Enough Sabre Rattling Already!

Posted on by David Stockman
Folks, this is starting to sound pretty ominous. The Washington War Party is coming unhinged and appears to be leaving no stone unturned when it comes to provoking Putin's Russia and numerous others. The recent collapse of cooperation in Syria----based on the false claim that Assad and his Russian allies are waging genocide in Aleppo---- is only the latest example.
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America’s Fiscal Armageddon And How To Avoid It, Part 4

Posted on by David Stockman


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%.
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America’s Fiscal Armageddon And How To Avoid It, Part 3

Posted on by David Stockman
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 […]
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America’s Fiscal Armageddon And How To Avoid It, Part 2

Posted on by David Stockman
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 […]
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America’s Fiscal Armageddon And How To Avoid It, Part 1

Posted on by David Stockman
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 […]
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America’s Fiscal And Monetary Dead-End

Posted on by David Stockman
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 […]
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Jay Powell And His Foolish Band Of Keynesian Money-Printers Get Another Wake Up Call

Posted on by David Stockman
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.
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Crony Capitalist Windfalls And The Saga Of Saint Warren Buffett

Posted on by David Stockman
Howard Buffett must be turning in his grave, and probably has been for some time. Well, at least since his famous son unleashed the following pean of unctuous mendacity in praise of Washington's utterly perfidious bailouts of Wall Street in 2008-2009.

Of course, the senior Buffett was among the most free market, hard-money, peace-loving constitutionalists to serve in the US House of Representatives during the last century, perhaps ever.  The very idea that the Fed-fueled, crony capitalist bubble which peaked in September 2008 merited an open-ended rescue of Wall Street speculators would have been not simply anathema, but damn near evil incarnate to Howard. The latter well knew that speculators are not entitled to indulgences of the state and that the solution to central bank fostered financial bubbles is the tender mercies of the free market and the Chapter 11 courts.

Then again, Howard's sainted son Warren had no such compunction. After piling into a $5 billion investment in late September 2008 in the teetering gambling house known as Goldman Sachs, or what Matt Taibbi better described as the Vampire Squid at the time, Warren had the audacity to call up former Goldman CEO, and then Secretary of the Treasury, Hank Paulson, in the wee hours of the night and suggest that he hand out $5 billion to $25 billion each to  Goldman Sachs and a half-dozen other mega-banks, along with more than $200 billion of taxpayer gifts to scores of smaller banks.

Paulson did exactly that shortly thereafter, and, mirabile dictu, Warren Buffett's reckless bet on a house of cards heading for the fate of Bear Stearns, Lehman Bothers and Merrill Lynch was instantly made whole. To wit, Buffett had ostentatiously made his reckless $5 billion bet on Goldman Sachs on September 23rd, when it share price stood at $122, but by October 10th the company was heading for the round file, trading nearly 30% lower at just $88 per share.

Alas, Paulson got his late night not SOS from Saint Warren, and the rest was history. Buffett ultimately made more than $3 billion, thanks to Uncle Sam's rescue brigade.

GS Chart

So Warren Buffett's subsequent unctuous letter to Uncle Sam posted as an op ed in the New York Times was obvious enough. Of course, it was a complete pack of lies. The US economy would have done just fine if Goldman and Morgan Stanley had been carved up into solvent pieces and parts in Chapter 11, and there was never any danger of an old-fashioned bank run by the main street hoi polloi who did know they had deposit insurance.

And his even more tendentious claim that absent the Wall Street bailouts corporate America would have missed payr0lls within weeks due to the collapse of the commercial paper market was utterly risible nonsense. Just plain beyond the pale. Every one of these Fortune 500 commercial paper facilities had legally-binding back-up lines at the banks, and, in turn, any commercial bank that needed to fund a call on these corporate credit lines had open-ended access to the Fed's discount window.
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Crony Capitalist Corruption On Steroids or How “Joe Biden” Is Buying Arizona’s Electoral Votes By Sending Taxpayer Loot To Taiwan!

Posted on by David Stockman

The US plans to award Taiwan Semiconductor Manufacturing Co. $6.6 billion in grants and as much as $5 billion in loans to help the world’s top chipmaker build factories in Arizona, expanding President Joe Biden’s effort to boost domestic production of critical technology.

