Posted by on December 13, 2017 11:50 pm
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Categories: Business Capital Expenditures Department of the Treasury Economy Economy of the United States federal reserve Finance goldman sachs Jamie Dimon Michigan Monetary Policy republican party Senate Steven Mnuchin tax Treasury Department US Federal Reserve Wall Street Journal Wall Street Journal's CEO Council white house

For at least half a decade now (How The Fed’s Visible Hand Is Forcing Corporate Cash Mismanagement) we have warned about how the Fed’s flawed approach to monetary policy incentivizes corporations to fund share buybacks with massive amounts of debt

…While the corporate sector has spent record sums on share buybacks…

Capex has experienced an unprecedented decline…


Of course, some Democrats have argued that the Trump tax plan will perpetuate essentially the same incentives as corporate tax rates are slashed and money brought back from overseas is spent on still more buybacks, instead of creating jobs and capital expenditures, like the Republicans argue it will be.

The flimsiness of the GOP’s argument was exposed a few weeks ago during a memorable gaffe involving NEC Chief (and former No. 2 at Goldman Sachs) Gary Cohn, one of two officials managing the tax bill on behalf of the White House – the other being Treasury Secretary Steven Mnuchin, also a former Goldmanite.

During an event for the Wall Street Journal’s CEO Council, an editor at The Wall Street Journal asked the room: “If the tax reform bill goes through, do you plan to increase investment – your company’s investment, capital investment?”


He asked for a show of hands.


Alas, as the camera revealed, virtually nobody raised their hand.


Responding to this “unexpected” lack of enthusiasm to invest in growth, Cohn had one question: “Why aren’t the other hands up?

While Cohn’s dismay at the lack of enthusiasm for his tax plan was obvious and embarrassing (the clip was in heavy rotation on CNBC for much of the next day), the fact that corporations will spend the windfall created by the tax bill isn’t necessarily a bad thing, according to JP Morgan Chase CEO Jamie Dimon.

Of course it wouldn’t be “a bad thing” – for Jamie.

When it comes to the rest of us…well…maybe not so much.

Dimon, who was speaking at a conference in Ann Arbor, Michigan hosted by Axios, according to CNBC.

According to Dimon’s logic, repatriations enabled by the tax plan could swiftly lead to more than $1 trillion being brought back from overseas. It doesn’t matter where that money goes, the point is there will be more capital sloshing around the domestic economy…and that will eventually manifest itself in the form of capex, job creation and higher wages…

“You need a competitive tax system … companies will retain more capital and start to use it over time,” Dimon said Wednesday in response to a moderator question at the Axios Smarter Faster Revolution event in Ann Arbor, Michigan.


“Some will raise wages. Some will buy companies. Some may do dividends and buybacks. Don’t act like that is a bad thing. That is their money. Think of it as a QE4. That money gets recirculated in the American system.”

Dimon said tax reform “simply needs to be done,” and should have happened 15 years ago. And while the benefits aren’t “going to be immediate”, they will accelerate growth “cumulatively over time.”

JPMorgan’s Jamie Dimon: Tax reform bill will result in more jobs from CNBC.


After the bill passes “probably a trillion dollars will come back from overseas,” he added. “Cumulatively over time that will accelerate growth in the American economy.” That effect will resemble something like QE4, though we’re not sure that’s the best comparison…

The real question is: Will the tax bill somehow prevent the Federal Reserve from needing to launch QE4 before the end of Trump’s first term. If you believe a recent Treasury Department analysis of the Senate tax plan released earlier this week.

That plan calcuated that the tax cuts would bolster US economic growth to an average rate of 2.9% real growth over the next 10 years…

…which would make the current economic expansion the longest in modern history…

…But then again, if you believe that, then we have some condos for you to buy.

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