Blog

Fire Lutnick!

When I wrote the posting on how to lie with statistics, little did I know that the news world would blow up over the firing of the commissioner of the Bureau of Labor Statistics Dr. Erika McEntarfer turning her into a cause celebre. I had pointed out that the initial jobs numbers were always overstated and having to be revised downward. This is due to the first numbers resulting from employer surveys. Those surveys have lousy response rates and are unreliable. That is why the numbers keep getting revised downward when the real figures come in. This year the average revision downward has been 55,000 per month. So I mused that if July’s number of 70,000 jobs was the estimate, then what was the real number. I also cautioned that most of the previous month’s job growth had been state and local government jobs and that the private sector job growth was negative. I said that Dr. McEntarfer should have been fired long before Trump did it for overseeing the production of such awful statistics during her tenure. 

So Trump did a really dumb thing. Surprise! Surprise! Instead of firing her because of having to adjust downward each month the previous month’s numbers, he fired her because he did not like the initial estimate of July’s numbers. This is beyond stupid. Trump said on Truth Social “I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY. She will be replaced with someone much more competent and qualified.” Mind you she was confirmed by the Senate 86-9. Does that sound like a Biden lackey to you?  Trump then said “In my opinion, today’s Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad.” A group called the Friends of BLS (I am not kidding) responded “This rationale for firing Dr. McEntarfer is without merit and undermines the credibility of federal economic statistics that are a cornerstone of intelligent economic decision-making by businesses, families, and policymakers.” You think? Trump’s Labor secretary Lori Chavez-Deremer who is a political hack first said when the numbers were reported that even though the jobs data was revised downward for May and June, “we’ve seen positive job growth.” Then in almost the same breath when McEntarfer was fired said “I agree wholeheartedly with @POTUS that our jobs numbers must be fair, accurate, and never manipulated for political purposes.” Well so much for her integrity.

If Trump did not like July’s jobs numbers he should have fired Howard Lutnick, the Commerce Secretary not McEntarfer. Mind you Dr. McEntarfer was the messenger but Lutnick played a bigger rule. Back in February he terminated two unpaid expert advisory committees on economic data. Mind you, these were nonpaid committees. The committees were advising the administration on how to improve the reporting of statistical data. One panel was the Federal Economic Statistics Advisory Committee which made recommendations on improving inflation and employment numbers and reporting on GDP (gross domestic product). The second group was the Bureau of Economic Analysis Advisory Committee, which consulted on labor statistics. Mind you the committees were comprised was made of academics, private-sector economists and data scientists, and focused on continually improving economic data produced by the BLS as well as the Commerce Department’s statistical agencies, the Census Bureau and Bureau of Economic Analysis. One might argue that they were doing a lousy job and should have been fired – provided the BLS head, the secretary of commerce and the secretary of labor were taking their advice. One may even argue that most were probably democrats and hated Trump. That might be true but it doesn’t explain the wildly inaccurate numbers under Biden. One expert said “This will impact the quality of the data.” No kidding. As a side note, I was appointed to be on the unpaid committee that advised the FDIC on its merger with the bankrupt Savings and Loan Insurance Corporation (FSLIC). Somehow we escaped the ire of George Bush.

Now with the firing of the advisory committees and McEntarfer, Trump’s critics have more ammunition to question any data reporting coming out of this administration. I earlier commented on how several democrat senators were wondering if the cutting back on cities surveyed for the CPI was an attempt to skew inflation numbers. All this means is that every number is now going to be called into question. The market realized that the initial numbers were estimates and knew that they would be revised. However, the media usually ran with the initial numbers and wrote the headlines. Seldom were the revisions reported with the same gusto. I doubt very seriously if any business decisions were made on these numbers. Now going forward, they will likely be ignored. Given that Trump will now put into these positions his own people (re: political hacks) who knowing that their jobs are on the line will be motivated to report only data designed to keep their jobs. I guarantee that no one will believe any of these data now being reported. So how reliable will be the government’s numbers? Need I say Rosy Scenario is alive and well?

Again Dr. McEntarfer just reported the numbers and was fired. But Lutnick is partly responsible in that he fired the advisory committees months before. What was that about chickens coming home to roost? Advice to Trump, fire Lutnick!

The White House ballroom and Trump’s unlawful tariffs 

After lambasting the Fed for spending $2.7 billion of its own money on renovations to its aging headquarters and subsequent cost overruns, the White House has announced its own renovations. Actually it is not a renovation, it is an entirely new structure. The administration has no shame. It seems that the president wants a new 90,000 square foot ballroom. I guess Trump is going to throw some awfully big parties. Well it does leave a lot of room for his dancing. I wonder if he is going to invite the Village People to the grand opening to play YMCA? The cost is supposed to be $200 million with Trump and his buddies funding it. Trump is supposed to pay for any cost overruns. Want to bet? The press calls this a “massive” renovation and they found some “experts” to raise concerns about whether it will “respect the historic nature of the building.” Others were found that were “aghast” at the enormity of the project which will be twice the size of the White House complex. We also get the predictable whining about spending money on a golden ballroom while nixing money for pediatric cancer research. Or how about “Donald Trump wants your kids to go with fewer dolls while he gets a billion dollar airplane and a ballroom”? Oh boy. This is the administration of bad optics. But if you have Trump Derangement Syndrome any optic is a bad one.

