Meanwhile the US economy continues to thrive

Despite all the political turmoil and President Trump’s confrontational and divisory approach the US economy continues to do very well, but there are some warning signs

The US share market is easing off record highs – the boom there may be a good sign, but could also pose future risks of a big bust.

Market Watch:  Job creation, wages slip in September as unemployment falls to 48-year low

The U.S. unemployment rate sank to a 48-year low of 3.7% in September as the economy added 134,000 new jobs, setting the stage for a strong holiday season to finish out what’s been stellar year for the U.S. economy.

The increase in hiring was the smallest in 12 months and below the recent trend, perhaps reflecting the effects of Hurricane Florence. Economists polled by MarketWatch had forecast a 168,000 increase.

Yet the increase in new jobs was enough to lower the unemployment rate to 3.7% from 3.9%. The last time the jobless rate was lower was in December 1969 — when the first man walked on the moon.

Many economists predict the jobless rate will fall even further in the months ahead.

Reuters:  U.S. job growth cools; unemployment rate drops to 3.7 percent

U.S. job growth slowed sharply in September likely as Hurricane Florence depressed restaurant and retail payrolls, but the unemployment rate fell to near a 49-year low of 3.7 percent, pointing to a further tightening in labor market conditions.

“The weaker gain in payrolls in September may partly reflect some hit from Hurricane Florence,” said Michael Pearce, senior U.S. economist at Capital Economics in New York. “There is little in this report to stop the Fed continuing to raise interest rates gradually.”

Fed Chairman Jerome Powell said on Tuesday that the economy’s outlook was “remarkably positive” and he believed it was on the cusp of a “historically rare” era of ultra-low unemployment and tame inflation.

Bloomberg:  Powell Heaps Trump-Like Praise on Economy as Rate Hikes Loom

In what Fed watchers say was unprecedented four public appearances over the past week, Powell repeatedly lauded the economy’s performance, calling it “remarkably positive,” “extraordinary” and “particularly bright.” And he said he expected the good times to continue.

“Interest rates are still accommodative, but we’re gradually moving to a place where they’ll be neutral,” neither holding back nor spurring economic growth, Powell said. “We may go past neutral. But we’re a long way from neutral at this point, probably,” he added.

The Fed raised its interest-rate target range last week to 2 percent to 2.25 percent.

Breaking with decades of presidential precedence, Trump has repeatedly criticized the Fed in recent months for raising rates. His latest salvo came on Sept. 26, just hours after Powell and his colleagues boosted rates for the third time this year.

Asked by veteran television anchor Judy Woodruff for his response to Trump’s outbursts, Powell replied, “My focus is essentially on controlling the controllable”.

The current economic expansion is already the second-longest in history, trailing only the 10-year period of the 1990s. If it continues, it will surpass that upturn next year.

But one trend should be of concern, US Government Debt:

Today the Federal Debt is about $21,605,363,414,469.16.

The amount is the gross outstanding debt issued by the United States Department of the Treasury since 1790 and reported here.

But, it doesn’t include state and local debt.

And, it doesn’t include so-called “agency debt.”

And, it doesn’t include the so-called unfunded liabilities of entitlement programs like Social Security and Medicare.

Forbes: Why The Federal Deficit Isn’t Cause For Panic… Yet

If you’re reading this, then it probably means you have also watched pundits scream at the top of their lungs about the impending doom brought about by the US deficit. Numbers like $20 Trillion are enough to scare anyone, so concern is warranted, however, panic is not.

The federal government is projected to add $985 billion to the federal deficit during fiscal year 2019. That’s because the government plans to spend over $4.4 trillion dollars, while bringing in only $3.42 trillion dollars. Nearly $400 Billion of the spending will go to service debt that’s already accrued over the years and that figure will only rise as interest rates increase.

While those numbers are astonishing and difficult to really wrap your mind around, it’s not as bad as it sounds. According to the non-partisan Congressional Budget Office’s (CBO’s) Budget and Economic Outlook: 2018 to 2028, “In CBO’s baseline projections, which incorporate the assumption that current laws governing taxes and spending generally remain unchanged, the federal budget deficit grows substantially over the next few years. Later on, between 2023 and 2028, it stabilizes in relation to the size of the economy, though at a high level by historical standards.”

Now I said not to panic earlier, because there are a number of adjustments and scenarios that will let the U.S. keep borrowing and spending long after any individual would have had their credit cards canceled. That said, at some point time will run out and our options to fix the situation will be less and less friendly. It’s the equivalent of waiting until you’re in the hospital to make lifestyle adjustments. By then, it might be too late.

The Baltimore Sun: U.S. debt addiction threatens national security

Arising China. An emboldened Russia. A nuclear Iran. Cyberwarfare. Ask a defense expert to name America’s biggest security concerns, and one of these will likely top the list.

These threats are real, of course. But one of the biggest dangers to our nation isn’t a hostile foreign actor. It’s a domestic one — our leaders’ addiction to debt.

The U.S. national debt is rising unsustainably. The Pentagon recently has been asking for more money, and Congress has been inclined to give it to them. Absent dramatic reform, national security will soon take a back seat to mandatory debt service.

