An interview with former White House economic adviser Larry Kudlow... How the Federal Reserve influences the economy... 'Enough already' with the stimulus money... A lesson in cutting taxes to stimulate growth... President Joe Biden's 'wet blanket'...
Editor's note: As regular readers know, at Stansberry Research, we always aim to give you the information we would want if our roles were reversed...
In many instances, this information ties in closely to a specific event or timely presentation within our business or at one of our corporate affiliates. But that's not always the case...
Sometimes, we come across opportunities that are simply too valuable not to share – even if they don't directly connect to something specific within one of our publications.
With that idea in mind, we're taking a break from our normal Digest fare over the next two days... Instead, we want to share an exclusive, wide-ranging interview with Larry Kudlow.
For those of you who don't know, Kudlow has worked for two presidents in his long career...
Most recently, he served as the chief economic adviser to President Donald Trump from 2018 to 2021. And from 1981 to 1985, he worked for President Ronald Reagan as an associate director for economics and planning in the Office of Management and Budget.
Between those two roles, he was also chief economist at Bear Stearns and hosted a post-market CNBC financial-news show called The Kudlow Report. And after leaving the White House in January of this year, he joined Fox Business to host the daily 4 p.m. show, Kudlow.
Stansberry Research managing editor Geoffrey Morris recently talked with Kudlow about a variety of topics, including the current economy... how the Federal Reserve and President Joe Biden are influencing it... U.S. relations with China... his time in the White House... and more.
We'll begin with Part I of the interview today...
Geoffrey Morris: Take away the Federal Reserve, take away Congress, take away the White House. How are the fundamentals of the American economy?
Larry Kudlow: Fundamentally, the economy is pretty good. I still consider it the "Trump tax-cut economy." And it's growing pretty rapidly. We saw a lower number this third quarter, but that's mostly because consumers couldn't buy autos. The supply of autos dried up.
GM: Tell me what you mean by the "Trump tax-cut economy."
LK: The 2017 Trump tax cuts created, really, two very strong recoveries...
The first recovery was pre-pandemic, with the tax cuts leading to record-low unemployment, big increases in family incomes and wages, as well as lower poverty numbers. We had 50-year lows in unemployment. The economy was growing at 4% annually until the Federal Reserve tightened up.
And then, we had a second recovery... It came in the third quarter of 2020 as businesses started to reopen after the pandemic setback.
GM: Are we still feeling the effects of the tax cuts?
LK: Yes, we're basically still living on that... You know, Geoff, tax revenues came in at record numbers for fiscal year 2021. Corporate revenues were up big, like 75%. Individuals' revenues were up about 30%.
GM: You have long been a proponent of stimulus through tax cuts... And clearly, you think that was in play here. Is that correct?
LK: Yes, that's correct. The Laffer Curve worked ‒ cutting taxes boosted revenue, and the tax cuts paid for themselves.
And if President Joe Biden is going to raise taxes like he says he is, he's going to be very disappointed... That's because the economy's going to slump, and revenues will go down – not up.
I think it's a good economy overall.
But we have had problems, of course... You have these supply shortages, and you've had the backups in the Los Angeles and Long Beach ports, which caused prices to rise.
So the inflation rate looks pretty lousy and very high.
GM: Is inflation permanent?
LK: I'm not sure that it's permanent, frankly. We may not know for many months. But I think when the ports get opened and stuff gets shifted, inflation will come down.
My biggest worry about inflation is the Fed. Those folks are pumping money in like crazy. The Fed is operating like we're still in an emergency... except we're not.
And that's a problem... That will generate higher inflation.
GM: So what's the Fed's influence on this economy?
LK: Well, look, the Fed has poured $4 trillion of free money into the economy since March 2020. And it has elevated the economy... it has elevated incomes... it has elevated savings... and it has elevated stock prices and home prices as well.
Consumer net worth is soaring, and it has kept down long-term interest rates. These scary stimulus packages have become accepted, and I'm worried about that as far as future inflation goes. I'm very worried about that.
GM: So generally, you think what the Fed did was good, but you say "enough already"?
LK: Yeah, that's exactly right... I'm OK with that with the shutdowns.
I helped work on and design the two rescue packages last year. They worked. But yes, enough already...
