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The stock market likes the tax plan. Should you?
I am going to start this U.S. overview with Eurozone budget data. Eurozone data you ask? Shouldn’t that be in the global overview? Not this month. This month, I will have USA and Mainland China trade date in the global section. What am I thinking harder about? The big policy issues most investors to this publication would like to know more about? -- U.S. trade and tax decisions.
What this PhD economist needs to do first? Cover tax changes. To start, I don’t know much of what is going to actually happen on the Federal budget. The House and Senate both must approve a finalized tax plan.Tax plans come with joint decisions on personal and business taxes, debt financed spending, and revenue sent to Federal programs to fund needed operations -- like national defense, Medicare, and interest on the huge accrued debt. That’s where the rubber meets the runway.
A core matter then concerns annual Macroeconomic Balances. I want to share more on that in this letter. There’s a logical structure. Most of you are not aware of it. That is the relationship trade balances and their financial sister --current account balances-- have with Federal budget balances. You cannot violate this.
All economies --regardless of size-- function under Macroeconomic Identities.
(1) Aggregate Demand (Spending) = Aggregate Supply (Output), which implies
(2) Consumption(C) + Investment (I) + Government (G) + Net Exports (NX) = Y
(3) C + I + G + Exports = Domestic Production of Goods and Services + Imports