The Hill: Congress approved $2.4 trillion in additional debt during fiscal year 2018: Watchdog

Congress approved $2.4 trillion in debt during fiscal year 2018, according to an analysis published this week by the watchdog group Committee for a Responsible Federal Budget (CFRB).

Trump administration officials have insisted that the tax law will ultimately bring down the deficit due to economic growth, a conclusion that’s been rejected by many budget watchers as well as some official bodies.

“At a time when debt is already at record-high levels and growing unsustainably, the $2.4 trillion added to the projected debt over the past year is incredibly irresponsible,” CFRB wrong in a blog post. “These changes alone will increase projected debt from 86 percent of GDP to 94 percent.”

Trump is used to taking big financial risks in business, but the financial health of the United States as well as the world are at stake. If things crash it won’t be as easy to walk away as it has been from his business failures.

If the New Zealand Government was increasing debt here to anything like 86% or 94% of GDP they would be strongly and widely criticised, for good reason. But for some reason business leaning pundits don’t seem to care about those levels of debt in the US, they hail the economy there as great.

National debt on track to approach 100% of GDP by 2028

National debt is currently running at about 77% of Gross Domestic Product, and is on track to reach 100% of GDP in ten years. This, of course, is in the US.

Reuters: Republican tax cuts to fuel historic U.S. deficits

The deficit – the amount that Washington’s spending exceeds its revenues – will expand to $804 billion in fiscal 2018, which ends on Sept. 30, up from $665 billion in fiscal 2017, CBO said.

The national debt is on track to approach 100 percent of gross domestic product (GDP) by 2028, said the nonpartisan CBO, which analyzes legislation for Congress.

“That amount is far greater than the debt in any year since just after World War II,” CBO said, adding that the debt is now about 77 percent of GDP, a measure of the size of the economy.

The Republican tax legislation, passed by Congress without Democratic support, along with a recent bipartisan $1.3 trillion spending package, are expected to drive economic growth faster than initially expected, CBO said.

The analysis “confirms that major damage was done” by the new tax law and the spending bill, said Michael Peterson, head of the nonpartisan Peter G. Peterson Foundation.

“This high and rising debt matters because it harms our economy,” said Peterson, whose group backs fiscal conservatism.

“During a time of low unemployment and economic expansion, we should be taking reasonable steps to put our debt on a sustainable path – but instead we are piling up trillions of bills,” he said.

The debt picture is quite quite different in New Zealand. For last year’s election campaign Labour made a commitment to continue reducing debt as a percentage of GDP to 20%, albeit taking two years longer than National’s promise.

Finance Minister Grant Robertson has just re-confirmed this commitment.


Question No. 3—Finance

3. Hon AMY ADAMS (National—Selwyn) to the Minister of Finance: Is he committed to reducing core Crown net debt to 20 percent of GDP by 30 June 2022?

Hon GRANT ROBERTSON (Minister of Finance): This Government is committed to reducing core Crown net debt to 20 percent of GDP within five years of taking office, as indicated in the Speech from the Throne. In the Half Year Economic and Fiscal Update (HYEFU), core Crown net debt is forecast to reach 19.3 percent of GDP by 30 June 2022.

This is despite he and Jacinda Ardern sounding alarm at a number of apparently sudden crises claiming underfunding of ‘core services’. Instead of borrowing at near record low interest rates to fund urgent infrastructure repairs and rebuilding Labour will steadfastly lower New Zealand

Hon Amy Adams: So to maintain his debt-to-GDP anchor, why won’t he tell New Zealand which of the Government’s stated commitments and expectations he has raised around teachers’ and nurses’ pay will now have to be dialled back because he’s now simply realised that he’s already run out of money?

Hon GRANT ROBERTSON: The member will just have to wait until 17 May, but what I can be absolutely clear about is that this Government understands the importance of a balance between a prudent fiscal approach and making the investments we need to undo the social and infrastructure deficits left to us by the previous Government.

Hon Amy Adams: Can he confirm that the additional Government revenue available to him for the current year alone, tracked from the Pre-election Economic and Fiscal Update projections to the Crown accounts to the end of February, is in fact an additional $700 million?

Hon GRANT ROBERTSON: The member has been paying attention to the monthly statements from Treasury. The final forecasts are still to be done. What’s important to remember, though, is it’s not so much about how much extra revenue might be available to this Government; it’s about what the last Government didn’t do with the revenue that it had.

Hon Amy Adams: Can he also confirm that the HYEFU shows additional tax revenue over the next four years from that which was predicted in the pre-election update is $6.6 billion more?

Hon GRANT ROBERTSON: There is indeed money available to be spent, and this Government will invest that wisely in making sure that we invest in health and education and housing, not the priorities of the previous Government, which were tax cuts slanted towards the most wealthy.


So debt levels are relatively low, interest rates are very low, Ardern and Robertson have started claiming there are a number of suddenly discovered crises due to lack of funding of core services and infrastructure, but the need is not urgent enough to relax their debt lowering targets at all.

There seems to be confusing signals here.

