FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
February 25, 2020

IN THIS ISSUE:

1. American Farm Bankruptcies Spiked 20% Last Year

2. Trump’s Payments to Farmers: Mother of All Bailouts

3. President Obama Claims Credit For Strong Economy

4. Victor Davis Hanson: A Fitting Tribute to Rush Limbaugh

American Farm Bankruptcies Spiked 20% Last Year

American farmers faced a surge of bankruptcies in 2019, up 20%, despite aid efforts from Washington. The Trump administration allocated a record $28 billion in aid for farmers affected by his trade war with China in the past two years (more on this below), but bankruptcies were recorded at the highest level since 2011, according to a recent study by the American Farm Bureau.

The Bureau said there were 595 Chapter 12 family farm bankruptcies last year. Last year's 20% spike in bankruptcies lags only the 33% surge seen in 2010, the year after the Great Recession. Farms in Wisconsin generated the highest number of bankruptcy filings last year at 57 followed by Georgia with 41, the Bureau reported.

Farm bankruptcies were at or above decade-high levels in 10 states: Iowa, Illinois, Kansas, Minnesota, Nebraska, New Hampshire, Ohio, South Carolina, South Dakota and Wisconsin, according to CBS News.

In addition to retaliatory tariffs from Beijing that hurt soybean exports, US farms were also impacted by President Donald Trump's trade negotiations with Mexico and China. "The trade wars were salt in an existing wound," said Kara O'Connor, government relations director at the Wisconsin Farmers Union.

The White House's “Phase One” accord with Beijing stipulates that China will purchase up to $200 billion in US goods in the next two years, including an estimated $30-$40 billion in agricultural products like soybeans and pork, offering some relief to American farmers. But that was too little, too late for many US farmers who suffered from reduced production as a result of the rain-delayed planting season and depressed market prices.

Trump’s Payments to US Farmers: The Mother of All Bailouts

President Trump’s trade-related payments to American farmers have quietly become the Mother of All Bailouts. Back when General Motors and Chrysler faced bankruptcy in the wake of the Great Recession, Presidents George W. Bush and Barack Obama pumped tens of billions into a rescue of the auto industry – all of which was repaid except for the remaining $12 billion which wasn’t.

But that is small potatoes compared with the farm bailouts in 2018 and 2019. So far, Trump’s direct payments to farmers hurt by his trade dispute with China have totaled some $28 billion over two years. That’s more than twice what the auto bailout cost and remember, this money to farmers will not be repaid.

And it may not be over: President Trump hinted earlier this month that there may be more farm aid beyond the usual subsidies later this year (see link in SPECIAL ARTICLES below). It remains to be seen if he was serious or if that was simply campaign-related rhetoric in Iowa.

There is, in fact, a long history of government bailouts, mostly for failing banks. The news service ProPublica lists 980 such bailouts, most of which were repaid with interest.

Here’s the problem when it comes to our farmers: China has purchased billions of dollars’ worth of American-grown products including soybeans, grains, pork and other agricultural products over the years. Sales of US agricultural products overseas, including those from Midwest farmers, have actually produced one of America’s few trade surpluses.

Yet China’s soybean, pork and other ag purchases have more or less dried up the last couple of years because of the trade dispute that caused both nations to slap tariffs on each other’s goods. As a result, US farmers are hurting.

Net farm income was estimated at only $58 billion for 2019, and the second lowest profit of the last 10 years. That comes on top of the multi-year drop in the prices of agricultural commodities.

It’s true that the government has been making direct payments (subsidies, etc.) to farmers for a long time. But the size of those payments is growing rapidly. From 2010 through 2017 direct government payments to farmers averaged over $10 billion a year. While the final figures are not in, those payments were expected to hit $20 billion last year. And those payments do not include President Trump’s bailouts.

The bottom line is that this crisis with American farmers didn’t have to happen. The trade war with China should have never happened. This all goes back to President Trump’s obsession with our large trade deficit with China.

