In Brief
- Tax cuts and tax reform are now domestic issue #1 for the Trump and Republican agendas. They will focus on corporate rate cuts to foster job creation and growth and on middle-class tax cuts and simplified filing.
- China is in the midst of a crucial Party Congress [every 5 years] that will re-elect Xi Jinping as party leader. Xi is, in effect, becoming China’s new emperor. This Congress will have very substantial implications for Chinese, regional and world politics. The results of the Congress will likely set the stage for major economic changes, more authoritarian rule, a pull-back from a market oriented economy, substantial slowing of GDP growth and major Chinese actions on N Korea’s Kim regime
- Obamacare gets a substantial makeover through regulatory action.
- President Trump has decided not to certify Iran’s compliance with the Obama/Kerry nuclear deal sending the next set of decisions to Congress.
- Sexual predators in Hollywood and elsewhere get called out. Who is next?
In-Depth
Elections
Looking Ahead to 2018
In 2016, the conventional wisdom among almost all political analysts was that Hillary would win easily, the Democrats would control the Senate and the Republicans would lose many House seats, perhaps even the majority.
I disagreed with all three predictions. None of them proved true.
The major reason is that the white working class shifted markedly to Trump and the Republicans. That has not changed and if anything has solidified with the NFL controversy and other political correctness- cultural warfare.
The same analysts, the media, and the Democrats are now saying 2018 will be a political debacle for the Republicans. Midterm elections do often go badly for the party controlling the White House. Breathless media analysis and reporting has trumpeted each retirement by a Republican House member, blaming it on Trump or the polarization in Washington or conviction that they are doomed defeat in a year sure to be won by the Democrats.
In addition, too many Republicans who should know better are predicting their own doom over failing to repeal Obamacare and the slow pace on tax cuts. Everyone needs to look at a calendar and realize that November 2018’s general election is over a year away and dozens of domestic and international events that will shape the voting have yet to occur.
Also, little attention has been given to a flurry of recent announcements about the same number of Democrats as Republicans have announced their retirements or that they are running for higher office next year.
Follow my weekly forecasts [below] for updates on next year’s likely outcomes.
NEXT WEEK’S BLOG WILL INCLUDE AN ANALYSIS OF THE INTRA-PARTY CONFLICTS IN BOTH PARTIES.
Trump and the White House
Obamacare Redux
Trump took two major actions on Obamacare last week.
Because a federal court ruled $7 billion dollars in Obamacare payments to insurance companies unconstitutional he terminated the payments that Congress had not authorized or appropriated.
The second is much more important in the long-run. It permits insurers to offer plans across state lines to associations of individuals…for example, small business owners, plumbers, restaurant workers, etc.
This regulatory change also removes many restrictions on what must be in or covered by insurance plans.
Combined, these two changes will markedly change the health insurance system.
Obamacare has not been replaced but is being gutted.
Republicans
Tax Cut Priorities
As you read this blog the wheeling and dealing around the tax cut/tax reform bill is hot and heavy. The bill may or may not pass [I rate it 70-80% likely to pass].
Three political imperatives for the bill have been dictated for the legislation by Trump and the Republican leadership.
The three imperatives are:
- A tax cut for almost all middle-class taxpayers [$50,000-$200,000].
Corporate rates must be lowered to about 20% with many current deductions and loop-holes deleted. - Tax filing for most Americans must be simplified to the extent that few will need professional help.
- There will be endless lobbying and maneuvering and fake news and biased reporting. Try not to get too exercised about the details until an actual bill is produced.
Forecasts
No new forecasts or changes this week.
Political Forecasts – Elections
- The chance the Rs will lose at least a few seats in the 2018 House elections is 80 to 90 percent.
- The chance the Rs will lose their 241-194 House majority in 2018 is 10 to 20 percent.
- The chance the Republicans will still control the Senate after next year’s elections is 90 to 95%.
- The chance the Ds lose two or more of their 48 Senate seats in ’18 is 85 to 90 percent.
- The chance that Donald Trump will be the 202o R nominee is 90 to 95 percent.
- The chance that Trump will win a 2nd term is 80 to 85 percent.
Policy and Legislative Forecasts
- There is a 70-80% probability the Congress will pass and Trump sign major tax reform and tax cuts for most by fall 2018.
- There is a 50-50 probability that Obamacare Repeal and Replace will be passed and become law by fall 2018. [This issue will not go away as Obamacare is self-destructing with high premiums, increasing state costs and insurance company losses.]