The case involving Trump’s tariffs is now being heard at the US Court of Appeals. One court, the US Court of International Trade ruled that Trump did not have the authority to implement his “reciprocal” tariffs. The administration appealed to the Court of Appeals which allowed the tariffs while it deliberated. If Trump loses here – and I expect that he will – it will be interesting if he ignores this court’s ruling while he appeals to the Supreme Court. For an excellent summary of the first day in court and the economic analysis of the arguments see Don Boudreaux’s “A note on today’s oral arguments in VOS v Trump.” 

A Note On Today’s Oral Arguments In V.O.S. v. Trump

Trump’s final set of tariffs are supposed to have been implemented on August 1 and were full of surprises like his 39% tariff on the Swiss. Hey, you got to protect Hershey, don’t you? The question then arises as to whether the administration will dismantle the tariffs when it loses or will it wait for a judgment by the Supreme Court. To recap: to impose his tariffs the president invoked the International Emergency Economic Powers Act (IEEPA) claiming that trade deficits constitute a “national emergency.” Of course, this is nonsense and Don Boudreaux does a wonderful job explaining the speciousness of the argument. Trump knows that this is a lie but could probably not find any other basis to invoke the tariffs. Certainly a president does not have unlimited authority to unilaterally impose tariffs. The Constitution gives that power to the Congress making the president’s lawyers having to defend the indefensible. The president in his usual hyperbole said to his lawyers, “Good luck in America’s big case today. If our Country was not able to protect itself by using TARIFFS AGAINST TARIFFS, WEWOULD BE ‘DEAD,’ WITH NO CHANCE OF SURVIVAL OR SUCCESS.” Good grief. 

In the first day of questioning, the judges seemed skeptical of the administration’s arguments. Said one judge, “One of the major concerns that I have is that IEEPA doesn’t even mention the word tariffs anywhere.” Another judge said “It’s just hard for me to see that Congress intended to give the president in IEEPA the wholesale authority to throw out the tariff schedule that Congress has adopted after years of careful work and revise every one of these tariff rates.” I hope one of the eleven judges asks that if the trade deficits posed such a threat to national security then why did Trump levy them on countries with whom we have a surplus. 

Although the Justice Department said that the trade deficit has been “exploding” in recent years, rising from $559 billion in 2019 to $903 billion in 2024 it could not explain why such an “explosion” constituted a threat. On the contrary Boudreaux shows why our trade deficits are hardly a threat to the country and certainly not to its national security. 

I would be stunned if the Appeals court did not affirm the International Trade Court’s decision and blocked the imposition of the tariffs. Then it will be interesting if Trump decided to ignore the decision of a US Appeals Court.

What would you do if you were Jerome Powell?

If you were Jay Powell would you cut the Fed funds target rate now? Why? I wonder if anyone noticed that when the media said that the Fed left “rates unchanged” that the bond market rates fell? But yet we are told that the Fed left rates unchanged. What is going on? It is that the market determines interest rates regardless of what the Fed is doing. However, the Fed influences the range within which interest rates move. Currently, the Fed is reluctant to push that range downward stemming from its position that there is too much uncertainty with all the disruption caused by Trump’s policies. Powell as much said so when he said that absent the tariffs it is likely that the Fed funds rate would have been lowered. Back to you Mr President – who responded by calling Powell a moron. Wouldn’t it be nice to have a president who had a little class?

The presidents of the New York, Atlanta and San Francisco reserve banks all say to wait until all the tariff shakedowns have been completed and see what happens to prices. Not any prices mind you because the Fed doesn’t pay attention to the CPI rather it looks at the Personal Consumption Expenditures index or PCE. The CPI is a rather narrow measure of inflation. It looks at a basket of goods purchased by urban household. The PCE is a broader measure of price changes with weights that are different from the CPI. For example housing has a weight of 35 in the CPI but only 15 in the PCE. It is the PCE that just came in 3.4% well above the Fed’s target of 2.0 percent. Hum. Does that mean that the Fed should raise rates?

The Fed has two main objectives of stable prices and full employment. It seldom can do both and I suggest that it abandon the full employment goal. First, we really have no idea of what constitutes full employment. For example, last quarter the employment numbers looked good mainly because workers had dropped out of the work force reducing the labor force participation rate. State and local government hiring drove the numbers while private sector employment fell. I have long suggested that government hiring be excluded from the employment numbers. 

Rather the Fed should concentrate on inflation. Scott Bessent who seems to be Mr Know It All – with apologies to Stevie Wonder – has started criticizing the Fed. He says that AI will ignite a boom in production. Because AI could require fewer human resources, Bessent believes this economic boom could come without reignited inflation. When asked how the country should prepare for such a boom, Bessent said: “If the inflation numbers are low, then we should be cutting rates.” Well Scott the inflation numbers are not low.

However, the economy is showing signs of weakness. Job growth for July was awful. The numbers within the numbers show private sector employment falling. Immigration is taking a toll on businesses yet this may be unreported or underreported if the businesses were hiring illegals. Construction and agriculture are sure to be adversely affected. Consumer buying is slowing. Private domestic investment is falling. All these signs point to the Fed lowering rates. But inflation has started to rise because of the tariffs. If the Fed had lowered rates (by increasing the money supply) then the inflation would be exacerbated and we would have inflationary recession (stagflation). The folks who are now yelling at the Fed to lower rates would then be yelling at the Fed for having lowered rates.

