Oct. 23, 2021

GDP Now Estimates Essentially No Growth. What's That Mean For Taxes And Tapper?

GDP Now Estimates Essentially No Growth. What's That Mean For Taxes And Tapper?

Yesterday we pointed out that the Atlanta Branch of the Federal Reserve Bank, in their GDP Now Model is now calling for Economic Growth this quarter of just one-half of one percent. Essentially zero growth.

This is the largest drop in economic projection, that I have ever recalled. Just think back, on July 30 of this year, just 3 ½ months ago, this same GDP Now Model, was looking at 6 plus percent growth. This would have represented one of the best quarters of economic growth in recent memory. And roughly double our historic trend.

But that's all history now. What could have been? Throw it in the dust bin. We're about as far away from that kind of rosy economic outlook as you can get.

Obvious whatever Washington and the Fed have been doing, has not been enough to overcome external impacts from such negatives as the Supply Chain Issues, Continued Covid Lock Downs, and threats of Lockdown.

As we've been saying for some time, this is a sick economy, and if the Atlanta Fed is on the money, it's about to get a lot sicker.

So if you accept our premise, that the economy is weakening dramatically, then let's take a brief overview, of just what the Fed and the President have in mind for our anemic economy.

First up coming in just 13 days will be the next meeting of the Federal Reserve's Open Market Committee. By all indications, the Fed's objective will be to begin a tapering process, Where their formerly stimulative momentary policy will be reversed. If follows through on their recent speeches, the Fed will now begin to tighten, by first reducing Quantitative Easing, by reducing their monthly bond purchases. And then raising interest rates.

Tightening in the face of a slower economy. That doesn't look good.

Turning to the President and his current proposals. First up the President wants to raise corporate taxes by 5 1/2%, raise individual tax rates to 39.6% and add a global corporate tax of 15% for certain multinational companies.

This would be by far, the greatest new tax burden in memory. Taking money away from the productive private sector, at just the time they need it the most.

But it doesn't stop there. Remember all that Stimulus that flowed so fast and easy earlier in the year? Well, the bill for all that is now due. New bonds will have to be floated to support this incredible new Federal debt that has been created. This too will take funds away from the private sector, as the Government is always first in line to take funds at the capital markets.

New regulations, such as the CARB emission requirements for Drayage Trucks, we discussed earlier, will also drive the cost of doing business higher. Just at a time that it's least needed.

Overall this is an administration that is rapidly operating on the wrong foot. Tightening monetary policy, raising taxes and regulation at exactly the time that this economy is slowing, and likely going into recession.

Unfortunately, we've seen this all before. Bad government policies, enacted at just the wrong time, sent the economy into a tailspin. Smoot Hawley, and the tightening of trade, helped precipitate the Great Depression. Nixon's Wage and Price Control contributed to the 1974 75 Deep Recession.

In each case, it was the government's tin ear, their inability to gauge where the economy really stood. That caused them to institute policies that made matters much, much worse.

I'm afraid that this President has inherited Washington's Tin Ear. The result of this administration's policies is to tighten, at just the moment they need to be supportive. To tax and regulate at just the moment that businesses need help to just survive.

When recently we're warned by the President that it likely to be a long winter. I'm afraid he may be right. Made all the more so by his administration's policies.