Millions Of Angry Americans Will End Up With A Smaller, Or No Refund This Year: Here's Why
ZeroHedge.com Tue, 02/12/2019 - 10:22 When Congress passed the Tax Cuts and Jobs Act (TCJA), a/k/a Trump's tax code overhaul in early 2017, the big expectation for tax season 2018 - the first tax-filing season under the new tax law - was that virtually all Americans would end up receiving a bigger refund. And yet, as numerous analysts have noted, as many as tens of millions more taxpayers will end up with no refund, or a smaller one, compared with a year ago, before the lower rates fully took effect. How is that possible be? The explanation rests with the many other changes that made it into the revised tax code, and as millions of American taxpayers sift through the revised tax code, some are venting their surprise and anger. First, the facts: with about 10% of households having filing their returns through the weekend, the percentage of households getting tax refunds is similar to last year, but the average refund size is down 8%, to $1,865. The number of returns filed so far -16 million - is also down 12% from the similar point a year ago. To be sure, the first batch of weekly data from the IRS offers a very preliminary, unrepresentative look at what’s happening to taxpayers using the new tax system, which increased the standard deduction, lowered rates, and curbed some deductions. Typically, early filers are those who expect significant refunds, while those who owe money file closer to the mid-April deadline. Furthermore, as the WSJ notes, the picture will become clearer later this month, as tens of millions more returns are processed, and while the IRS had been partially shut down in the run-up to filing season, the US tax agency says it is running smoothly so far (although all that may change on Friday should the government be shut again should a border deal not be reached between Trump and the Democrats). Meanwhile, in absolute terms, about two-thirds of US households are getting tax cuts for 2018 under the law, and just 6% are paying more, according to the Tax Policy Center. But the size of those tax cuts may not be reflected in refunds, which are just the end-of-year reconciliation of what a taxpayer owes and what was withheld or paid during the year. As Bank of America observes, many taxpayers received much of the benefit through reduced paycheck-withholding throughout 2018, leaving nothing for the actual refund. Here's the issue in a nutshell: while in 2018, personal income grew by 4% tax withholding actually fell by 0.6%. Analyzing the relationship between income and tax withholdings, BofA found that if withholdings had grown in line with income, tax withholdings would have been approximately $90bn higher. That is, about $90BNn of the tax cuts have already been paid out to households through the new withholding tables, which reflect the lower tax rates and the doubling of the standard deduction from the TCJA. Said otherwise, overall refunds will be $90BN less than if withholdings stayed constant. That said, on average refunds should still be larger than usual according to estimates from Evercore ISI and Morgan Stanley, although tax experts and preparers expect many households to be surprised by the size of their refunds—in both directions—and, on balance, millions of people may shift from getting refunds to owing taxes. Needless to say, they won't be happy, having expected - and likely already spent - a far greater refund than in 2018, especially since a clear majority of Americans - four out of five, according to the Tax Policy Center in Washington - are supposed to see a reduction in taxes. So what happened, and why aren’t there lots more refunds? Here are some key observations from Bloomberg: The Internal Revenue Service offers ongoing guidance to help employees and employers decide how much money to withhold from paychecks so that most income taxes are paid automatically and gradually throughout the year. The shifting tax brackets - they now start at 10 percent and top out at 37 percent for income about $500,000 - plus changes to exemptions, deductions and credits meant that many taxpayers needed to adjust their withholding. But most taxpayers were confused how to do so, according to tax adviser H&R Block Inc. (The IRS reworked its calculations, but the updated tables didn’t translate precisely from the old law.) Home Depot Inc. found that only 1 percent of its employees had altered their withholding. End result: fewer, and smaller, tax refunds. The IRS expects to issue 105.8 million refunds this year, down 2 percent from last year’s 108.3 million. According to Ernie Tedeschi, a former Treasury Department economist who analyzed the topic for research firm Evercore