I have heard some people saying that the rates should be lowered to lower mortgage rates. Well most mortgages are fixed rate and those rates are dependent upon the 10 year Treasury and not the Fed funds rate. The adjustable rate mortgages are the ones influenced by changes in Fed funds which mainly affect short term rates, not longer term rates. But don’t you think that Trump’s tariffs on aluminum, steel and especially lumber will affect housing costs more than mortgage rates? If these tariffs mirror those of Trump’s first term then expect the mortgage industry to crater. Anyway, the last time the Fed aggressively cut rates in 2024, fixed term mortgage rates went up.

Trump is trying to have the Fed save him from himself. Right now he has a convenient scapegoat for his policies. And if the Fed lowers the Fed funds rate and inflation rises, it will still be the Fed’s fault. Look back in December when the Fed cut 25 basis points, the market tanked. Then the Fed was criticized for lowering rates in the face of persistent inflation. Now we essentially have higher inflation rates but now the critics want rates even lower. Kindly explain why this makes sense? If the Fed was wrong to lower rates then why should they lower rates now when there is becoming some clarity about the effects of Trump’s tariff follies.

The next Open Market Committee meeting is September 16-17. It will be interesting to see if what the vote will be. If I were Powell I would have the committee lower the rate by 50 basis points just for the hell of it and sit back and see the reaction of the media, the markets, and Trump and his cronies. I bet the stock markets would tank and bond market rates would rise – just the opposite of what Trump wants. But absent that, let’s see what the economic picture looks like then and the predictions going forward. 

What job growth? What inflation?

Far be it for me to say “I told you so” but I told you so. Recall I wrote that the monthly jobs report is usually a fabrication. The results come from surveys and are always revised downward when the real numbers come in. On July 7 I said that the jobs report was a lesson in how to lie with statistics with employment figures revised downward by 55,000 jobs on average. Folks are highly critical of the Fed for its macro models but I have heard hardly a peep about the models used by the Labor Department in its surveys.

When the numbers were announced for May and June and the administration was doing high fives, I asked what would be the revisions? Turns out it was a whopping 258,000 lower making a three month growth in jobs of only 35,000. Recall that most of the job growth was in state and local government jobs. The jobs figure for July was a paltry 73,000. Now if that is the estimate, then what will be the revision? Well Trump did not like the 73,000 number and fired the commissioner of the Bureau of Labor Statistics. Mind you Trump fired the commissioner Erika McEntarfer and accused her of being a Biden appointee who was manipulating the numbers. Strange, but didn’t Trump like the numbers she manipulated (estimated) the previous month? The commissioner should have been fired long ago for not dealing with the poor estimates from the job surveys. As a good friend points out her firing smacks of Bolshevism with the disgraced commissioner sent to the gulag. Would that be Alligator Alcatraz?

Now Trump’s policies wouldn’t have anything to do with the poor job numbers would they? I can just hear the chorus now howling for the Fed to cut the target Fed funds rate. Indeed, Wall Street traders just increased the odds of a rate cut from 38% to 70%. But wait a minute. The inflation numbers have just come in as well. The Bureau of Economic Analysis reports that in June the Personal Consumption Expenditures index (used by the Fed) went up at a 3.4% annual rate. Now it was 2.0% in May and Trump and the MAGAverse were beating their chests and shouting to all the doubters (like me) “Where’s the inflation?” Well, here it is. Trump won’t like these numbers either. The Bureau of Economic Analysis is within the Department of Commerce. Watch out! The director is Vipin Arora. Look for Trump to fire him too.

Analysts say that June inflation is due to the first signs of the price increases due to the tariffs. Really? Just remember that importers and companies are bearing most of the initial increase in cost and only passing a small portion on to consumers. Imagine what the inflation figures will be once the full impact of the tariffs are passed on to the consumers. The analysts also note that domestic producers are starting to charge higher prices for their products as the foreign competitors’ goods are priced even higher. Surprise surprise. Breaking down the numbers, goods prices went up 4.8 percent in June compared to 0.9 percent in May. Durable goods prices went up a whopping 5.7% compared to 0.3% in the previous month. In contrast prices on services went up only 2.8% compared to 2.5% in May. Again recall the tariffs are on goods and not services.

These numbers are bad enough but are they understated too? Probably. The Bureau of Labor Statistics has reported that it is missing 15 percent of the data it normally collects on prices due to staffing shortfalls caused by Trump’s firings and a hiring freeze. This hasn’t gone unnoticed as democrat senators have questioned the accuracy of the data. Clearly, they are implying that the missing data must be due to the Trump administration trying to lie about the magnitude of the change in inflation. They wouldn’t do that. Would they?