It should come to an end. Rescue packages should've come to an end by now. And when it comes to the Fed's money creation in buying bonds – even buying mortgage bonds – the central bank should've ended that practice last year.
GM: If Biden gets the $1 trillion – and possibly more – spending bill, with offsetting tax increases, when do you think that's going to have the negative effect?
LK: Next year. It's going to throw a "wet blanket" over the economy.
It really will... It's going to kill corporate profits. Businesses will stop investing in equipment and technology. Businesses will stop hiring. Wages will stop rising – and might even fall. It's going to decimate the economy.
GM: Do you think it's inevitable that Biden will raise taxes?
LK: Yes. This is the biggest hike in I don't know how many years. And it's unnecessary...
It's all about taxing rich people and redistributing income. It really is a progressive socialist approach. It's all about getting revenge for successful people.
It's crazy. The wealthy people pay all the taxes in this country.
GM: Will the taxes go deeper into the income levels?
LK: It's all about taxing successful people. The bottom half has a negative income tax.
And this "Green New Deal" stuff hasn't kicked in. It hasn't passed yet, but look at what they've done to the oil sector... We've had no increase in oil production recently, even though economic demand has been rising.
GM: Is the Green New Deal causing less oil production?
LK: We were producing about 13 million-plus barrels per day pre-pandemic. That has fallen to 11 million, and there has been no rebound. You know why?
Because oil producers know what's coming... The Green New Deal is going to decimate fossil fuels if it gets through.
GM: If it gets through. I mean, if they can't get this infrastructure thing through...
LK: Well, I'd be delighted. My view is, "Save America, Kill the Bill." [Laughs] We have a whole coalition – the Save America Coalition. We've got about 100 groups. I say it on my show five times a night... "Save America, Kill the Bill."
GM: So what was Trump's biggest success as president?
LK: I would go back to the big tax cut in late 2017... It really remodeled and reenergized the entire economy. It gave us tremendous prosperity. And the biggest beneficiaries were middle-income people, blue-collar folks, the middle class.
You see it in the numbers... The average family income went up $10,000. Trump's four years were better than President Obama's eight-year term.
And that increase happened in two years... It was quite remarkable. And you saw the unemployment rates – particularly the minority unemployment rates – dropping to 50-year lows. That's fabulous stuff.
GM: So I'd like you to explain how the tax cut translates to the minority unemployment rate going down... Can you walk us through that?
LK: You have to look at it through the lens of business. You've run a business, Geoff. You know this...
Profits drive the economy. They're the lifeblood of the economy. And profits are the mother's milk of the stock market, too.
So corporate profits soared under Trump because businesses were paying lower tax bills. He let the federal tax rate go from 35% to 21% – that's a gigantic reduction.
These companies started making money, and they sprung to life. So what did they do?
They hired more people, and they raised wages.
You know, 70% of the corporate tax is borne by the middle class... That's what the data show. The rest of it shows up in lower consumer prices and higher investment returns.
But the reason you could reach down into minority groups is because these businesses – large and small – across the country were making good money, and they could expand their businesses. They could increase their sales forces, invest in equipment and technology, invest in worker training... And as a result, they needed more help. They needed more labor.
And the minority workforce was a good beneficiary of that...
Look, you can't have a good-paying job unless you work for a strong profitable company.
And if you stop investments, you're not going to have strong companies and you're not going to have new companies. By the way, new business formations set records under Trump.
All the investment juices were unlocked, and all the companies expanded. They hired more people at better wages, and it hit across the board ‒ whites, Blacks, women, and more.
And before the pandemic, family incomes went up $10,000 in two years ‒ 2018 and 2019. They went up from $58,000 to $68,000 a year. That's huge... It's the biggest increase in family income in 20 years.
Editor's note: That's enough for today... We'll wrap up our recent, wide-ranging interview with Kudlow in tomorrow's Digest. As you'll see, he'll touch on everything from his time inside the White House... to whether China really is a big threat... to cryptos... and more.
In the meantime, you likely have a lot of thoughts and opinions about what has been discussed so far. We'd love to hear what's on your mind... Tell us at feedback@stansberryresearch.com.