ISI, many taxpayers with incomes below $100,000 will get their tax cut in the form of a bigger refund, while those with higher incomes got the tax cut in the form of higher paychecks throughout 2018 - and therefore might be expecting refunds that aren’t coming. Analysts anticipate the total dollar amount refunded to be slightly higher, meaning some people will get bigger refunds than in the past. Among them are couples with children, since the standard deductions for filing as a couple, as well as the child tax credit, both almost doubled in the revised tax code. Some Americans won't be getting a refund at all. More than 30 million Americans - 21 percent of taxpayers - didn’t have enough taken out of their paychecks throughout the year, meaning they will owe the IRS will they file their returns this year, according to a study from the Government Accountability Office. That’s an increase from 18 percent of taxpayers who were under-withheld last year. That means about 5 million people who got a refund last year won’t be getting one this year. So who’s angry? Some taxpayers have turned to Twitter to vent their unhappiness after completing their tax returns and seeing the bottom line. A representative sample: "I filed my 2018 tax return today as a substitute teacher. My refund will be 40% less than the refund I got last year." What does this mean for consumer spending? Despite fewer tax refunds overall, Wall Street analysts are expecting to see a boost in spending from the lower-income consumers who will benefit from the expansion of the child tax credit. Middle-income households, those earning from $55,000 to $75,000 a year, will also see benefits, with as much as half of their tax-cut bounty showing up in refunds, Wells Fargo said. The tax-cut sugar high could be short lived, however, the Congressional Budget Office said the effects of the tax cuts are set to wane in the coming quarters. According to an analysis from Bank of America, the extra income from tax refunds could support greater consumer spending, however the bank sees reasons to fade some of the potential boost to spending. One reason is that a large share of the child tax credit will to go upper income households who are likely to have a lower marginal propensity to consume out of tax refunds. Also, those high income households in high tax states will need to account for the change in the SALT deductions which could lead to a significant decline in refunds or need to pay additional taxes during tax season. Also as noted above, in 2018, personal income grew by 4% but tax withholding fell by 0.6% as a result of smaller withholdings (and lower refunds in 2019). That means that much of the consumption benefit from lower taxes already took place in 2019, at the same time as the lower-taxed incomes were earned. Then there is the impact of SALT: under the previous tax code, state and local tax deductions were one of the more popular tax breaks. In the 2017 tax filing season, over 33 million tax returns (roughly 22% of all returns) had deducted state and local taxes on their tax returns. However, under TCJA, deductions of state and local taxes will now be capped at $10,000, raising the tax burden on many tax filers from high tax states such as New Jersey, Connecticut and California . For many, the impact will be nontrivial. In dollar terms, BofA estimates that the lost deductions would cost each impacted tax filer, on average, an additional $3,000 in federal taxes in 2019. Some may see a partial reprieve from lower marginal tax rates. However, this implies, many tax filers will see a substantial reduction in tax refunds or worse may need to pay additional taxes during tax season, potentially leading some households to forgo or delay consumption as they adjust to the new tax code. Bottom line: under the aggregate numbers, BofA finds many different tax situations with clear winners and losers which could distort spending patterns as households adjust to their new tax reality. Translation: anyone who expected a uniform boost in refunds will be disappointed. Finally, what are the political ramifications of this? According to Bloomberg, fewer people getting refunds will give U.S. Democrats, who now hold a majority in the House of Representatives, an opening to question how much the tax law benefited the middle class. Only about 45% of voters approve of the tax cut, according to recent polls, and many Republicans in high-tax states already lost their seats in the 2018 midterm elections due to the changes in the deductibility of state and local taxes. Looking ahead to the 2020 presidential election, dissatisfaction with the tax law may give Democrats an opening to promise tax changes of their own, ones that favor the middle class.
