Until the Pips Squeak

The news this morning is that the shutdown is ending. This means the feds can get back to misgoverning in the usual way. USA Today:

Senate takes a first big step to end government shutdown

But the beauty of our democracy is that voters have a clear choice. They can choose which rip-off they want.

The Republicans claim to be ripping off foreigners. The Wall Street Journal:

Revenue is why Trump loves tariffs. For years he has dreamed of charging other countries for the privilege of selling to the U.S. He has boasted of the cash his tariffs have raised, how they could replace the income tax, finance farmer bailouts and maybe fund tariff rebate checks. Treasury Secretary Scott Bessent, who attended Wednesday’s session, has extolled tariffs’ contribution to deficit reduction.

Democrats says they will rip off the rich. USA Today:

In her unsuccessful 2024 presidential campaign, Democratic candidate Kamala Harris pledged to preserve most of Donald Trump’s 2017 tax cuts, with at least one notable exception: She would have raised taxes on the wealthiest Americans.

Now, the newly elected mayor of New York has a similar proposal. Among other plans, Zohran Mamdani wants to raise income taxes on the wealthiest New Yorkers by 2%.

In the election in New York, for example, voters went for an old con. ‘Squeeze the rich until the pips squeak,’ was how British prime minister, Denis Healey, described it.

But let us begin by looking at how a major federal rip-off works. In this regard, we thank our old researcher, Joe Withrow, who provided a vivid illustration this weekend.

The gist of it is that when the feds lowered interest rates in 2008, Wall Street insiders were able to borrow billions of dollars at a rate below zero, on an inflation adjusted basis. The typical family still had to put 20% down to buy a house, and pay a mortgage of 6%-6.5%. The big players got their money, essentially, for nothing. This meant that institutional buyers could easily outbid households. Which is just what they did. Withrow:

By 2015, large institutional investors like Blackstone, American Homes 4 Rent, Waypoint Homes, Cerberus Capital, and others owned upwards of 300,000 single-family homes in the US. By mid-2022, that number had ballooned up to about 574,000 homes.

Yes, the feds made the dream of home ownership a reality – for Wall Street. Backed by cheap financing provided by the Fed, the new owners could then rent the houses back to former owners…and make an immediate profit. Real wealth —ordinary houses — became financial assets, now owned by large investors who didn’t personally clean out the gutters or paint the windows.

But this was just part of a larger heist, one that has been going on for more than thirty years. Most of our stocks and bonds are owned by a wealthy elite. Even with market participation at a cyclical high, the top 10% own 95% of them.

Ultra-low interest rates raised housing prices so much that 75% of Americans can no longer qualify to buy the average house. Likewise, when the Fed funds Wall Street with cheap credit, stocks and bonds go up. The rich get richer. The poor, relatively, get poorer.

One major consequence of diddling rates to the downside is that debt builds up…which will eventually cause a debt crisis and make it impossible to pay for the free stuff politicians promised. Already, the squeeze is on…with interest payments over $1 trillion per year.

Another major consequence is inflation. Everyday prices rose more than 20% over the last five years. The combination of watching the rich get fabulously wealthy…while their own living expenses rose…must have been galling to New Yorkers. ‘Affordability’ was suddenly a campaign issue. And voters must have been driven crazy with rage and resentment; why else would they vote for policies that are proven failures?

A government-run supermarket? Really?

And now that the shoe is on the other foot, the masses aim to put the boot to the richest among them. The New York Post:

Hecklers taunt Gov. Hochul with ‘Tax the Rich’ chant at Zohran Mamdani’s NYC rally featuring AOC and Sanders

But even at rip-offs, politicians are notoriously incompetent and dishonest. Over the last two years the S&P is up 39% — thanks largely to the promised lower rates. And now the ‘radical communist’ Mamdani proposes to tax them an extra 2%! Big whoop.

The rich are protected by their own wealth. They pay most of New York’s taxes already; the city doesn’t want to lose them. And whether you are a millionaire in Manhattan or an exporter in Beijing you have alternatives. You can move elsewhere. Sell to others. Or you simply give up. Any way you go, the rip-off becomes less effective

In the end, neither foreigners nor the very rich will pay for the feds’ excess spending. Instead, we all will.

Stay tuned…