When it comes to Keynesian central banking it might well be said that if you paint by the numbers you are stuck with the brush. That is to say, the Fed has turned its 2.00% target into a economic holy grail and therefore does not dare risk a rebound of the 40-year high inflationary pressures that remain directly in the rearview mirror.

Yes, the inflation gauges have cooled considerably since the 9% CPI peak of June 2022, but the Fed is not yet remotely out of the woods. In fact, when the inflation tide is viewed through the more stable and reliable lens of the 16% trimmed mean CPI, which peaked at a somewhat lower 7.2% level in 2022, the Y/Y gain at 3.6% in March was actually up from February and was still barely halfway back to the sacrosanct 2.00% goal.

Indeed, the annualized six-month rate of change in the trimmed mean CPI has rebounded to 3.8%, while in March the three-month annualized gain posted at 4.4%. That is, inflationary pressures may well be re-accelerating.

So, as much as the boys and girls on Wall Street insist on getting their juice, the paint-by-the-numbers crowd in the Eccles Building is not nearly there yet. Not by a long shot.

Y/Y Change In the 16% Trimmed Mean CPI, April 2020 to March 2024

For avoidance of doubt, just recall the horrific charts of 1967 to 1982. Back then the good folks in charge of the Fed were not even explicitly in the Greenspanian monetary central planning business, but still had to generate four recessions during that span in order to get the inflation genie back in the jar.

To be sure, the twenty-something traders on Wall Street, who are braying ever more insistently for initiation of the next rate cut cycle, undoubtedly confuse the 1970s with the 1790s. It's all an ancient blur in their minds, apparently.

The graybeards working toward their pensions in the Eccles Building, however, are not quite so insouciant. They recall the triple peak of inflation from that era, and undoubtedly still have the chart on their dashboards. The thundering central bank failure implicit in three inflationary surges (red bars) and four recessionary contractions (white areas) in just over a decade nearly destroyed the Fed's open-ended remit as the nation's unelected monetary politburo, to say nothing of its credibility on both ends of the Acela Corridor.

Therefore, the current gang in charge is not about to flinch on their "higher for longer" call until they can see cleanly the whites of those 2.00% inflationary eyes.

Speaker Johnson’s ignominious betrayal of fiscal sanity might well be the death knell for the GOP. He is apparently risking his speakership on behalf of $95 billion of foreign aid boondoggles that Uncle Sam cannot remotely afford, and which actually provide zero benefit to the homeland security of America. And we do mean zero, as […]

In Part 3 we suggested that a federal tax policy targeted on generating revenue equal to 19.5% of GDP could produce receipts of about $67.0 trillion over the next decade or about $4.4 trillion more than the existing CBO baseline estimate of $62.6 trillion.

The latter, of course, reflects current tax law, which would extract about 17.8% of national income in Federal taxes over the period. So the question recurs: How can you obtain an extra 1.7% of GDP in taxes each year without causing undue hardships, unfairness and roadblocks to private sector investment, incentives and growth?

The honest answer is you probably can't because all taxes---especially from current high levels---cause hardships, inequities and disincentives. But the $140 trillion of public debt by mid-century that America is careening toward would have far worse adverse effects---so the practical challenge is to find the most economically neutral way possible to achieve that objective.

In that context, we focus on the yawning gap between what the Federal personal and corporate income taxes would generate on an economically neutral basis, and what the current loophole-ridden and interest group-corrupted tax code actually generates.  That is to say, the top rates on personal and corporate income are 43% and 21%, respectively, but in combination these two tax systems generated tax revenues equal to just 9.7% of national income in 2023.

Accordingly, on a 10-year forward basis here is the current baseline level of receipts, and the impact of reaching the 19.5% of GDP revenue target by closing loopholes and broadening the taxable income base.

Cumulative Federal Receipts, 2025 to 2034:

• CBO estimate of individual income taxes: $33.0 trillion.
• CBO estimate of corporate income taxes: $5.1 trillion.
• Total Federal Income Taxes: $38.1 trillion.
• Incremental receipts from 19.5% target: +$4.4 trillion.
• Percent increase with target income tax collections: 11.5%.