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The Threat Of A US Government Debt Trap
ZeroHedge.com Tue, 02/05/2019 - 20:45 Authored by Alasdair Macleod via The Mises Institute, The issuance of debt is normally subject to a contract that it will be repaid at the end of its term, along with the coupon interest. The exception is undated bonds, when only the interest contract must be fulfilled. In practice, governments and many corporations roll over debt into new bond obligations at the end of their terms, but at least bondholders have the opportunity to be repaid their capital. Therefore, the credibility of government debt is based on the assumption the issuer can afford to continue to roll it over rather than repay it. However, the rolling over of old debts and the continual addition of new ones will almost certainly become a problem for governments everywhere. It is less of a problem when the debt is put to productive use, but that is rarely, if ever, the case with government finances. To judge whether the rolling over of debt is sustainable and at what cost, we need to rely on other metrics. The traditional method is to compare outstanding debt with GDP, and by using this approach two economists (Carmen Reinhart and Ken Rogoff) came up with a rule of thumb, that once a government’s debt to GDP ratio exceeded approximately 90%, economic growth becomes progressively impaired. The Reinhart-Rogoff paper was empirically based, and loosely impresses upon us that the current situation for the US and other nations with higher debt to GDP ratios is unsustainable. Key to this reasoning is that rising debt levels divert savings from financing economic growth, and therefore a government’s ability to service it from rising taxes is undermined. At the Rubicon level of 90% and over, median growth rates in the countries sampled fell by 1%, and their average growth rates by “considerably more.” It is entirely logical that a government forced to tax its private sector excessively in order to pay debt interest will restrict economic potential overall. This analysis was published in the wake of the Lehman crisis, when an unbudgeted acceleration in the rate of increase of government debt everywhere was a pressing concern. The signals from financial markets today indicate that we could be on the verge of a new credit crisis, in which case tax revenues will again fall below existing estimates, and welfare costs rise above them. Therefore, government debt will increase unexpectedly, as was the case that caused the Reinhart-Rogoff paper to be published in 2010. To look at the increase of government debt between 2007 and 2009, as Reinhart-Rogoff did, was not, as it turned out, a long enough time-frame to fully reflect the consequences of the Lehman crisis on government debt. The increase recorded over 2007-09 was 32%, yet economists and others were still talking of austerity until only recently. The whole period between the Lehman crisis and the election of President Trump is perhaps a better time-frame, and we see that US Government debt between 2007 and 2016 increased by an astonishing 217%. It turns out that the Reinhart-Rogoff report severely understated the problem by reporting early. Their 90% debt to GDP Rubicon has been left behind anyway, with government debt to GDP ratios around the world in excess of 100% becoming common. In the case of the US, total Federal debt, including intragovernmental holdings, is currently over 105% and rising. The Congressional Budget Office is forecasting substantial budget deficits out to 2028, adding an estimated further $4.776 trillion in deficits between fiscal 2019-23, or $9.446 trillion between fiscal 2019-28. This assumes there is no credit crisis, so for those of us who know there will be one during the next ten years, these numbers are far too optimistic. Accordingly, we should look at two possible outcomes: first, a best case where price inflation continues to be successfully managed with a target rate of two per cent, and a second base case incorporating an estimate of the effects of the next credit cycle on government finances. Best- and Base-Case Outcomes Our best-case outcome of controlled price inflation is essentially that forecast by the Congressional Budget Office. Working from the CBO’s own figures, by 2023 we can estimate accumulated debt including intragovernmental holdings will be $26.3 trillion3 including our estimated interest cost totalling $1.3 trillion. That is our best case. Now let us assume the more likely outcome, our base case, which is where the effects of a credit cycle play a part. This will lead to a fall in Federal Government receipts and an increase in total expenditures. Taking the last two cycles (2000-07 and 2007-18) these led to increases in government debt of 59% and 239% respectively. Therefore, it is clear that borrowing has already been accelerating rapidly for a considerable time due in large measure to the destabilising effect of increasingly violent credit cycles. If the next credit cycle only matches the effects on government finances of the 2007-18 credit cycle, government debt including intragovernmental holdings can be expected to rise to $51.4 trillion by 2028. This compares with the CBO’s implied forecast of only $34 trillion of government debt over the same time-frame and makes no allowance for the cyclical effect on interest rates. More on interest rates later. Because the underlying trend is for