Monthly Archives: December 2017

Trump just gave a massive gift to Iran: the Arab autocrats should fear their street

 

Until now Iran had lost its credibility on the Arab Street, because of its rescue of the Assad regime. All will now be forgiven as the penny drops. The Iranians were perhaps right to support Bashar, despite his despicable character and his Neanderthal régime.

Trump’s move is -woefully, blatantly – in contempt of international law and UNSC resolutions, which the UNSC itself didn’t fail to point out to its US representative. The US has lost it’s position as a fair arbiter in the Middle East process – some say it has finally shown its hand – and now its international reputation is as sullied as Israel’s.

Liberal Jewish groups in the US see this danger clearly. The Union of Reform Judaism stated: ‘… any relocation of the American Embassy to West Jerusalem should be done in the broader context reflecting Jerusalem’s status as a city holy to Jews, Christians and Muslims alike…the White House should not undermine these efforts by making unilateral decisions that are all but certain to exacerbate the conflict.’

J- Street released a statement saying that a Palestinian capital must also be established in the East Jerusalem: ‘… the effect of moving the American embassy from Tel Aviv to Jerusalem or of declaring that Jerusalem is Israel’s capital prior to a negotiated agreement will be to anger key Arab allies, foment regional instability and undermine nascent US diplomatic efforts to resolve the larger conflict.’

New Israel Fund also criticized the decision in a statement: ‘President Trump many not understand what’s at stake here, but we do. Moving the embassy risks igniting the tinderbox of anger, frustration and hopelessness that already exists in Jerusalem. Throwing…balance off with this unilateral gesture could have grave consequences.’

The US has either been sowing discord or waging war directly in the Middle East for 35 years. So far Iran won the 1980-88 Iraq-Iran war, the 2003-9 Iraq war, and the 2011-7 Syrian war. Let’s see what happens in the next war. Ali Abdulla al-Saleh supporter and funder of violence and militancy across the board is dead. Yemen is open. What will the Arab autocrats, who are the allies of the US, do apart from buy paintings by Leonardo for $450m, and yachts for $500m, all the while mistreating former Gulf allies?

Saudi Arabia’s formal statement denouncing the Trump decision belies their co-operation with him over this new roughing-up of the Palestinians. It smells of fear and double-dealing. The news from Jerusalem is being “managed” by Saudi authorities.

Hopefully, the liberal voices in America above will help undo Trump’s idiocy and the influence of the Christian right on US Middle East policy. Turkey’s efforts to create international consensus against this move will definitely help to keep the pressure on. Erdoğan calling the OIC to a conference on the matter of Jerusalem is a symbolic move, although welcome of course. What people don’t recognise, on the other hand, is the crucial importance of Turkey’s position as the energy transit hub for Mediterranean gas, offering the cheapest route to Europe, which Israel is banking on for its future.

Certainly Abbas has kicked the so-called peace process into the long grass. He doesn’t look too phased by the events and Mike Pence will be disappointed if he thinks he can restart peace talks on his visit to Israel next month.

Although the Palestinian Authority has continually disappointed in the prime task of keeping the Palestinians united and resisting pressure, Abbas has shown more mettle recently in taking Israel to the ICC.

 

Trickle-down economics and the Trump tax cut: people don’t get the joke

When U.S. Treasury Secretary Steven Mnuchin spoke about the Trump administration’s tax plan at the Institute of International Finance, he said the plan would pay for itself without adding to the national debt. This, he said, would be based on what he called “dynamic scoring”, and their projections would show ‘a $2 trillion increase in revenues over a 10-year period. So the plan will pay for itself with growth.’

But the tax plan that has just passed Congress and the Senate in (unbelievably) two different forms, which are going to have somehow to be merged, shows (without all the dynamic scoring) a $1.5 trillion extra deficit, according to the nonpartisan Joint Committee on Taxation (JCT).

In the past fiscal year, the U.S. deficit was $666 billion. That follows deficits of $585 billion in 2016, $438 billion in 2015, $485 billion in 2014, $679 billion in 2013 and more than $1 trillion in deficits in each year from 2009 through 2012 despite extraordinary efforts to stimulate the economy following the 2008 Wall Street financial collapse.

The JCT study found, on the other hand, would only return  $458 billion of the $1.5 trillion cost over the 10 year period. Meanwhile, as Senator Elizabeth Warren noted in a letter to the Inspector General of the Treasury Department, there is no study AT ALL coming from the Treasury on the subject.