John Doody: Expect Gold to Hit $3,000 an Ounce
The economic impact of loose monetary policy and inflation are just being felt, which translates to gold serving as the ultimate hedge, according to Gold Stock Analyst founder and editor John Doody.
John's forecast for gold, "by the end of this bull market is $3,000 an ounce." During an interview with our editor-at-large Daniela Cambone at the 2021 Stansberry Conference in Las Vegas last week, he also shared how he evaluates the best gold-miner opportunities within the market based off of operating cash flow.
"We're never going to run out of gold, that's going to last forever," he explained. John also said he likes silver because it's a derivative of gold... "Silver is gold on steroids, and when gold gets going – silver gets roaring," he noted.
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
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Today's mailbag features a smorgasbord of replies to recent Digests. As always, we welcome your comments at feedback@stansberryresearch.com. Remember, we can't provide individual investment advice... But we do read every note that we receive.
"In response to Kim Iskyan's labor shortage Digest, let's not forget about the tens of thousands of Federal workers like policemen/women, firefighters, and other essential personnel, and frontline Healthcare workers such as nurses and doctors across the country who are voluntarily leaving their jobs (or getting fired) because they are refusing to comply with COVID-19 vaccine mandates.
"This problem will only get worse as public companies with over 100 employees will also be expected to fall in line with President Biden's vaccine mandates. These mandates are not only contributing to labor shortages, but are also stripping Americans of their medical freedom to choose what they deem is or is not safe for their own bodies.
"I am not personally against the vaccine, but I am against mandates that require employees to be vaccinated against their will.
"Sadly, many employees who do not want to take an experimental vaccine are complying as they do not have the financial means to simply quit or be terminated. This further speaks to the wealth gap that has been created and continues to widen by the reckless, easy-money, debt-creation policies that are perpetuated by the Federal Reserve.
"What is most interesting is that the media coverage is virtually non-existent of workers who are not willing to comply with these mandates and are walking off the job regardless of the financial ramifications to them and their families.
"I can personally attest to this as, over the weekend, my American Airlines flight was canceled hours before, in addition to hundreds of other flights across the country, citing 'bad weather and staffing shortages' in an article by CNN Business. This particular flight originated in the Northeast where the bad weather had passed days earlier, and I was headed to a location that was bright and sunny, and the weather in between was also calm.
"Ironically, I've been flying every two weeks for the last two months with American Airlines on the same flight path, and not once was a flight canceled. It's interesting that the shortages coincided with the deadline for the vaccine mandates.
"I think most of your readers are smart enough to read between the lines here. Stay tuned as it should be an interesting few months across the country." – Paid-up subscriber Jeremy D.
"I'm going to have a go at what I'm certain will be viewed by Dan [Ferris] and others as Socialist. However, the reality is, having lived in Europe for the last 11-plus years, there are significant and glaring differences in how the workforce here in Europe is treated versus how it is treated in the U.S.:
- Paid Parental leave (which is clearly taken by both parties judging by the number of fathers pushing baby strollers in our park)
- Child Care (both private and state)
- Functioning underemployment system (automatic and paid out at 80% of wages)
- Health Care continuity – even if unemployed
"These together have allowed the workforce in my adopted country to continue to function on a nearly normal level throughout the last 20 months... And the start-up to normalcy, while difficult in places, is not facing the horrific lack of workers it that has overtaken the U.S. economy. Due to open borders, the normal flow of workers between countries has continued – if one doesn't believe that, have a look at how the U.K.'s largely closed borders have affected its trucking business, not to mention its seasonal workforce these last 20 months.
"At some point, Americans will realize, I'm certain too late, that taking care of the workers leads to a better quality of life for them and keeps those folks in the workforce. Americans wonder at the difficulties in buying appliances, etc., during this time, yet we just needed a new refrigerator, and we had a pick of several. All were immediately available, and not the cheapest one no one else wanted.
"We see no shortages in our grocery stores and similar, yet we continue to hear of shortages from our American family members. Someday, the light will go on, but again I suspect too late for many." – Stansberry Alliance member Chris R.
"Regarding Dan Ferris' statements about the usefulness of gold... The best use I've ever had for gold was to make a beautiful woman smile." – Paid-up subscriber Kurt S.
Regards,
Geoffrey Morris
Ridgefield, Connecticut
November 3, 2021