successive credit cycles to worsen, the $51.4 trillion figure for federal Government debt becomes a base figure from which to work. But there are still considerable uncertainties, particularly over the form it will take. The character of the next credit cycle is unlikely to replicate the last one, which was a sudden financial and systemic shock. Today, the US banking system is better capitalized and off-balance sheet securitization has been brought largely under control. There are however, uncertainties concerning the euro zone banking system. There are also risks in global derivatives markets and the potential knock-on effects of counter-party failures on the US banks. Furthermore, there can be little doubt the sudden systemic shock of Lehman afforded a degree of protection for the purchasing power of the dollar, and therefore of the other mainstream currencies, despite the unprecedented monetary expansion. However, it would be complacent to expect an outcome of relatively low price-inflation to be simply repeated at a time when government finances are even more dramatically spiraling out of control. Last time the threat was systemic to the banks, but next time the inflationary consequences of government finances is likely to be the dominant problem. The explosion in the quantity of government debt that our analysis implies has many economic consequences. In the context of our rough analysis we should comment on the point made in the original Reinhart-Rogoff paper, which is that the reduction in GDP potential that results from an increase in the ratio of government debt to GDP is likely to be significant. The growth in Federal debt that replicates the post-Lehman experience will leave the US Government with a debt to GDP ratio of over 170%. The CBO assumes GDP will increase by 48% by 2028 to $29.803 trillion, whereas our cyclical case is for debt to rise to $51.4 trillion. While both these figures should be taken as purely indicative, clearly, US Government debt will increase at a faster pace than the growth in GDP and will strangle economic activity. If the purchasing power of the dollar declines more rapidly than implied by the CBO’s assumed 2% price inflation target, interest payable on Federal debt will in turn be sharply higher than expected, compounding the debt problem. The Federal Government will face a potentially terminal debt trap from which there can be no escape. An Honest And Easy Solution To Wealth Inequality
Authored by MN Gordon via Economic Prism, Here we are, less than one month into the New Year, and absurdity levels have broken above 120 decibels. Society, it seems, has spun itself up to a fever pitch. The common culture is working towards a common freak-out. This week, for example, we discovered, courtesy of U.S. Representative Alexandria Ocasio-Cortez, that: “The world is gonna end in 12 years if we don’t address climate change.” This gifted insight was mixed between meticulous news analysis of a peaceful exchange between a smirking teen wearing a MAGA hat and a drum beating Native American wearing a costume. But this ain’t the half of it… The annual hootenanny for the elite, the World Economic Forum in Davos, Switzerland, took place this week. The gathering successfully delivered many high-volume absurdities. An impartial program listing includes: Globalization 4.0, how cities can fight back against climate change, radically reinventing social systems, plastic pollution, safeguarding our planet, the rise of techno nationalism, media freedom in crisis, averting peak Europe, escaping extinction, when global order fails, a new deal for nature, shaping the future of democracy, and much, much more. No doubt, the best and the brightest at Davos see these constructed ails as opportunities to provide technocratic solutions – at your expense. Amongst all this noise, however, we’re after something different. Our aim today, first and foremost, is directed at the valuable commodity of silence. We don’t get enough of it. We need more of it. One area more silence is needed is the federal government. In contrast to the small and quiet government envisioned by the nation’s founders, today’s gigantic federal rule is full of much clatter and racket. Yet some progress is being made. The government shutdown is a good start for ever so slightly quieting Washington. At the moment, roughly 800,000 federal workers – through no fault of their own – are furloughed or working without pay. And should the government shutdown extend for several more pay cycles, many of these workers will look for private employment. This, in effect, will reduce the number of workers on the federal payroll. Still, this is only a start. You see, real silence takes real silence. The real silence we’re referring to is the real silence of nearly 100 years ago… Silent Cal Calvin Coolidge, the 30th president of the U.S., was a man of few words. As Vice President, under Warren Harding, Coolidge attended, but hardly participated in cabinet meetings. He was actively practicing his position that government should interfere as little as possible with businesses and individuals. This silence earned him the nickname “Silent Cal.” When he succeeded to presidency after Harding’s untimely death, Silent Cal did his part to make America great by doing little. He told the republic to “Keep Cool with Coolidge.” The populace rewarded him with victory in the 1924 presidential election. Silent Cal, like the current president, reduced