Needless to say, an 11.5% increase in Federal income tax collections is nothing to sneeze about. Yet when you examine the result of the US Treasury's latest analysis of so-called Federal "tax expenditure", which are defined as the revenue loss from tax code deviations from economic neutrality, it is evident that there is substantial opportunity to broaden the Federal tax base while retaining the current marginal rate structure.

Specifically, the Treasury analysis for FY 2023 to 2034 identifies tax expenditures of $21.4 trillion over the period. During the same decade interval, the CBO baseline estimate for individual and corporate income tax collations was $34.7 trillion, meaning that the implied economically neutral tax base would have generated $56.1 trillion, and that, taken as a whole, current tax expenditures and loopholes reduce the Federal tax collections by 38%.

Washington has descended so deep into chronic fiscal profligacy—nay, wanton recklessness—that there is only one route back to fiscal sanity. To wit, new political leaders not under the pall of UniParty madness must seriously target a balanced budget a few years down the road, determine the maximum tolerable, sustainable and equitable revenue burden on national […]

The CBO projection conveyed in Part 1 indicating that America’s publicly-held debt will reach $140 trillion and 166% of GDP by 2054 seems far-fetched on its face. But you only need to compare this 30-year lookback to 1994-2024 with CBO’s latest 30-year forward projection to realize that this staggering debt estimate is probably well under […]

The 2024 election contest between Biden and Trump is farcical not just because it pits the mentally lame against the egomaniacally blind. The more compelling absurdity is that America is now hurtling headlong into an existential fiscal crisis, but neither candidate ever mentions this clear and present danger, let alone proposes even a semblance of […]

David Stockman, a former Congressman, economic policymaker, and financier, recently discussed America’s fiscal and monetary challenges with Adam Taggart. He provides a detailed understanding of how we arrived at our current economic situation. After decades of profligacy, where our debt has increased 100 times since 1970 while GDP grew only 25 times, Stockman believes we’ve reached a fiscal […]

Perhaps Jay Powell has now been properly reminded. To wit, you live by the fiddle, you die by it, too.

As is well-known, awhile back our clueless Fed Chairman began claiming that the inflation battle had nearly been won owing to the plunge of his favorite new dashboard indicator---the CPI Services SuperCore. Never mind that it excluded 75% of the weight in the CPI item basket! This drastically truncated version of the inflation ruler had been heading straight south during the first nine months of 2023---so it was heralded as a leading, less noise-ridden indicator of the overall inflation trend.

Not according to this morning's report for March 2024, however. The rising SuperCore trend of the last several months not only continued; it actually went supercritical, rising at a 0.7% M/M rate and +5.0% over prior year.

So standby for a new Powell fiddle of the incoming data, perhaps called the "Core SuperCore", which would also exclude transportation services. The latter sub-index was up at a 18% annual rate in March, but its deletion would bring the measure down to, well, just 18.8% of the actual CPI basket.

At some point, therefore, Powell might as well go whole hog, and exclude 100% of the CPI items. Then he'd have a twofer. He could brag that inflation has been reduced to 0.00%, while complaining that his dashboard is now running 200 basis points below target and that the printing presses must be restarted forthwith!

SuperCore CPI Services, 2017-2024



Then again, we'd suggest it's about time to get real about the Fed's giant and utterly failed experiment in monetary central planning. That is to say, it has long been evident that in the context of an intricately integrated $105 trillion global economy and $425 trillion deep worldwide debt and equity market that rational, effective and activist monetary policy in one country is impossible. The leakage through the four walls of the US economic bathtub and the global cross-currents which assail it are beyond mortal comprehension, make a farce of macroeconomic models and, in any event, are far, far out of the reach of the crude policy execution instruments employed by the Fed and other central banks----interest rate tweaking and persistent large-scale monetization of the public debt.