What is the Fed to do? The abysmal jobs numbers say cut, cut, cut! But the inflation numbers say raise the rate. If the Fed were using the Taylor rule which says if the actual rate of inflation is above the target rate, it should increase the Fed funds rate. Trump would have a cow. If the Fed were reluctant to cut before when it was adopting a wait-and-see approach to whether the tariffs were going to cause inflation, isn’t the wait over? What is going to be this Fed’s main objective, job growth or inflation control? This is another case in which their mandate of full employment and stable prices is in conflict. If the Fed starts a policy of easy money in hopes of stimulating employment – one of Trump’s many demands – then what of inflation? Regardless of what action taken by the Fed, they will be the scapegoat. Trump will yell that if they had cut when he wanted it to then none of this would have happened. Of course that is BS but it is what we have come to expect from this president and his economic policies. I bet Jay Powell is thinking that May 2026 won’t come fast enough.

What out Gramps! ICE is out to get you!

The left’s strategy on immigration is focused on turning illegals into victims. Here what they are saying. Every illegal arrested by ICE is an innocent. Every illegal is now a hardworking person with a devoted family. Illegals who are now imprisoned awaiting deportations are mistreated, deprived on medications and malnourished. ICE is a bunch of brown shirted masked terrorists grabbing people off the streets, raiding places of work willy nilly. Legal residents are being harassed. ICE is profiling. Here is what one advocate says “The Trump administration’s first six months of immigration policy are a case study in unimaginable cruelty that makes no distinction between legal immigrants and the undocumented, that targets undocumented people who have been here for decades, and that uses brute force police tactics to intimidate communities.” “The U.S. Immigration and Customs Enforcement agency is raiding churches, courthouses, and schools and locking up undocumented grandmothers. The Homeland Security Department is revoking the protected status of tens of thousands of legal immigrants, clearing the way to deport people who have lived here for more than 20 years.”

The left having lost being able to open the borders to all comers is now diligently trying to keep those who entered illegally here by lying and misinformation.  It appears to be working as polls now show shifting opinions on illegals. Once supportive, now polls show only 35% of Americans surveyed approve of how the administration is handling illegal immigrants. Of course, I wonder how the questions were phrased. I bet the questions were written so as to evoke a certain response.

But the media is compliant and doing its best to sway public opinion away from the deportation of illegals. The Department of Homeland Security is trying to counter the false stories in the press but must make a concerted effort on social media to tell its story because the mainstream media will not. Here are just a few of the false stories debunked by Homeland Security:

“ICE Facilities are Overcrowding and Inmates are Starving with No MedicalAssistance”

“Less than 10% of Immigrants taken into ICE Custody since October had Serious Criminal Convictions”

“A Massachusetts High School Illegal Alien was Held in Solitary Confinement”

“ICE is “Racial Profiling” – Resulting in U.S. Citizens being Arrested”

“DHS Provided No Advance Notice to Los Angeles Police Department Prior toEnforcement”

“ICE Targeted Nannies at Parks”

“ICE Arrested a 6-Year-old with Leukemia at an LA Immigration Court”

“ICE Raid on the Home of a Pregnant Lady”

“DHS Agents Entered UCLA Medical Building”

“ICE Tried to Stake-out the Dodgers’ Stadium, but were Denied Access”

“ICE Failed to Provide a Pregnant Illegal Alien with Medical Care, Causing aMiscarriage”

“ICE Targeted Youth Shelters in Florida”

“DHS Deported a Father after a Traffic Stop”

What about the headline “Trump Administration Deports 82 Year Old Pennsylvania Grandfather to Guatemala?” That too was false and was a hoax. Also the story of the grandmother being locked up involved a woman who was “documenting the detention of asylum-seekers with the group Detention Resistance in San Diego.” She was arrested for pushing an officer – which of course she denies and was cited for assault. Or famously the reporting on Abrego Garcia the “kindly Maryland family man” illegally deported to El Salvador? Or the stories of democrat politicians trying to visit detention centers housing illegals? 

The question is why would anyone believe anything reported in the media? According to Gallup, America’s trust in the media is at a historic low. A Gallup survey found that only 31 percent of Americans still believe that the media “fully, accurately and fairly” reports the news. Attention: that 31 percent is delusional. I don’t believe any of it – including Fox. 

ICE needs to constantly combat the media disinformation. But it needs some help from the Trump folks. Stephen Miller should keep his mouth shut. He reeks of wanting to deport every illegal regardless of circumstance. I hear nothing positive from him. No suggestion of a migrant worker program. No suggestion of any thought but ship them out. It was also a bad look for the administration when it revoked the temporary protected status of 300,000 Haitians given by Biden in 2024. The total number of Haitians given protected status by Biden is around 500,000. The first group of Haitians came after the devastating earthquakes of 2022. The latter group was fleeing the takeover of the country by gangs after the president fled. The in 2025, Trump revokes the legal status of the Haitians along with 30,000 Cubans, Venezuelans and Nicaraguans. I think many if not most of us would sympathize with anyone living under those regimes.

Then there is the ugliness of Trump moving to deport the Afghans who aided the Americans and fled the country when the Taliban took over. These too came to the country under temporary protected status and are now facing deportation. I know that Miller has talked about Biden’s abuse of the temporary protected status program, but blanket expulsions seem a bit harsh. Mind you the optics of kicking these people out while waiving all restrictions to bring in a bunch of white South African farmers is a bad look.