taxes. However, he also did something quite uncommon. He simultaneously reduced spending…and he did so by uttering one single word: “No.” He said no to Veterans appeals for bonus payments. He vetoed the Soldiers’ Bonus Act. He said no to farmers. He vetoed the McNary-Haugen Farm Relief Bill, which proposed government intervention into food markets to artificially inflate agriculture prices. In total, he vetoed 50 pieces of legislation during his presidency. On the uncommon occasion where Silent Cal opened his mouth, like when addressing the topic of The Press Under a Free Government, it was to clarify that: “After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world. I am strongly of opinion that the great majority of people will always find these are moving impulses of our life. […]. Wealth is the product of industry, ambition, character and untiring effort. In all experience, the accumulation of wealth means the multiplication of schools, the increase of knowledge, the dissemination of intelligence, the encouragement of science, the broadening of outlook, the expansion of liberties, the widening of culture.” An Honest and Easy Solution to Wealth Inequality Naturally, Silent Cal didn’t have much tolerance for government intervention into schools, healthcare, agriculture, industry, toothpaste producers, or any other segment of the economy. He was also opposed to policies of taxation and forced philanthropy. He recognized that government doesn’t create wealth. Were Coolidge alive today, would he discern that the source of the current massive wealth inequality is the Fed’s fake money? He most likely would. Because he’d already witnessed the wealth disparity blowout resulting from New York Federal Reserve Bank Governor Benjamin Strong’s “coup de whiskey to the stock market,” which occurred while Coolidge was President during the roaring 20s. Certainly, Coolidge would disparage today’s system of central bank generated credit creation, and the great wealth disparities that it inflicts. Moreover, his solution to the wealth gap wouldn’t be to tax the rich so that Washington could redistribute the spoils back to crony insiders, while handing out small crumbs for the masses. Instead, to address today’s vast wealth inequality we think Silent Cal would find a far different approach to be far more agreeable. Bill Bonner, writing in his daily diary, recently offered an apt alternative to big government taxation and redistribution: ‘“Inequality’ could be solved easily and honestly. “Stop rigging interest rates. The free market can decide what rates should be. Most likely, it would discover rates that were much higher – probably over 5 percent. Then, in a flash, like champagne at Hiroshima, the post-2009 gains of the super-wealthy would evaporate. “So far, neither AOC [Alexandria Ocasio-Cortez] or DJT [Donald John Trump] has suggested such an elegant repair. And don’t hold your breath.” To this we’ll add one very specific and uncompromising provision: There will be absolutely, unconditionally, categorically, no government funded bailouts. Government Spending Doesn't Create Economic Growth
Authored by Frank Shostak via The Mises Institute, According to many commentators, outlays by government play an important role in the economic growth. In particular, when an economy falls into a slower economic growth phase the increase in government outlays could provide the necessary boost to revive the economy so it is held. The proponents for strong government outlays when an economy displays weakness hold that the stronger outlays by the government will strengthen the spending flow and this in turn will strengthen the economy. In this way of thinking, spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual's earnings. So if for some reason people have become less confident about the future and have decided to reduce their spending this is going to weaken the flow of spending. Once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending. Following this logic, in order to prevent an emerging slowdown in the economy’s growth rate from getting out of hand, the government should step in and lift its outlays thereby filling the shortfall in the private sector spending. Once the flow of spending is re-established, things are back to normal, so it is held, and sound economic growth is re-established. The view that an increase in government outlays can contribute to economic growth gives the impression that the government has at its disposal a stock of real savings that employed in emergency. Once a recessionary threat alleviated, the government may reduce its support by cutting the supply of real savings to the economy. All this implies that the government somehow can generate real wealth and employ it when it sees necessary. Given that, the government is not a wealth generator, whenever it raises the pace of its outlays it has to lift the pace of the wealth diversion from the wealth-generating private sector. Hence, the more the government plans to spend, the more wealth it is going to take from wealth generators. By diverting real wealth towards various non-productive activities, the increase in government outlays in fact undermines the process of wealth generation and weakens the economy’s growth over time. This way of thinking follows the ideas of John Maynard Keynes. Briefly, Keynes held that one could not have complete trust in a market economy, which is inherently unstable. If left free