The Macro Market Wrap Up With The Mad Genius, Vol. 29

The next topic in my 2018 forecast was taxes. Several government agencies were projecting lower net tax receipts, regardless of the fact that it would provide some economic stimulus. I also proected lower tax revenue than anticipated. And that is exactly what is happening so far.

Politics aside, for an economy that Trump touts as the best in American history (it’s not), we should not see increased budget deficits that are nearly double what they were before the tax cuts. Deficits are now in excess of $1.1T, and for the best economy in history we should not only see reduced deficits, but we should even see budget surpluses.

The Congressional Budget Office was projecting $140B per year over the next 10 years to be added to the deficit, as were several other government agencies, on top of the current deficits. And I noted that if the CBO was projecting an extra $140B/yr, you could bank on it that the real numbers would be much higher. And that is exactly what is happening. Deficits have actually skyrocketed, and one of the reasons is higher interest rates on ever increasing debt.

Another issue of the tax bill that I mentioned was that regardless of tax cuts, insurance premiums would go up. According to the National Conference of State Legislatures, the premiums on the most common plan on the insurance exchange, the silver level, those premiums increased by 34%. For plans that cost about $5000 (it’s a subsidized plan), that means premiums went up by about $1700. The average family saved about $1600 in taxes under the Trump tax plan, so like I said, that was a wash.

For companies it’s not too good either, as premiums they pay for employees were up by about 11%. Plans not on the exchange cost nearly quadruple plans on the exchange, and those plans saw increases of about 5%, or $1000. And of 18 states that have reported, 15 are showing higher premiums, 1 is showing no change, and two are showing a decrease.

The problem is now getting more complicated because the Trump economy has produced more jobs, and therefore more people on the employer health insurance plan. That translates into less people on the exchange plans, which turns out to be good for tax payers on the one hand, because less tax money is diverted to health care insurance.

On the other hand, more people and companies are paying more for their insurance coverage, leaving less money in their pockets to spend on the basic stuff they need for individuals and less for expanding the business at corporate levels. A Keynesian nightmare in the making if you think that consumerism is what drives an economy, and therefore make your forecasts and plans in that regard.

The last thing I said about the tax bill was that negatives would outweigh the positives, leaving GDP projections of 5–6% looking like a drug-induced fantasy. Combined with rising rates and we’re headed for recession. The first 3 quarters of 2018 are showing GDP just over 3%, well below the projected outcome of the tax bill. If you remove the R&D component I mentioned earlier today and the other fudge factors, you can shave a few tenths off that rate.

I also mentioned the national debt in my forecast. It was $20.6T a year ago, and now it’s nearly $22T. Remember a minute ago I mentioned the CBO projections of $600B deficits plus $140B higher than projected once the tax bill would be taken into account, and that was probably a gross underestimation? The national debt soared by nearly $1.4T.

The interest on the national debt is now close to $550B a year. I projected that the portion of tax revenue diverted to interest payments would rise. At the time it was 14% of revenue. Now that is about 16.8%, and given higher debt loads combined with higher and rising interest rates, that makes sense.

That’s it for Volume 29. In the next volumes I’ll address my #bitcoin and #gold forecasts, and I’ll also close out my 2018 forecast review with energy. Thanks for reading the Macro Market Wrap Up With The Mad Genius. Until next time remember that there is always a bull market somewhere in the world, and on the opposite side of every crisis there lies opportunities.

#economics #taxcuts #nationaldebt #insurance #investing #yearinreview2018