Fed funds target rate, ICE sit-ins and the new GDP numbers

The Fed funds rate

Ok I was wrong. I thought the Fed would flip off the president by lowering the Fed funds target rate by 25 basis point. Instead, the Fed’s Open Market Committee stood defiant and voted to keep the rate unchanged. Boy I bet Trump is having a cow. However, this time the vote was not unanimous. Trump’s appointees not named Powell dissented. One, Christopher Waller had gone public advocating a 25 basis point drop which was not a surprise since Waller would like to be appointed the next Fed chairman. The other dissent was Michelle Bowman which was a bit of a surprise since she has always supported tighter monetary policy while resisting rate cuts. Since Trump has already appointed her to be vice chair for regulation, one wonders why the change of heart. Could she, too, want to be named Fed chair? Regardless, this is a bad sign. The Fed board now looks partisan. But at least keep in mind that when Harry Truman appointed William McChesney Martin chair and expected the Fed to accommodate him, once installed Martin went his own way causing Truman to regret his appointment. It will be interesting to see if the next Fed chair goes his or her own way once nominated.

The Baltimore sit-in 

Speaking of nominations, both Maryland senators are on the Senate Banking Committee which vets the Fed nominees. Both were involved in a sit in at an ICE facility in Baltimore. Pardon me but I don’t understand these stunts. The democrats must have polling that tells them to go make fools out of themselves. Remember the one where the mayor of Newark was arrested and a congresswoman was indicted for interfering with law enforcement?  Then there was the one in Los Angeles where a bunch of democrat congressmen showed up at an ICE facility and were denied entry. One whined “The Trump Administration blocked my colleagues and me from conducting our congressional oversight duties into the reported abuses and neglect that is taking place at this facility.”

At all these facilities, the democrats are reading from the same script. In Baltimore, one of the congressmen said “We were not allowed entry, so we had to stand outside, bang on the door, and ultimately sit in front of the door. “Finally, a director came out and explained to us that she had been given direction not to allow anyone, member of the House, Senate, or anyone into the facility.” So the dems show up and are denied entry and stage a sit-in. All the while, the deportation czar Tom Homan issued a statement saying that the dems are protecting felons, rapists, murderers and other bad types – like Abrego Garcia? Maryland’s Chris Van Hollen embarrassed himself with that one and not surprisingly was one of those sitting in at the Baltimore facility. Of Van Hollen, Homan said “He’s an embarrassment to the position he holds.” Homan further said that Van Hollen did not hold demonstrations regarding the “record numbers” of women and children being sex trafficked, fentanyl deaths or terrorists crossing the border.” Of course not. It will be interesting to see what questions he and fellow sit-iner Angela Alsobrooks ask at the Fed chair’s confirmation hearing.

Can numbers lie?

Get ready for some weird economic numbers and even weirder statements from the so-called experts. This last quarter’s GDP numbers are in and show solid growth at 3%. The Trumpers are doing high fives and are saying that the economists were wrong. The previous quarter GDP fell 0.5 percent. Just like the employment numbers have to be dissected to discover that while job growth grew, private sector employment fell, what is the story about the swings in GDP? It’s the tariffs. When GDP fell it was because businesses stocked up on imports in the face of increasing tariffs. This past quarter, because of the tariffs, imports fell a staggering 30 percent. The GDP accounting measures domestic production so importing goods subtracts from GDP because the production of those goods was abroad. So if Trump wants to show strong GDP growth he should increase all tariffs to 1,000 percent! But like the employment numbers, the other numbers point to a slowing economy. Private domestic investment fell 16 percent. This is likely from companies that use imports as an input.  Private domestic final purchases also slowed to just 1.2%.  Inflation rose 2.5% which is still above the Fed’s target of 2 percent. Some wag said that in order to appease Trump that the Fed should simply raise its inflation target to 3 percent and then cut rates.

So let’s wait and see. It looks like instead of 10%, Trump’s universal tariffs will be 15 percent. Trump’s deals with Vietnam, the UK, Japan and the EU have imports at 15 percent and exports at zero. Why the president wants Americans to pay more for foreign goods while they pay less for ours is pure mercantilism. After all the deals are done with the major trading “partners” let’s see if the administration didn’t spike the ball before crossing the goal line.

Random thoughts #65

Trump keeps crowing about foreign countries investing in the US. Japan has agreed to invest $500 billion. The EU has agreed to invest $600 billion. Where do you think the $500 billion from the Japanese and the $600 billion from the EU come from? It will be part of the US dollars the countries accrue through the sale of goods to the US. When the investment occurs, our trade deficit will widen. Won’t somebody tell the president that the only way that the trade deficit will decline is if the foreigners buy American exports. If instead of buying more US goods, when the foreign countries use those dollars to invest in the US then the trade deficit will increase. Since Trump thinks that trade deficits endanger national security, why is he making the deficit larger? Instead he should demand that the countries buy more US exports instead of investing it in this country.

Hulk Hogan just died. I met him once. I was in a Crown room at the Atlanta airport when he walked in wearing his signature cut off tee shirt and a bandana, totally in violation of the dress code. I guess he was always in character and who was going to tell him that he couldn’t come in?