the market economy could lead to self-destruction. Hence, there is the need for governments and central banks to manage the economy. In the Keynesian framework of thinking an output that an economy could generate with a given pool of resources i.e. labor tools and machinery and a given technology without causing inflation, labeled as potential output. Hence the greater the pool of resources, all other things being equal, the more output can be generated. If for whatever reasons the demand for the produced goods is not strong enough this leads to an economic slump. (Inadequate demand for goods leads to only a partial use of existent labor and capital goods). In this framework of thinking then, it makes a lot of sense to boost government spending in order to strengthen demand and eliminate the economic slump. The Importance of Real Savings What is missing in this story is the subject matter of real savings. For instance, a baker out of the production of ten loaves of bread consumes two loaves, saves eight loaves, and exchanges them for a pair of shoes with a shoemaker. In this example, the baker funds the purchase of shoes through the saved eight loaves of bread. Note that the bread maintains shoemaker’s life and wellbeing. Likewise, the shoemaker has funded the purchase of bread by means of shoes that maintains bakers’ wellbeing. Now, the baker has decided to build another oven in order to increase the production of bread. In order to implement his plan the baker hires the services of the oven maker. He pays the oven maker with some of the bread he is producing. Again, what we have here is a set-up where the building of the oven is funded by the production of final consumer good - bread. If for whatever reasons the flow of bread production is disrupted the baker would not be able to pay the oven maker. As a result, the making of the oven would have to be aborted. Now, even if we were to accept the Keynesian framework that the potential output is above the actual output, it does not follow that the increase in government outlays will lead to an increase in the economy’s actual output. It is not possible to lift overall production without the necessary support from final saved consumer goods or from the flow of real savings. We have seen that by means of a final consumer good — the bread — the baker was able to fund the expansion of his production structure. Similarly other producers must have final saved real consumer goods – real savings – to fund the purchase of goods and services they require. Note that the introduction of money does not alter the essence of what saving is. (Money is just a medium of exchange. It is only used to facilitate the flow of goods it however cannot replace the final consumer goods). The government as such does not create any real wealth, so how can an increase in government outlays revive the economy? Various individuals who employed by the government expect compensation for their work. The only way it can pay these individuals is by taxing others who are still generating real wealth. By doing this, the government weakens the wealth-generating process and undermines prospects for economic recovery. The fiscal stimulus could “work” if the flow of real savings is large enough to support i.e. fund, government activities while still permitting a positive growth rate in the activities of the private sector. (Note that the overall increase in real economic activity is in this case erroneously attributed to the government's loose fiscal policy). If, however, the flow of real savings is not large enough then regardless of any increase in government outlays overall real economic activity cannot be revived. In this case the more government spends i.e. the more it takes from wealth generators, the more it weakens prospects for a recovery. Thus when government by means of taxes diverts bread to its own activities the baker will have less bread at his disposal. Consequently, the baker will not be able to secure the services of the oven maker. As a result, it will not be possible to boost the production of bread, all other things being equal. As the pace of government, spending increases a situation could emerge that the baker will not have enough bread to even maintain the workability of the existing oven. (The baker will not have enough bread to pay for the services of a technician to maintain the existing oven in a good shape). Consequently, his production of bread will actually decline. Similarly, other wealth generators because of the increase in government outlays will have less real savings at their disposal. This in turn will hamper the production of their goods and services. This in turn will retard and not promote overall real economic growth. As one can see the increase in government outlays leads to the weakening in the process of wealth generation in general. According to Ludwig von Mises, there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of it quantity. These New Numbers Prove The Global Economic Slowdown Is Far More Advanced Than We Thought