Mnuchin’s “Goldman Sachs bluster”, which is being trumpeted (excuse the pun) all over the media, with its so-called “dynamic scoring”, is intentionally deceptive. As Professor Ha-Joon Chang at Cambridge University tells us, “trickle down” – the theory that making a few rich creates wealth across the board for everybody – is a totally broken theory.  See him also in the short clip below.

Mnuchin’s deception is not limited to the usual rubbish about ‘trickle-down’, however. The bill he has rammed through Congress and the Senate, which Republicans jumped at and turned into law in record time simply because they’re scared of the upcoming 2018 mid-term elections, is actually a massive $6 trillion tax-cut over the coming decade, funded by tax rises which will destroy local economies across the US.

Senate Majority Leader Mitch McConnell, R-Ky., pictured above, said the tax-cut raises $4.5 trillion in taxes on ordinary people, so that the rich can get the $6 trillion, which is the actual full amount of the scam for the corporations and the 1%: a historic figure both Reagan and Bush would have flinched at.

The Tax Policy Center estimated that about 80 percent of the benefit of the tax plan will go to the top 1 percent, with $1.5 trillion going to slash the corporate tax rate, $700bn going to cancel the ‘alternative minimum tax’, paid almost exclusively by the rich, and $150 billion going to repealing the estate tax, which currently exempts the first $11 million of the deceased’s estate, so nobody even remotely middle class pays it.

Furthermore, more than $200 billion in cuts goes to a provision that allows a greater deduction for dividends on foreign earnings, and $600 billion goes to reducing taxes on “pass-throughs” and other businesses not set up as corporations -such as law firms, lobby shops, and doctors’ surgeries.

If some $200bn will be going to allow higher income bands to claim tax credits, whilst individual and family tax rates are cut by about $1 trillion, these are the only elements in the package likely to filter through to the middle classes. As the New York Times noted, by 2027, people making between $40,000 and $50,000 would see a combined increase of $5.3 billion in taxes, whilst, on the other hand, people earning more than $1 million would see their taxes collectively cut by $5.8 billion a year.

The tax rises made to underwrite the $6 trillion giveaway

(1) The tax rises include some $300 billion allowances for companies with offshore profits to repatriate them at a lower rate. Although that cash goes straight to dividends for shareholders and stock buybacks, it gets counted as a tax increase.

(2) Unbelievably $1.6 trillion is raised by repealing the personal exemption everybody gets on their tax returns.

(3) Another $1.3 trillion is raised by going after deductions for state and local taxes, mortgage interest, charitable contributions, interest on student loans, medical expenses, teachers’ out-of-pocket expenses (e.g. for paper and pencils for students). This will devastate local economies.

(4) The new law gradually raises $128 billion in (stealth) taxes by changing the way inflation is calculated, so that your taxes slowly creep up over the years as the brackets come down.

(5) Finally, the law adds about $1.5 trillion to the already eyewatering debt over the next 10 years, and the interest payments that will entail.

What Great Depression comedian Will Rogers meant by “trickle-down”

Appropriately for the round of pre-mid-term election madness in 2017 Will Rogers said back in 1932, commenting on Hoover’s defeat at the hand of Roosevelt:

“The Republicans didn’t start thinking of the old common fellow till just as they started out on the election tour. The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellows hands. They saved the big banks, but the little ones went up the flue.”

Will Rogers was just telling us what Ha-Joon Chang is trying to say.

Stock market rise fuelled over time by increasing levels of margin debt

This is a market feeding on itself. The chart above shows by how much US margin debt has accelerated away from norms, compared to the S&P 500 index in the past twenty years. The accelerating gap explains why the stock market began levitating away from earning growth from 2013 onwards (see second chart below on earnings). Note how the 2000 acceleration led to the immediate crash afterwards and how the 2003 acceleration was followed by the crash of 2007/8. That was before QE. Note then how in 2013, as QE began to be a worldwide programme, it accelerated again. The market now is entirely dependent on QE.

Ultimately, pumping cash into the economy by the Fed (note that gross national debt jumped $723 billion over just the past 12 weeks since Congress suspended the “debt ceiling” to $20.57 trillion, or 105% of GDP) has to go on at an accelerating rate to keep the market going. So the trap for QE is the exponential factor. If the market can’t be fuelled by debt exponentially it will reverse, and the higher it goes, the harder it will fall.

On the real side of the economy, Trump’s tax reduction plan (currently going through Congress)will not only backfire on the economy, but has scuttled the infrastructure plan (which is not going through Congress, nor will it), which was the idea that started the Trump stock market bull run in the first place.

The point about mania has always been that, from the perspective of all us mortals just standing by looking, it has the quality to last so long it draws everybody in.