Fed Up Friday: Trump’s US Treasurer Pick Mnuchin Wants to Slash Taxes

Trump has pegged the next US Treasurer, Steven Mnuchin, who’s already begun making bold statements about tax cuts and revamping Fannie Mae and Freddie Mac. Italy may hold the keys to a European market crisis and Bernanke tells the Fed to keep their economic predictions to themselves. This much and more in this week’s Fed Up Friday.

Mnuchin – Reaching Sustained Growth Makes Tax Reform “Priority No. 1”

Steven Mnuchin will be the Treasury Secretary, and in his first televised interview following the announcement, he dug in on many of the statements Trump has said in the past; the main issue being tax reform. In addition to cutting corporate taxes by 20%, Trump also looks to give middle-class Americans an income tax cut. But plans to cut to government revenue are hardly a panacea if it’s missing one important ingredient. Peter Schiff explains:

“People are talking about these tax cuts and saying maybe the consumer is going to have some extra money. It’s not going to offset these higher costs that are weighing down the economy … The only way you can have middle-class tax cuts lead to economic growth is if you also reduce the cost of government.”

Reaching Sustained Growth Makes Tax Reform “Priority No. 1” – Mnuchin

Steven Mnuchin will be the Treasury secretary, and in his first televised interview following the announcement, he dug in on many of the statements Trump has said in the past. The main issue was tax reform, which no doubt delighted the many Trump supporters who rallied behind his simplified tax code message. In addition to cutting corporate taxes by 20%, the US could expect sweeping changes to income taxes.

We can’t expect tax cuts to greatly impact the average American’s pocketbooks yet, however. Peter Schiff stated in his latest podcast, “People are talking about these tax cuts, that maybe the consumer is going to have some extra money. It’s not going to offset these higher costs that are weighing down the economy … The only way you can have middle-class tax cuts lead to economic growth is if you also reduce the cost of government.”

Incoming Italian Constitutional Referendum could Spark Euro Crisis

Italy couldn’t sit on the sideline while England and the US made all of the shocking political moves in 2016. On December 4, they’ll be holding a referendum on their constitution with repercussions that would shift the nation’s parliamentary powers. The Italian Prime Minister has already threatened to resign if his proposal is rejected, which is the expected outcome based on recent polling. What ramifications the move will have for the Eurozone is still speculation.

According to the Washington Post, market panic would likely ensue as bond spreads skyrocket. Ratings agencies would then begin a string of downgrades to Italy’s debt. Being that the Italian economy is the eighth largest in the world, implications would be on a far different level when compared to Greece.

Bernanke wants Fed Officials to Shut Up about Policy Predictions

Bernanke said he wishes things at the Fed would be a little quieter, especially in regards to FOMC members yammering about what’s going to happen at future official meetings. In his recent blog post, he said, “The tendency of individual FOMC participants to make public forecasts of what the committee as a whole is likely to do…is not helpful.”

However, the amount of contradicting interviews coming from Fed Presidents this year seems designed to confuse rather than clarify the group’s official stance. Those statements have briefly sent the markets into nosedives in the past, which can strain an already stressed marketplace.

US Economy’s Options to Avoid Recession Already Compromised

The US has never gone 10 years without a recession of some kind and signs are showing we’re due for another soon. The Boston Globe lists two big ways to beating a recession before it gets out of hand. The problem is that neither option is available to our already weakened economy. In the past two downturns, the Fed has been able to drop interest rates and by four or five percentage points to stimulate the economy. Currently, the rate is already nearly as low as it can go before it turns negative. That’s not an ideal position for an economy on the eve of a new recession.

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