ZeroHedge.com Tue, 01/15/2019 - 11:50 Authored by Michael Snyder via The Economic Collapse blog, We continue to get more confirmation that the global economy is slowing down substantially. On Monday, it was China’s turn to surprise analysts, and the numbers that they just released are absolutely stunning. When Chinese imports and exports are both expanding, that is a clear sign that the global economy is running on all cylinders, but when both of them are contracting that is an indication that huge trouble is ahead. And the experts were certainly anticipating substantial increases in both categories in December, but instead there were huge declines. There is no possible way to spin these numbers to make them look good… Data from China showed imports fell 7.6 percent year-on-year in December while analysts had predicted a 5-percent rise. Exports dropped 4.4 percent, confounding expectations for a 3-percent gain. China now accounts for more total global trade than the United States does, and the fact that the numbers for the global economy’s number one trade hub are falling this dramatically is a major warning sign. And of course it isn’t just China that is experiencing trouble. In fact, we just witnessed the worst industrial output numbers in Europe “in nearly three years”… Adding to the gloom were weak industrial output numbers from the euro zone, which showed the largest fall in nearly three years. Softening demand has been felt around the world, with sales of goods ranging from iPhones to automobiles slowing, prompting profit warnings from Apple among others. If we were headed for a major global recession, these are exactly the types of news stories that we would expect to see. We also continue to get more indications that the U.S. economy is slowing down significantly. For example, sales of new homes in the U.S. were down 19 percent in November and 18 percent in December… Sales of newly built homes fell 18 percent in December compared with December of 2017, according to data compiled by John Burns Real Estate Consulting, a California-based housing research and analytics firm. Due to the partial government shutdown, official government figures on home sales for November and December have not been released. Sales were also down a steep 19 percent annually in November, according to JBRC’s analysts. Those are horrific numbers, and they are very reminiscent of what we witnessed back in 2008. And we also just learned that employers are cutting back on hiring new college grads for the first time in eight years… A new report from the National Association of Colleges and Employers (NACE) shows that for the first time in eight years, managers are pulling back the reins on hiring college grads, with a projected 1.3 percent decrease from last year. Additionally, a survey from Monster.com found that of 350 college students polled, 75 percent don’t have a job lined up yet. I feel really bad for those that are getting ready to graduate from college, because I know what it is like to graduate in the middle of an economic downturn. At the time, many of my friends took whatever jobs they possibly could, and some of them never really got on the right track after that. But the economic environment that is ahead will be much worse than any of the minor recessions that the U.S. has experienced in the past, and that means things are going to be extremely tough for our college graduates. And the total amount of student loan debt in this country has roughly tripled over the last decade, and so a lot of these young people are going to enter the real world with crippling amounts of debt but without the good jobs that they were promised would be there upon graduation. As economic conditions have begun to deteriorate, I have had more people begin to ask me about what they can do to get prepared for what is coming. And I always start off by telling them the exact same thing. Today, 78 percent of Americans are living paycheck to paycheck, but when an economic downturn strikes that is precisely what you do not want to be doing. Some people that I hear from insist that there is no possible way that they can put together an emergency fund because they are already spending everything that they are bringing in. And yes, it is true that there are some people out there that are so financially stretched that they literally do not have a single penny to spare even though they are being extremely frugal, but the majority of us definitely have areas where we can cut back. I realize that “cutting back” does not sound fun. But not being able to pay your mortgage when things get really bad will be a whole lot less fun. Right now people should be focusing on reducing expenses and trying to make some extra money. Use whatever time we have left before things get really bad to put yourself into a better financial position. If you have at least a little bit of money to fall back on, it will make your life much less stressful in the long run. In addition, anything that you can do to become more independent of the system is a good thing. On a very basic level, learning to grow a garden can end up saving you a ton of money. I was just at the grocery store earlier today, and food is getting really expensive. When the Federal Reserve says that we are in a “low inflation” environment, I always wonder what world they are living on. When I got up to the register today, I almost felt like they were going to ask me what organ I wanted to donate in order to pay for my groceries. Unfortunately, the price of food right now is actually quite low compared to what it is going to be in the days ahead. Ladies and gentlemen, 2019 is off to quite a rough start, and things are likely to get a whole lot rougher. As always, let us hope for the best, but let us also get prepared for the worst. |
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