Why Will The US Budget Deficit Hit $1 Trillion?

If a business suffers a steep decline in revenue it must find a way to increase its revenue or borrow money.  The US Treasury faces that problem today.  It made huge cuts to corporate taxes and it made other changes in corporate expense accounting which has been great for corporate profits and for shareholders.  However, the tax cuts have not produced the economic growth that was supposed to compensate for the corporate tax cuts as promised by the Trump administration.  Some in the administration still argue that the economic growth it promised is still coming.  On the other hand, several economic forecasters don't believe that will happen.  They expect US budget deficits will continue to grow in response to the huge drop in corporate tax payments.

A Simple Explanation For Trump's Lies

This article describes several of Trump's most recent lies.  The lies are so obvious that they cannot be defended by "alternative facts".  The reason the Trump makes such frequent use of lies is not hard to explain.  He lies about almost everything because a lie is not a lie if his base believes it.  However, Trump faces a problem that is beginning to affect many of his true believers.  Recent polls show that Trump's base of true believers in shrinking.  It is becoming harder and harder for Fox News to convince its market of true believers that obvious lies are not truthful.

Facebook Suffers 24% Drop In Stock Price

Facebook lost $150 billion in market value yesterday.  The shares fell 24% after Facebook's revenue growth did not meet investor expectations.  It reported $13.23 billion in revenue for the  quarter and profit of $5.1 billion but its stock price had been bolstered by Google's report of accelerating revenue growth.  They are in the same market for advertising revenues on their social media platforms.  However,  Facebook lost 3 million users in Europe and user growth in the US and Canada was flat for the quarter.  Facebook expects user growth on several of its other social media platforms but they do not generate the advertising revenues that are produced by Facebook which has suffered from reported abuses of Facebook by Russia and others who have used the platform to spread fake news.  In addition to declining revenue growth, Facebook has been forced to increase its workforce to reduce the abuses of its platform that have been widely reported.

How Trump's Trade War Is Crushing Farm Communities

Rural Americans love Donald Trump.  They voted him into office because rural farm communities have been dying a slow death.  This article describes how Trump's tariff policies are accelerating the death of rural farm communities in the Mid-West.  The Trump administration has provided a $12 billion subsidy to farmers who have been suffering from the loss of export markets.  That may help Republicans in the mid-term election but it won't help farm communities over the longer term.  Other nations have already taken over the export markets that the farmers have depended upon.  Small farmers will be unable to survive and pass on their farms to family members.  Large corporate farms will buy their farms at auction and the communities that supported the small farmers will erode rapidly.  The corporate farms will not use the small community banks that are a pillar of the community and other services that supported the community will evaporate because the market for their services will be too small. 

Unfortunately for the small farmers and many farm communities in the Mid-West Trump does not understand how his tariffs are doing the opposite of what he had promised.  He understands how to run a political campaign that is based upon promises that cannot be realized but he has unleashed a devil for the voters that put him in the White House.  They cannot survive on promises or on federal subsidies. 

The Wall Street Journal Has Abandoned Trump's Trade War

WSJ editorial staff has a long history of supporting Republican economic policies and Republican presidents.  After this editorial on his $12 billion payout to farmers, who have lost access to foreign markets in response to US tariffs on imports,  he may have lost the WSJ.  We have an extremely efficient agricultural industry that produces more food than we can consume in the US.  It has depended upon exports to sell off its excess production.  The losses faced by farmers in the Mid-West will be harmful to Republicans in the mid-term elections.  Consequently, the Trump administration provided a $12 billion subsidy to the affected farmers.  A Trump administration official referred to the $12 billion subsidy as "rounding error" in the federal budget.  The affected farmers don't want subsidies, they want to export their products.  The WSJ doesn't like government subsidies either, it would like the  market to operate without government intervention.

The editorial staff of the WSJ will not support US tariffs and the abandonment of free trade by the Trump administration.  It may face of the risk of joining rest of the mainstream media that Trump refers to as "fake news".  The Republican Party has had a long term relationship with the WSJ that it will not like to lose.  It is a major source of ideas and input to the business community that typically votes for Republicans.  The GOP may become dependent on Fox News to support its policies.

How Maria Butina Became A Trump Republican

The Justice Department accused Maria Butina of being a Russian spy.  This article describes how she aligned herself with the NRA and the Christian Right to serve Russian interests in the US.  Russian interests align well with Trump's form of nationalism in the US.

                    In documents filed in Butina’s case, the U.S. Department of Justice wrote: "Moscow seeks to create wedges that reduce trust and confidence in democratic processes, degrade democratization efforts, weaken U.S. partnerships with European allies, undermine Western sanctions, encourage anti-US political views, and counter efforts to bring Ukraine and other former Soviet states into European institutions."

The Fundamental Contradiction In Trump's Economic Policy

Trump cut corporate and individual taxes to stimulate the economy.  This is a common use of fiscal policy to stimulate economic growth during a recession.  Lower corporate taxes encourages businesses to increase capital spending which stimulates the economy.  Cutting personal taxes also encourages consumer spending.  Capital spending and consumer spending are two of the major components of GDP.  Trump also understand that trade deficits shrink GDP.  He has been using tariffs to reduce imports in order to shrink US trade deficits.  What Trump does not understand is that there is a fundamental contradiction in his economic policies.

One of the contradictions is that tax cuts reduce government revenue.  The government has been forced to pay for rising budget deficits by borrowing more money.  That increases the demand for dollars which raises the value of dollars relative to foreign currencies.  That makes US products less competitive in foreign markets which must be paid for in more expensive dollars.  Consequently, US exports have not grown fast enough to shrink the US Trade deficit. 

The other problem with Trump's policies is that the Federal Reserve uses monetary policies to set interest rates.  The Fed raises interest rates when it wants to slow the economy down in order to deal with the threat of price inflation.  It has been raising interest rates in slow steps and it plans to continue using monetary policy to push interest rates upward.  That has a depressing effect on economic growth because businesses and consumers will borrow less money as the cost of borrowing increases. 

Trump sold his tax cuts and his use of tariffs as a plan to stimulate economic growth.  That plan has not worked as well as he hoped because it has put pressure on budget deficits and it has made US exports more expensive.  He has been using his Twitter account to criticize the monetary policies that are controlled by the Federal Reserve.  This is consistent with his usual practices.  He never takes responsibility for decisions that don't work.  He is setting the stage to blame the Fed for the failure of his tax and tariff policies to stimulate economic growth.  Ordinarily, US presidents might dislike the monetary policies that are being implemented by the Fed.  However, the usually do not publically criticize the Fed which was set up to be independent from the government.  Trump is not a typical president.  His attacks on the Fed are just the beginning.  He will maintain that his policies were the greatest use of fiscal policy in US history.  The Fed will have to take responsibility for their failure.