Pinnacle and Synovous banks have announced a merger. Two of my former students are presidents of Pinnacle banks and a University of Georgia classmate, Jim Blanchard, was the CEO of Synovous who converted it from a sleepy bank in Columbus, GA into a financial powerhouse, By the way, at the same time in Georgia’s College of Business were three US senators, Reagan’s OMB secretary, Jimmy Carter’s chief of staff, the chief economist of another major US bank, the Synovous CEO and of course me.

Trump toured the Federal Reserve building to inspect the renovation. Trump said that the cost was $3.1 billion. Powell corrected him saying it was $2.7 billion but Trump, insisted that it was $3.1. Basically, who really cares? That cost overrun is within budget in government spending. What was interesting is that Powell did not back down to Trump. Not exactly friends, these two.

The Fed’s Open Market Committee meets July 30-31 and my guess is that it will lower the Fed Funds target rate by 25 basis points just to further tick Trump off who wants them to lower it by 350 basis points. (a basis point is one-one hundred of a percent).

Trump should just shut up about Powell. His term ends in May 2026 and Trump can pick some lackey to take his place. That senate confirmation hearing will be a must see. You think the democrats lose their minds on a Trump supreme court nominee? Wait until you see how badly they will go off the deep end in this one. Elizabeth Warren is no longer on Senate banking so it will be interesting to see who takes up her mantle – Chris Van Hollen maybe? Tennessee’s Bill Hagerty is on the committee and Louisiana’s John Kennedy will provide comedic relief. Tim Scott is chair,

France just announced that it will recognize a “Palestinian state.” Problem is they didn’t know where this so-called “state” is located. I guess if the French can ever find it, they would be able to recognize it. Bon soir le etat, Britain is also making noise that it will recognize it too, if it can find it. Since Trump objects so vehemently why doesn’t he threaten to double their tariffs?

Some dems are trying to stop the Blue Angels from participating in Seattle’s Seafair. There is a billboard claiming noise pollution and damage to their precious climate. Some looney woman is suing the Blue Angels accusing them for killing her cat with their noise. Of course, they can’t come out and say that they hate America. If these folk were serious about jet pollution– which they are not – they would be suing every leftist owner of a private jet to park it. Wouldn’t they? They also could down the street and protest Boeing.

When the Supreme Court ruled on Trump’s immunity from prosecution, the left had a cow. “This decision by the Supreme Court today is a travesty and perhaps the most dangerous judicial opinion from our Supreme Court in generations. By smooth and naive legalese, these partisan justices have created a framework for a President to commit any acts he or she chooses.” “This opinion is nothing less than a blueprint for a lawless dictator to take root in the Oval Office of the White House.” “The Supreme Court’s ruling gives expansive immunity to a corrupt president who purports to use acts within his official authority to conspire to overturn a lawful election.” What are they saying now that Obama has been accused of treason by Tulsi Gabbard for initiating the Russia hoax? Gabbard says that their silence speaks volumes. President Trump said that Obama has immunity and should thank him. “He owes me big. Obama owes me big,” 

Indeed he does. I have said this before that the democrats should be helping Trump explore the limits of the executive rather than fighting him at every turn. The next democrat who is president will thank Trump and of course the Trump supporters who are then will be resisting the same actions of a democrat when one is in the office.

Trump: A treat to democracy in the tradition of all presidents before him

I have a very close friend who hates Donald Trump. Anything that Trump does is bad, evil and dictatorial. Trump has no redeeming qualities. Yet when I gently remind him of the terror inflicted on Biden’s enemies during Biden’s term, my friend does his best to tell me those comparisons are irrelevant. They may be to him but not to me. Joe Biden turned us into a banana republic – with apologies to bananas. He raided Mar-a-Lago. He arrested over 30 of Trump’s confidants. He raided the home of a person who had just protested at an abortion clinic. He forced his trans/gay/woke agenda on public schools, universities and the military. He and his cohorts tried to keep Trump off the ballot though grand jury indictments, lawsuits, intimidation and threats. Biden and his supporters kept yelling that Trump was a threat to democracy while they were upending its very foundations themselves. Biden’s “Justice” Department accused Trump of mishandling classified documents while old Joe had them safely ensconced in his garage. Then there was January 6 where the democrats did all that they could do to link Trump to the crowd that invaded the Capitol. Biden was doing his best to kill the American dream leaving the southern border wide open to who knows what. Now the dems are whining that Iranian terrorists may strike the US from within when they were the ones who let them walk across the border in the first place. Biden sic – ed the attorney generals of New York, New York City and Dekalb County Georgia on Trump to no avail. Trump claims the election was stolen and there are still a lot of people who believe him given all the shenanigans that occurred on election night. Biden’s actions motivated Trump’s base and kept him in the race for retaking his office. One would have never thought Trump as a sympathetic figure, but Biden succeeded in making him one.

People likely remember the major speech in which Biden accused Trump of being a threat to democracy. That was in a national broadcast and was one of the most chilling speeches ever made by a US president. Trump in his usual tit for tat accused Biden of being the threat. Trump said, “He’s been weaponizing government against his political opponents like a Third World political tyrant.” “Joe Biden is not the defender of American democracy. Joe Biden is the destroyer of American democracy. “It’s him and his people. They’re the wreckers of the American dream. The American dream is dead with them in office.” 