Media
Don’t forget the Tuchfarber 30 Day test—when you get upset about something in the news ask if it is likely to be IMPORTANT IN 30 days or soOnly seldom will it be so and you can usually ignore it.
Global Politics
Iran Compliance Decertified
President Trump’s failure to certify that Iran is complying with the deal it made with Obama and Kerry, as well as China, Russia, Germany, France and the UK is the first step in a process whose outcome is unknowable. He also separately designated Iran’s main revolutionary guard group as a terrorist organization and subjected them to US sanctions.
It is now up to the US Congress to decide if sanctions should be re-imposed. Don’t expect quick action as the Democrats are opposed to ending or changing the deal, as are some Republicans.
The Europeans, China and Russia also want the deal to remain intact for political reasons and the lucrative commercial deals they have with Iran post the questionable agreement.
Trump wants to renegotiate the deal to strengthen it and to include restrictions on missile development and terrorist activities by Iran.
The Iranians are blustering and lying like always.
I’m going a bit out on a limb to say the confrontations with Iran and N Korea at the same time are purposeful by the Trump administration.
The two countries are well known to be aiding each other on nukes and missile technology. Trump wants to denuclearize the Korean peninsula and prevent further nuclear of the Middle-east, other than Israel.
Should N Korea stay nuclear and Iran go nuclear it is likely that the next 10 years will see Japan, S Korea, Taiwan, Vietnam, Saudi Arabia, Egypt and the UAE all go nuclear with others to follow.
That is a horrific possibility.
New Civils Wars in the Middle-East
The conventional warfare with ISIS is essentially over and their Caliphate reduced to pockets of resistance. But, their direct and indirect/ “lone-wolf” terrorism will persist for years.
In both Syria and Iraq ISIS is almost sure to be replaced as a major threat by some other Sunni Arab group. The Alawite [Shia related] Assad regime in Syria and Shia regime in Iraq have and will mistreat the Sunnis in both countries as well as the Kurds in both countries.
The immediate civil war is an active clash between the Iraqi central government [Shia dominated] and the Kurds over disputed territory and oil fields around the major city of Kirkuk. So far, the fighting is limited and the Kurds are pulling back.
The Kurds recently held a referendum in which the vast majority voted for independence but there is essentially no mechanism to achieve that short of war.
All the countries that surround the Kurdish region in Iraq strongly oppose independence…Iraq, Iran, Turkey and Syria. Even the US, which has been a strong ally of the Kurds and greatly benefitted from Peshmerga military support, opposes the independence moment as a dangerous destabilizing force in the region.
The region will continue to see civil war after civil war.
Important Election in Japan
This Sunday Japan will hold an important parliamentary election. Prime Minister Abe’s Liberal Democrats and allies are like to win a large victory, one important for the US. Abe is a strong US ally and building up Japan defenses against N Korea and China in conjunction with the US and S Korea.
More next week…
China’s Politics and Economy
19th Party Congress
On Wednesday, the every 5-year Congress of the Chinese Communist Party began and will run into the weekend.
This will sound hyperbolic but what happens over the next few days and in the aftermath, will dramatically affect the world for decades.
At the Congress, the total control of China by its authoritarian leader Xi Jinping will be officially confirmed. He will control the military, police, courts, media, social networks, economy, financial system and everything that matters. He will not have the title but he will be an all-powerful Emperor of China.
His mantra is that he is building a “modern socialist China” that will be free of corruption, inequality and pollution.
What is really important in Xi’s emphasis on a “modern socialist China” is that he is leading the abandonment of the market capitalism embraced and promulgated by Deng Xiaoping in 1979. That move is what has propelled China back to Great Power status. Socialism and top-down government control of an economy always fail in the medium or long-term.
Some of the details of his plans and actions are in the story below and I’ll detail many others next week after the Congress. Have no doubt that this Congress will have a major role in shaping all our futures, and mostly not for the good, but it may lead to some relief on the N Korean crisis.
Economic Change
China’s politics and economy are so important to the global economy and the general situation around the globe I am adding a regular section on it to the newsletter. The section will periodically include detailed articles on specific things but will also list each week evidence that suggest an economic soft landing for China—a controlled slowdown to “normal” economic growth levels—or a hard-landing—a more rapid, extended and dangerous bursting of China’s asset bubbles.
I WILL ADD AND DELETE ITEMS TO THIS SECTION AS RELEVANCE DICTATES. “NEW” ANALYSES WILL BE SO LABELLED AND REVISED SECTIONS WILL BE LABELLED “CHANGED”.
