12:15 PM: Meets with Secretary of Homeland Security Nielsen;
1:00 PM: Lunch with Vice President Pence; and
2:00 PM: Signs Space Policy Directive 4.
WEDNESDAY: Trump will have lunch with Secretary of State Pompeo.
Meets with Austrian Chancellor Sebastian Kurz.
THURSDAY: Attends a reception for African American History Month.
China Trade Talks Resume Today in D.C. Bloomberg reports:
Chinese and U.S. trade negotiators will start the next round of talks this week in Washington, after discussions in Beijing last week that President Donald Trump called “very productive.”
The talks will begin on Tuesday, White House Spokeswoman Sarah Sanders said, with Vice Premier Liu He then meeting with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Feb. 21-22, according to a statement from China’s Commerce Ministry.
The talks are picking up pace as the March 1 deadline approaches, Steve Censky, the U.S. Department of Agriculture’s deputy secretary said, “but we still have ways to go.”
Trump has said he’s open to pushing back that deadline. He’s considering a 60-day extension for negotiations, people familiar with the matter said last week. There were still key differences in the positions of both sides at the end of last week and the threat of further escalation in the trade war if talks fail is adding to uncertainty for the global economy.
Sunday, President Trump Tweeted:
Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!
EU Auto Import Report Went To President Trump Sunday. Last night, The Wall Street Journal reported:
On Sunday, the president received a Commerce Department report laying out options for blocking auto imports in the name of national security—a measure that would largely affect U.S. allies in Europe, Japan and South Korea.
The administration didn’t make public the details of the report, and it remains unclear whether Mr. Trump will decide to impose car tariffs, or just continue to use the prospect as a threat to extract new concessions from trading partners. Under the law used to justify the tariffs, a decision is required by mid-May.
Many trade lawyers and lawmakers from both parties said it is difficult to make a case that car imports pose an actual national security threat, and that any such move would draw fierce political opposition.
“Germany Posts Record Surplus, Bolstering Trump Claim on Trade Imbalances.” This morning’s Wall Street Journal article led with:
FRANKFURT—Germany’s current-account surplus was the world’s largest for the third year in a row in 2018, confirming deep disparities in the global economy that have drawn ire from the Trump administration and helped justify U.S. efforts to reset global trade rules.
The data come at an awkward time for European officials, who are in the midst of negotiating a new trade agreement with the U.S.
Peter Altmaier, Germany’s Economics Minister, told German public radio on Tuesday “we are not yet where we want to be” in the trade talks., warning that “the most difficult part starts now.”
Since his election, President Trump has warned he might impose a 25% tariff on European car imports if the negotiations don’t bear fruit. European Commission President Jean-Claude Juncker told a German newspaper on Monday that such a move would draw swift retaliation from Europe.
Germany’s current-account surplus, a measure of excess savings in the economy, was $294 billion in 2018, or 7.4% of the nation’s economic output, German think tank Ifo said Tuesday.
That puts Europe’s largest economy some way ahead of second-placed Japan, which recorded a surplus of $173 billion last year, or 3.5% of annual economic output. Russia came third with $116 billion. China fell out of the top three due to increased imports of machinery.
USMCA push. Last night, The Wall Street Journal also reported:
At the same time, the administration is ramping up its push to win the necessary approval from a divided Congress for the rewritten North American Free Trade Agreement, called the U.S.-Mexico-Canada Agreement.
Large numbers of lawmakers from both parties have said they won’t clear the pact either without revisions to the text, or broader changes in Trump trade policy, casting a cloud over prospects for its passage.
“New Zealand to target online firms like Google, Facebook and Amazon with digital tax.” Yesterday, Reuters reported:
- New Zealand plans to update its laws so it can tax revenue earned by multinational digital firms such as Facebook, Google and Amazon, Prime Minister Jacinda Ardern said on Monday.
- Highly digitalized companies currently earn a significant income from New Zealand consumers without being liable for income tax, the government said in a statement released after the announcement.
- A number of countries including the U.K, Spain, Italy, France, Austria and India have enacted or announced plans for a digital service tax.
“Amazon in Its Prime: Doubles Profits, Pays $0 in Federal Income Taxes.” Last Wednesday’s Institute on Taxation and Economic Policy report stated:
Amazon, the ubiquitous purveyor of two-day delivery of just about everything, nearly doubled its profits to $11.2 billion in 2018 from $5.6 billion the previous year and, once again, didn’t pay a single cent of federal income taxes.
Friday’s CNN report explained:
Amazon (AMZN) piled up billions of dollars in losses over its two-decade history. It posted $3 billion worth of losses during its first eight years as a public company. It swung between profit and loss since 2003. Its most recent annual loss was $241 million in 2014.
Amazon’s total earnings have easily topped its losses — many times over. But some of Amazon’s earnings came from sales outside the United States, on which Amazon paid either lower or no US taxes. Other earnings were offset by Amazon’s investments in equipment, such computers and robots at its fulfillment centers
Last year, Amazon benefited from an accelerated tax credit for equipment purchases, which was part of the corporate tax bill passed at the end of 2017. And the company has received research and development tax credits. So Amazon’s federal tax bill came to a net credit of $129 million in 2018 after getting a $137 million tax credit in 2017.
The company said in its most recent annual financial statement that it still has $1.4 billion in federal tax credits available to offset future tax bills.
“Who’s Afraid of Budget Deficits?” In the just released March/April issue of Foreign Affairs, Jason Furman and Larry Summers argue:
Long-term structural declines in interest rates mean that policymakers should reconsider the traditional fiscal approach that has often wrong-headedly limited worthwhile investments in such areas as education, health care, and infrastructure. Yet many remain fixated on cutting spending, especially on entitlement programs such as Social Security and Medicaid. That is a mistake. Politicians and policymakers should focus on urgent social problems, not deficits.
But they shouldn’t ignore fiscal constraints entirely. The deficit fundamentalists are right that the debt cannot be allowed to grow forever. And the government cannot set budget policy without any limiting principles or guides as to what is and what is not possible or desirable.
There is another policy approach that neither prioritizes cutting deficits nor dismisses them.
They go on to advocate “pay as you go (PAYGO)” on worthy new public investments going forward. The House restored PAYGO last month, but that has yet to become credible in my opinion because past evasions of PAYGO have been so numerous and blatant. See this 20-page CRS report and this 23-page CRS report for more. Me, I’m for reforming Social Security, Medicare, and Medicaid now to take effect gradually between now and when they go bust, respectively in 2034, 2026, and sort of now as the states struggle to fund the ObamaCare Medicaid expansion, but still deny care to many poor.
“How CBO Develops the Economic Projections Underlying Its Long-Term Budget Projections.” Friday’s 22-slide Congressional Budget Office presentation by Wendy Edelberg and Jeff Werling explained:
The Congressional Budget Office Long-Term Model, known as CBOLT, is the main analytical tool that the agency uses to make its long-term projections.
It consists of four components:
- A demographic model
- A microsimulation model that projects year-to-year changes in demographic characteristics and economic outcomes for individuals
- A long-term budget model that projects federal outlays, revenues, deficits, and debt beyond CBO’s standard 10-year budget period
- A policy [Solow] growth model that produces the economic projections that underlie the extended baseline
Pete Davis is an economist who worked on the tax and budget committees of Congress for 11 years and who follows Washington for money managers.