Now Trump is in power. All Biden wanted to do was to shove trans, DEI, LGBTQ and the environment-industrial complex down our throats. Trump is in power. He is busy reversing all of Joe Biden while bringing the rest of the world to its knees. His “Justice” department is starting to hand out payback to Adam Schiff, James Comey, and all the others who conspired against him. – even Barack Obama. Biden may have turned us into a banana republic and now Trump has done nothing to change that. In fact, he has doubled down on it. There are his chaotic and weird tariffs. Then there is the rule by fiat in which the congress is bypassed (shades of Obama) as executive orders are issued. Whereas Biden targeted protestors at abortion clinics, payday lenders, debt collectors and Trump supporters, Trump is going after those who went after him. He is also targeting those who provide legal support to the illegal community. He has attacked law firms that provide assistance to illegals. These firms are now declining to take cases due to pressure from the White House. Lawyers face loss of security clearances, federal contracts, and referrals. In March 2025, Trump issued a memorandum that sic’ed his “Justice” Department on immigration lawyers that in the government’s view, take on “frivolous, unreasonable, or vexatious litigation.” Wow. Doesn’t that apply to almost action taken against Trump? This memorandum targets attorneys who represent illegals, challenge the government’s immigration policies, or oppose the administration on immigration. I don’t know about you but I find this as disturbing anything foisted on us by the Biden cabal. So we are still a banana republic, only this time the bananas come with tariffs and bellicose tweets. 

Whereas Biden was only a petty despot, Trump is acting like a full-fledged one. Trump has shut down the border and is deporting illegals en masse. Is he denying habeas corpus? Maybe but I am not an attorney. A court ruled his tariffs illegal – which they are – but Trump has ignored it while waiting on a decision from the Supreme Court. The MAGA-verse applauds the tariffs and anything and everything done by Trump. They are standing by their man through thick, thin and Epstein. All the while, Trump is showing that he can disrupt world trade. He can devalue world currencies – including our own. He can move world markets. He can even get Coca Cola to change from high fructose sugar to cane sugar even though he only drinks Diet Coke (12 a day). He is even trying to get the Washinton Commanders and Cleveland Guardians to revert to their old names of Redskins and Indians. No item too small to show the power of this president.

No democrat stood up against Biden because they were all on board with his suppression of democracy. Now it seems like you have to be a republican from Kentucky to stand up against Trump. Sorry MAGA-verse, but a threat to democracy is a threat to democracy even if you like those who are currently being threatened.

The Swiss adopt the Harold Black Solution

Over 30 years ago I started writing an article in the business pages of a local newspaper. Almost from the very beginning, I offered a solution to curtailing congress’ and the president’s spending excesses. It was to have total federal spending grow at no rate greater than the previous year’s growth in real GDP. This would constrain government spending since real GDP grows at an annual rate around 2.6% while government spending grows around 5.5% per year. Thus, the ever increasing deficits are a result of government spending growing at a rate faster than that of private sector growth. If my solution were adopted, if need be the president could declare a national emergency and ask the congress for a one year emergency appropriation that would have to be approved by a two thirds vote in both houses.

Republican presidents, starting with Ronald Reagan, would endorse a tax cut without a spending cut arguing that the resulting economic growth stemming from the tax cut would generate increased revenues to offset the fall in tax collections, thereby decreasing the deficit. That has worked on occasion but Reagan did not envision presidents like Donald Trump whose increase in spending would offset the tax cuts. Anyway, that’s a poor way to run an economy. It may ruin it instead.

The Swiss when faced with the same budgetary difficulties decided to adopt a variant of the Harold Black Solution. They passed a constitutional amendment to limit the rate of growth in federal government spending to a timeline average of tax revenues (as opposed to changes in GDP). The Swiss call this a “debt brake.” Adopted in 2001, government spending has fallen from an annual growth rate of 4.3% to 2.6%, The result is a reduction in the government’s debt burden from 34% of GDP to less than 20%. Mind you the US percentage is now over 100% and climbing. Enacting the Harold Black Solution is not a balanced budget amendment. There will still be a federal debt, albeit a shrinking one. But it will be a debt that is manageable rather than one that continues to grow unfettered.

The Swiss politicians like all national politicians found it hard to control spending. However, the Swiss people voted 85% to enact the debt brake. I suspect that something similar would happen here. All state legislatures balance their budgets. Voters grouse about having to balance their household budgets while the federal government keeps increasing the debt burden. I have little doubt that if put to a national plebiscite that we would have a vote similar to that of the Swiss. I also have little doubt that the state legislatures would endorse such an idea as well. Only the national politicians are forced to be gutless. It is the classic Prisoner’s Dilemma where doing the right thing will cost you your job. Again no one ever got voted out of office by wanting to spend more money.

So it is time to amend the Constitution. There is little chance that the congress and the administration will muster the will to stop out of control government spending. If republican control of both houses of congress and the presidency only add to spending, it is time to quit wishing that they will get a backbone. Anyway, even if this bunch did do something, it could be easily undone by a future congress and a future president. The only viable solution is a constitutional amendment. 

