As the year 2019 ends, reflection on progress will drive us, hopefully responsibly, toward the 2020 Presidential election. What we say online or in private does not matter; our only power in politics is our ability and willingness to vote.
Success: Deregulation of Banking
The passage of the “Financial Choice Act (FCA),” of 2017, which rolled back many of the protections in the landmark Wall Street Reform and Consumer Protections Act of 2010, also known as “Dodd-Frank.” is a success because it demonstrates restraint and is a responsible calculation for future failure.
According to the Economist, the FCA bill of 2017 moves the line between big banks and raises the classification as a big bank to $250 billion in assets from $50 billion. This bill shows restraint because it rolls-back the number of institutions subjected to stress tests and stricter supervision from 38 to 12, rather than dropping regulations on all the banks at once.
The FCA grants municipal bonds special treatment in the composition of bank capital, incentivizing lenders to load-up on them. This deregulation puts the power back in the hands of small towns and cities to take previously regulated “risky loans” to build speculative attractions like arenas or business districts.
This deregulation appears to be strategic for the long-term risk of bank failure and further potential bailouts. The overall financial evaluation of the *Big 12 still regulated banks have enough real cash assets to absorb the potential debt of the other 26 deregulated banks if they fail. Bank consolidation could lead to the extinction of smaller Main Street banks.
Access to financing is being weighed more heavily on risk versus return on investment for still regulated banks forcing more risky loans on smaller unregulated banks. Small businesses will have to compete with more significant and proven corporations for the same consumer and bank dollars. This financial competition may promote more fiscal responsibility in the business sector; time will tell.
Failure: President Donald Trump Is Not Helping Our Economy
The Gross Domestic Product (GDP) report indicates business investment, the manufacturing sector, and new housing construction are struggling. Still, American spending shows no signs of slowing. President Trump has used public pressure to force the Federal Reserve to make “YUGE” rate cuts. In response to that pressure, the Federal Reservereduced a quarter-point to a range of 1.75-2.0 percent in September 2019, the first cut since the financial collapse of 2008. The rate is a benchmark for interest rates on credit cards, mortgage, and bank loans.
The general purpose of cutting the rate is to stimulate the economy during a recession. As we are technically still recovering from the 2007-2009 recession, and the rate is still at an all-time low, this may make our economy at risk for a recession relapse. The effects of a recession include a slump in the stock market, an increase in unemployment, and increases in the national debt. Our federal deficit will exceed $22 trillion by the end of 2019, which is a rise of more than $2 trillion since Trump took office in 2017.
A study by the World Bank found that countries whose debt-to-GDP ratios exceed 77 percent for prolonged periods, experience significant slowdowns in economic growth. Pointedly, every percentage point of debt above this level costs countries two percent in economic growth.
To put it in perspective for every $100 we are earning, American taxpayers are now $108 in debt. Restoring our long-term economic growth as a country means prioritizing the reduction of our national debt, increasing federal financial accountability, and prioritizing the equitable distribution of private wealth through the creation of living-wage jobs. We should not permit any further promotion of publicly funded corporate welfare.
Part One of the series can be found here.