New and Major Evidence for Soft Landing
- The WSJ reports that Chinese regulators removed emergency measures they put on the Chinese stock exchanges in support of equities following crashes in 2015 and 2016. This is a sign of confidence and stability.
- The political leadership, including President Xi, and the financial regulators have promised to rein in excessive speculation and credit growth. [We’ve been promised that for many years and the debt has continued to sky.]
New and Major Evidence for Hard Landing
- NEW — In an under-reported Chinese initiative the government is demanding partial ownership and substantial control of China’s private companies, especially the big successful ones. That is almost surely a prelude to sharing profits with the government. China already owns and runs most of the older major companies in the country and fears the wealth being gained by Jack Ma of Alibaba and other tycoons. One simple way to understand what is happening is to imagine the US government telling Apple that it is “buying” into the company, will have multiple seats on the board, will name some managers, will share in the profits and will do what is best for the country, not the company or its shareholders.
- Governments have proven to be bad managers and terrible predictors of winners and losers.
- The WSJ headlines…” Consumer Loans Fuel China Housing”. Short-term consumer loans have grown at an astounding 100% rate in the last year but not for retail spending whose growth is little changed. Rather it is for investments in housing extending the housing bubble and adding more debt.
- Party Secretary/President XI continues to purge opponents and those offering him only weak support so as to have almost complete control of the levers of power when the economic/financial crisis starts to bite. On Oct 18 every 5-year Party Congress starts. Expect major news at the end of it and for months to come.
- S&P has joined Moody’s and Fitch in downgrading China’s debt because of excessive and growing levels of that debt.
- Two quotes from separate stories in a recent WSJ accurately describe where things are with China’s economy. “China’s economic mandarins are unlikely to permit an overly sharp slowdown in investment that could tank commodity markets right ahead of the twice-a decade Communist Party leadership shuffle kicking-off in mid-October.” “An all-powerful leadership can likely keep the forces of disruption at bay for some time. But they haven’t disappeared…”
- A WSJ story reads— “…China has been reeling in some of its biggest deal makers on mounting concerns about capital leaving the country and debt loads posing a risk to its economy.”
- The WSJ’s Heard on the Street [Sept 8] wrote…” This doesn’t mean China’s bad loan problem has gone away, it just has been swept under a convenient nearby rug.”
- WSJ article points out that the yield curve in China has flattened—the prices of 3-year bonds are essentially the same as 10-year bonds. Such flattening is often, but not always, indicative of an economic slowdown on the horizon.
- Several weeks ago, the IMF raised its projections for Chinese growth but sternly warned that rapidly increasing Chinese debt will hit 300% by 2022. Others like the Institute for International Finance [IIF} asserted in June that Chinese debt already totaled over 300% of GDP, a high percentage for a developing country.
- China is now officially and publicly instructing its companies that they must stop foreign investments in areas like insurance, hotels, other real-estate, gambling facilities, etc. Foreign investments are to be directed to two areas. The first is into strategic areas, as defined by the government, such as technologies where the intellectual property gained fits with government plans for China to become a major, worldwide competitor in various fields. [Sound like Japan in the 1970s and 80s?] The second area is into investments consistent with China’s One Belt-One Road strategy to tie it more completely with all of Asia as well as Europe and Africa.
These all indicate concern that economic, financial and political risks are rising.
Musings
This is a new section. My “musings” will not have the factual and analytic rigor required for the other sections above. But, they will not be just opinions like the Opinion and Commentary articles. They will be somewhat free-flowing and speculative. Please comment if you like or dislike them.
The Harvey Weinstein Cesspool
I’ll keep this brief because the story is really just beginning to be told. Harvey Weinstein has been a rich, powerful Hollywood mogul as well as a major Democratic fundraiser and donor.
He is also a rapist and sexual abuser.
Dozens of women have come out in recent days to accuse him and tell their stories. Other women are targeting other abusers in Hollywood and elsewhere. These abuses have been well known for decades but the elites had an informal pact to just look the other way and keep quiet.
Weinstein is toast and likely, so are many others. Stay tuned…
Opinion and Commentary
NFL Disaster
The NFL has created a financial disaster for itself with politically correct stupidity.
After dithering for a year Commissioner Goodell now says …” We believe everyone should stand for the national anthem.” But, did not commit to requiring it.
We’ll see where things go from here but have no doubt major damage has been done to the League.
Until next week…
Al Tuchfarber
Professor Emeritus of Political Science, University of Cincinnati