It would probably be difficult to get such an amendment initiated by the congress where it would take a two thirds vote of the House and the Senate. I doubt if the democrats would favor any cut in the growth in federal spending. It would likely be filibustered in the senate. Rather the proposal would have to come from the states where two thirds of the state legislatures (34 of 50) would have to endorse it. Then once proposed, three fourths (38 of 50) state legislatures would have to approve it. Note that the state legislature vote need only be simple majority and not two thirds. There would be a seven year time limit. I think that there is a high probability of adoption by the states, even those controlled by democrats. Since they have to have budget discipline at the state level it would be rather easy for them to demand the same at the national level. This would take the pressure off of the individual congressman or senator who would favor a reduction in spending but would not have the guts to propose it.

To be fair, several national politicians have proposed Swiss brake type legislation. Representatives Kevin Brady of Texas, Mike Braun (R-IN) and Rep. Tom Emmer (R-MN) have a various times introduced similar legislation. Of course it failed to pass. Anyway, the fatal flaw was that even if it had passed, it could have been repealed by a subsequent congress. However, a constitutional amendment cannot be easily repealed one enacted. Over the history of the United States there have been over 12,000 proposals to repeal a constitutional amendment. It has only succeeded in repeal of one – the 18^th Amendment (Prohibition).

Wouldn’t it be wonderful if the Tennessee initiated the proposed amendment and ratified it at the state level. At the federal level its delegation to Washington – only Steve Cohen would likely not sign on – could introduce the proposal to amend the constitution. Let’s get with it. Let us end this crisis by considering a 28^th Amendment – modestly called “The Harold Black Solution.”

BTW, in case you are wondering why I didn’t just endorse the Swiss debt brake it is because tax rates are enshrined in the Swiss constitution and are essentially invariant. Here in the US, the tax code changes every year given the whims of the congress which would allow it to render a Swiss type debt brake useless because congress could keep spending ever more by changing the tax code yearly.

How can the President’s tariff revenues be used? 

The President has justified his tariff mania by saying “Deficits pose a threat to national security,” “other countries heavily subsidize their exports,” “other countries impose punitive tariffs on the US”, “other countries don’t allow US products into their country”, “we need to bring manufacturing back into this country,” “we need to balance trade,” “we need to stop fentanyl”, “it will help balance the budget,” “it can replace income taxes,” “I’ve decided for purposes of fairness that I will charge a reciprocal tariff,” “retaliation,” “tariffs are about making America rich again and making America great again.” Whew! Did I leave out anything?

I am not going to dissect all of that but I was wondering if you were wondering what Trump is going to do with the revenues from the tariffs? The Congressional Budget Office estimates that in the coming fiscal year that tariff revenue could reach almost $1 trillion ($942 billion). The Trumpers are probably doing high fives but it is likely that the CBO figures are an overstatement. Actual imports are falling and with it will fall tariff revenues. Higher prices mean less quantity demanded and less quantity demanded leads to a lower supply of goods imported which in turn means lower tariff revenues.

What could Trump do with the money coming from the tariffs? Could he subsidize US exports to compete with subsidized imports? Could he lower income taxes dollar for dollar for the tariffs collected? Could he use the money to build much needed new merchant marine ships? Could he use it to eliminate all taxes collected from active duty military? Trump said that the tariffs will be used to “put America in the green.” So could tariffs be earmarked to reduce the federal debt? Or how about using the tariffs to offset decreases in revenues from the tax cuts? Or using the tariffs to compensate US farmers and exporters from the losses incurred through the retaliatory tariffs of others? Lately, he is talking about sending checks out to the public, “We have so much money coming in, we’re thinking about a little rebate.” Can Trump do any of this?

In a word, no unless he gets a special appropriation from congress. When the tariffs are collected they go into the Treasury’s general fund and become indistinguishable from any other revenue source. All dollars are fungible. Only congress can allocate monies from the general fund and not the president. Trump can say that he is going to rebate the tarrifs but he cannot do it. That would take an act of congress and to date Trump has not issued any instruction to his congressional minions on how he would like to see tariff revenues used. Of course he could tell congress that the next budget will be less by the projected intake of tariffs. Fat chance.

In the meanwhile, the great tariff shakedown tour continues. Japan has agreed to a 15 percent tariff on their goods. That means that Ford and GM should transport their Mexican and Canadian vehicles though Japan where they will be assessed 15% rather than 25%. Then Trump is crowing that the Japanese deal includes a commitment by the Japanese to invest $500 billion in the US. Someone needs to tell the president that foreign investment inflows are counted as an increase the US trade deficit. Yikes! Does that mean that the increasing US trade deficit caused by the Japanese investment will cause Trump to further increase tariffs to try to reduce the deficit that was increased by the Japanese agreement? Does this make sense to anyone other than Trump? Can anyone who has the president’s ear have the guts to point out this madness? Does anyone else have the vision of an emperor with no clothes?

Again, if somehow Trump’s reasons come to pass then I will be among the first to issue mea culpas. My PhD advisor, the great Karl Brunner, would hammer into his students that there are always exceptions or else economics becomes a tautology and becomes a useless collection of axioms. So are Trump’s the exception to all history? Could Adam Smith and every economist not on Trump’s payroll be wrong? I seriously doubt it but I always have said “prove me wrong and I will adopt your opinion.” That goes too for the president and his tariffs.

BTW, I thought the International Court of Trade ruled that Trump doesn’t have the authority to enact tariffs. So is that opinion not binding?