Newsroom: Labour’s budget rules are holding it back

It’s a very strange political alignment when the trade union movement and Matthew Hooton are in agreement. But that’s what has happened over the past week, with both the Council of Trade Unions and the right-wing political commentator speaking out against the government’s continued insistence on adhering to its Budget Responsibility Rules.

These rules are a self-imposed agreement between Labour and the Greens – signed before the election – to reduce core government expenditure to below 30 per cent of GDP, and to reduce government debt to 20 per cent of GDP by 2022. The upshot of this is the Labour-led government has largely adopted the National Party’s fiscal policies, embracing an austerity-style approach to spending. It means they can’t afford to fund adequately housing, healthcare, workers in the state sector, and public infrastructure in general.

The CTU has been unusually outspoken in criticising Labour’s continued adherence to these austerity rules. President Richard Wagstaff questioned whether the government would be able to deal with the crumbling state of public assets, and whether state servants’ need for pay increases would be properly met.

Although some will write off such criticism simply because it comes from the union movement, it’s worth noting that Matthew Hooton also thinks adherence to the conservative fiscal policy is unnecessary and will cause Labour problems. He’s written a column in the NZ Herald suggesting the Prime Minister and her Finance Minister should “more confidently own Labour’s commitment to higher spending and begin the process of gently stretching out the debt reduction target.”

Labour are being questioned quite widely on their current stance.

Wellington plans to ‘pay’ for projects by doubling debt

If i was a Wellington ratepayer I’d be worried by this (actually I’m worried as a Dunedin ratepayer about similar increases in spending and rates).

Stuff: Wellington City Council set to double debt to pay for big projects

Wellington’s desire for a movie museum, a pricey indoor arena, and its need for resilience, will bump the city’s debt to more than $1 billion for the first time.

Wellington City Council’s debt level is set to rise from $507 million to $1.16 billion over the next 10 years to pay for investments such as water reservoirs, earthquake strengthening the Town Hall, Let’s Get Wellington Moving, cycleway infrastructure and the arts.

Councillor Andy Foster was concerned the council was proposing to more than double the amount it borrowed and was warning ratepayers it will cost them in interest payments.

Wellington Mayor Justin Lester said he was comfortable with the proposed investments over the next decade.

Some of the budgeted investments were not only warranted but necessary, he said.

Some will certainly be necessary, but others sound like they are optional and possibly extravagant.

Council chief executive Kevin Lavery said the proposed level of debt was prudent and affordable and significantly lower than the average mortgage level for New Zealand households.

Equating it to “gthe average mortgage level” is cute, but people will be more interested in the impact on their rates, which they pay on top of their mortgage.

The council had a strong balance sheet, which meant it could borrow now and spread the costs of the major projects over the lifetime of the assets, he said.

“Simply, it means we can propose keeping rate increases to less than 4 per cent.”

Suggested ates seem to be all over the place. In February: Wellington City rates sitting at 4.5 per cent increase – mayor wants to trim more fat

Wellington Mayor Justin Lester said if the council did not make the cuts, residents would have faced a 7.1 per cent increase in 2018/19 to pay for big ticket items, such as the Town Hall restoration and Sir Peter Jackson’s movie museum.

Trimming the fat had whittled it down to 4.5 per cent but his ambition was to get it down in the 3 per cent region and keep it consistent over the next decade.

Now it is “under 4%” – and doubling debt.

“We want to keep Wellington more affordable by looking closely at what we are spending … I want to get the rates down by [saving] about $10m.”

And by adding half a billion dollars of debt.

NZ Debt $528.7 billion

New Zealand debt is now over half a trillion dollars, with nearly half of it household debt. Government debt is $96.9 million.

Sounds a lot.

Tax cuts or debt reduction?

Today’s Herald editorial makes the case that Govt should use extra to cut debt, not taxes.

The Prime Minister, an endlessly agreeable politician, entertains talk of tax cuts whenever the Budget surplus turns out to be higher than expected. It is well past time that he stopped doing so and instead made the public better acquainted with its debt position.

John Key and his Government know very well that the reason they have managed to bring the economy through a recession and earthquakes in good shape owes just about everything to the very low debt left by the previous Government.

We have to hope the next economic “shock” does not happen before 2020, for it is not until then that National plans to have the debt back down to the level at which Labour left it.

Really? Government debt has risen from $10 billion in 2008 when National took office to $50 billion now. I don’t think there is any way our economy would allow for an average of $10b per year debt reduction for the next four years.

However reducing debt should now be a priority. But the Government still needs to spend, and they should seriously consider reversing the creeping personal tax increases we have had over the last eight years.

The calls for tax cuts today are not coming from opposition parties, nor from business lobbies who have seen how low public debt helped the economy weather the global financial crisis better than most others.

Business lobbies may well be happy that personal income tax increases while their rates remain static.

The Government should not base their tax decisions on who calls the loudest, they should do what is fair. And allowing personal tax rates to creep up is hardly fair on wage earners.

Repaying debt is important.

There is always pressure to spend more on things like health, social housing, education, crime – and some spending increases are unavoidable, like providing more prison beds.

But restoring personal tax parity should also be a serious consideration.

We can have both tax cuts and debt reduction from a fair and prudent Government.