Under the preliminary agreement announced by the US on Monday, TSMC will construct a third factory in Phoenix, adding to two facilities in the state that are expected to begin production in 2025 and 2028. In total, the package will support more than $65 billion in investments at the three plants by TSMC, the go-to chipmaker for companies such as Apple Inc. and Nvidia Corp.

TSMC’s third fabrication site, or fab, will rely on next-generation 2-nanometer process technology, and is slated to be operational before the end of the decade. US Commerce Secretary Gina Raimondo said the 2nm chips are essential to emerging technologies including artificial intelligence, as well as for the military.

“For the first time ever, we will be making at scale the most advanced semiconductor chips on the planet here in the United States of America, by the way, with American workers,” Raimondo told reporters in a briefing ahead of the announcement. TSMC is planning to first make 2nm chips in Taiwan in 2025.

Biden’s Chips Push

US Commerce Department is divvying up $39 billion in Chips Act grants

Source: Commerce DepartmentNote: Award amounts represent preliminary agreements that could still change, and do not include loans and tax credits that some companies will win in addition to direct grants.

TSMC’s award marks another milestone in Biden’s push to boost the US semiconductor industry with the 2022 Chips and Science Act. It’s one of the largest announced under the program, which set aside $39 billion in direct grants — plus loans and guarantees worth $75 billion — to persuade semiconductor companies to build factories in America after decades of shifting production abroad.

TSMC’s American depositary receipts rose as much as 2.8% Monday morning in New York to $145.35.

Intel Corp. has already inked a preliminary agreement for nearly $20 billion in grants and loans, while Samsung Electronics Co. of South Korea is expected to receive a grant of more than $6 billion. The Commerce Department has also handed three awards to companies that manufacture older-generation chips and is expected to announce a multibillion dollar package for Micron Technology Inc. in coming weeks.

Companies have announced more than $200 billion in US investments since Biden took office, with the biggest clusters emerging in Arizona, Texas and New York. The agreement unveiled Monday emerged after months of negotiations with the Commerce Department and TSMC, the world’s largest contract chipmaker by market share.

The TSMC plant in Phoenix, Arizona.
The TSMC plant in Phoenix, Arizona.Photographer: Caitlin O’Hara/Bloomberg

Read more: TSMC to Win More Than $5 Billion in Grants for US Chip Plant

“The proposed funding from the CHIPS and Science Act would provide TSMC the opportunity to make this unprecedented investment and to offer our foundry service of the most advanced manufacturing technologies in the United States,” TSMC Chairman Mark Liu said in a statement.

TSMC’s work in Phoenix carries added political stakes for Biden, who defeated Donald Trump in Arizona by roughly 10,000 votes in 2020 and is seeking another win in the closely contested state to help secure reelection. Though its Arizona investment was initiated during Trump’s final year in office, TSMC’s projects in the state have become increasingly entwined with Biden’s campaign message on revitalizing the economy.

Arizona has reaped some of the biggest rewards from the Chips Act, with a massive expansion by Intel in addition to dozens of supply-chain initiatives. The TSMC grant includes $50 million in funding to train local workers, and will create 6,000 high-tech manufacturing jobs and more than 20,000 construction jobs, Raimondo said.

Read more: Biden’s $100 Billion Chips Bet Ensnared in Arizona Union Fight

The project also is expected to benefit from a tax credit for investments, according to another senior administration official, who discussed the award on condition of anonymity ahead of the announcement.

The TSMC site has seen several setbacks, including months of conflict with labor unions that resulted in delays at the first factory. The second facility, which is now slated to begin manufacturing 2nm and 3nm chips in 2028, was delayed from 2026 due to market conditions and uncertainty about levels of US government support. At least one TSMC supplier has scrapped its planned Arizona project, citing workforce difficulties.

The company has other international projects underway in Japan and Germany. TSMC held an opening ceremony this year for its Kumamoto fab, which the Japanese government is backing with subsidies.

https://www.bloomberg.com/news/articles/2024-04-08/tsmc-gets-11-6-billion-in-us-grants-loans-for-three-chip-fabs?cmpid=BBD040824_BIZ&utm_medium=email&utm_source=newsletter&utm_term=240408&utm_campaign=bloombergdaily