Bill Owens: Confounding And Confusing Events 3/22/21 | WAMC

Bill Owens: Confounding And Confusing Events 3/22/21

Mar 22, 2021

There’s been much ado about the Prince Harry and Meghan Markle interview with Oprah Winfrey. I marvel at the interest in the United States about the Monarchy as I thought we fought the Revolution to rid ourselves of this Monarchy. Why Americans would be fascinated by their comings, goings, and doings is beyond me.

Talking Canadian Trade again, the Canadians have indicated that the operation of Line 5, which is one of the five major oil transport pipelines is an absolute must and is non-negotiable. This is unrelated to the more famous Keystone pipeline traveling north and south. One essential function continues to be missed as the debate simmers is that the Keystone Pipeline is not moving oil from Canada to the United States to be utilized in the United States, it is going to be refined and shipped overseas. This makes money for the refinery and oil companies, but creates few jobs in the US after construction. Nonetheless, it’s important to remember that Canada provides a substantial portion of our oil and we and they need Pipelines like Line 5 to remain open.

US agriculture may well have turned a corner as we move into 2021 as America’s farmers and ranchers are ready to meet increased demand both in the United States and Worldwide. The Phase 1 trade agreement with China which went into effect over a year ago unfortunately occurred as we were on the brink of a global pandemic which slowed commerce of all types. China imported a record 27.2 billion in US ag products, in 2020 nearly double what it imported in 2019. While that was 6 billion below the goal set in the agreement, it seems like that’s a success. Hopefully US ag will get back to continued growth in exports and bring back the strength that the ag business needs in the United States to have a positive impact on the overall economy.

Developments on the Northern border are of interest because a new app is being prepared that will allow Americans to be able to establish that they have received the two vaccine shots and/or have been tested recently (presumably with a negative result) if they are seeking to enter Canada. It is not clear whether or not the Canadians will accept this bit of technology and whether or not they are interested in adopting it for their citizens. This could be a major step forward and may well help the opening of the border. It will be interesting to see how Canada responds and how successful the app is since it hasn’t reached the testing stages as yet. At least we have some hope here.

And then, Prime Minister Trudeau announced this week that the border “won’t reopen anytime soon”.  This comes in the face of a lot of pressure from US interest groups and politicians, the fact of the matter is, that Canada is significantly behind us in the vaccination process.  I am hopeful that cracks might be opened up utilizing the APP which is being proposed.  It will certainly be interesting to see how the Canadian government responds to the growing level of vaccination in the United States. 

In a nod to President Trump, South Korea and Japan have agreed to pay billions towards the cost of the defense which we provide them. South Korea is going to pay in the range of 7 billion dollars which was recently announced. This in my view is a sensible result and could easily have been achieved and been a major policy breakthrough for Mr. Trump; he overplayed his hand and demanded too much, and thus the deal did not close while he was in office. If one looks at the way in which he negotiated throughout his term, he had many good ideas that could have been, as I indicated, major policy advances and successes; he negotiated like a mid-level New York real estate developer, not like someone playing on the World stage.

Homeowners refinanced and stripped cash from their homes to the tune of $152.7 billion in 2020 – that’s more than they did since 2007. Home sales skyrocketed as did home prices helping to create an increase in equity. Do we suffer the same reversal as occurred in 2008/2009? What precautions are borrowers, lenders and regulators taking?

Gerald Baker, in the March 15th, edition of the Wall Street Journal is quoted as saying, in speaking about the latest COVID relief bill, Republican’s by “warning of the deficits it will bring, the GOP puts itself in the position of seeming to worry about deficits only when the federal government is giving money to hard-hit Americans, and not when it involves draining the Treasury’s coffers to pay for tax cuts for multinational corporations.” And I would add “and the very wealthiest in our society.”  This is a phenomenal quote to see in the Wall Street Journal, but it is, in fact, very accurate that during the Trump administration there were absolutely no shout-outs by the Republicans with regard to the spiraling debt and the deficit.  The argument continues to be made that in the long-term, the tax cuts will result in increased revenue, and I am sure there will be some, but not enough to make up for trillions of dollars in increased debt and deficits.  Just another bit of hypocrisy.

The unemployment rate remains higher than it was during the great recession, and appears irrespective of how the economy seems to be recovering it does not seem to be declining at any significant pace.

There is significant discussion about raising taxes, and in particular, the capital gains rate, and how that will impact business growth.  One of the areas that always intrigues me is the fact when stocks are bought and sold on the Exchanges, other than new issues, result in no new funds to the underlying business, and thus, really have no impact on that company’s ability to grow.  One might argue that if a company has a very high value, or stock market capitalization, that it has an easier time raising funds, for instance, by selling bonds, but there is no equity which is being injected.  One approach that I have always thought to have some potential, is to essentially raise the capital gains rates to fairly high levels, subject only to a credit for investment in capital goods, or the purchase of newly issued stock, so that the funds are going to the seller of the stock (the company) to be utilized for its growth.  I would also limit the use of the proceeds of those sales to reduce debt, and certainly not to be utilized for stock buy-backs.  If we are really interested in developing a tax scheme which will benefit the working person, some scheme which makes sure that the funds are worked back into the system for the purpose of buying equipment to be operated by employees seems like a good policy goal.

One of the more phenomenal stories that I read recently, was the fact that the Treasury Secretary at the end of President Trump’s term amassed a trillion-dollar war chest through borrowings.  Obviously, the beneficiary of that, is Mr. Biden and it belies Republican concern that markets will be flooded with new US government debt, because it was already flooded with new US government debt, and there is an adequate supply of cash from those borrowings to fund the latest COVID relief bill.  There is a certain irony and absurdity to that situation.  First, that this was something which was clearly done surreptitiously, second, the fact that if Republicans knew this was happening because they had closer ties to the Trump administration, and failed to acknowledge it, then this poses another circumstance of duplicitousness that is truly hard to accept.  It also raises the question about “spending too much money,” because that money was already available, understanding full well that at some point those funds need to be repaid.  The whole idea of the increasing government debt and deficit is one which certainly troubles me, and which I would be inclined to work towards reducing that debt, not expanding it.

The first meetings with China resulted in tough talk on both sides, but no breakthroughs. Hopefully, Mr. Biden recognizes trade wars aren’t easily won with a tough adversary.

Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.

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