As I have explained previously, it should not matter if we run a trade deficit with China or any other country. The US is the largest and richest nation on the planet; as such, it makes sense that we would be buying more from most countries than they buy from us – we can afford it!

Indeed, the collapse of US soybean sales (and others) to China was a self-inflicted wound brought on by the president and the other trade hawks in his inner circle.  And now, having punished American farmers to make his point with China, Trump showers them with cash to keep them happy enough so that he doesn’t lose their political support.

The problem, as always, is that’s taxpayer money he’s showering them with… and it won’t be paid back. As regular readers know, I am very happy with most of President Trump’s economic policies, but when it comes to his trade policies, I am a critic and have been ever since he started the trade war with China.

Hopefully, the passage of the Phase One trade deal with China will lead to a broader, more enforceable Phase Two deal this year. Unfortunately, I don’t expect that to happen until after the election – which likely means next year and certainly will depend on who is in the White House. We’ll see.

President Obama Claims Credit For the Strong Economy

Former President Barack Obama took to Twitter last week for the supposed purpose of celebrating the 11th anniversary of the American Recovery and Reinvestment Act of 2009 (ARRA). It seemed an odd time to celebrate an $830 billion “stimulus” bill that is universally regarded as a failure.

Yet our erstwhile president insists that it launched “more than a decade of economic growth and the longest streak of job creation in American history.” This is easy to dismiss as wishful bluster, but there is method in Obama’s madness.

The Democrats fear they can’t defeat President Trump as long as the electorate credits him for the strong economy, plentiful jobs and rising wages. According to the latest Gallup poll, “Sixty-three percent of Americans now approve of the way Trump is handling the economy.” This is bad news for the Democrats, and they know it!

As Gallup further notes, “If Trump asks Americans whether they are better off than before he came into office, most would say they are. Trump also gets more credit for recent economic improvements than Obama does.” Consequently, the Democrats must somehow convince the public that the president is just the political beneficiary of the economic boom rather than its author.

This will not be an easy task! An increasing number of Americans expect the president to defeat any of his 2020 Democratic challengers by large margins. According to a new Economist/YouGov survey, 49% of voters believe Trump would beat Joe Biden, whereas only 29% believe Biden would prevail. Likewise, 47% percent think Trump would defeat Mike Bloomberg, while only 27% think Bloomberg would win. The story is roughly the same or worse for the other candidates.

Mr. Obama argues that the economy was weak and protracted because he took office after a steep downturn. However, dramatic economic contractions are historically followed by strong recoveries. When Obama took office, he had nowhere to go but up – unless he didn’t.

The long, feeble recovery over which he presided was caused by his administration’s meddling – a combination of ARRA, the Dodd–Frank Act and others. The claim that Trump’s superior performance was about inheriting a better labor market is exactly backwards. Moving unemployment from 4.7% (considered full employment by many economists) to 3.6% was a far heavier lift for Trump than Obama faced in 2009.

Moreover, none of Obama’s balderdash about ARRA explains the growth in manufacturing jobs over which Trump has presided. During the Obama years, 300,000 manufacturing jobs disappeared. When Trump pledged to bring them back, Obama claimed that he would need a “magic wand” to accomplish this – yet somehow nearly 500,000 such jobs have been added to the economy since Trump took office.

Will the Democrats give Obama credit for creating jobs he said “weren’t coming back?” Probably. But it won’t fly. The voters can see the difference between the Democratic malaise under Obama and the subsequent improvement in their day-to-day lives under Trump.

Do you ever wonder why Democrats assume we are that dumb?

Victor Davis Hanson: A Fitting Tribute to Rush Limbaugh

I assume that most of my readers have heard the news that Rush Limbaugh was just diagnosed with advanced lung cancer. I have long been a big fan of Rush and listen as often as I can. I am also a big fan of Victor Davis Hansen of the Hoover Institute who is one of my favorite writers of my generation.

Last week, Mr. Hanson wrote an awesome tribute to Rush in NATIONAL REVIEW. Whether you are a fan of Rush or not, you have to agree that what he has accomplished in his 30+ years in radio broadcasting is unprecedented. He literally saved AM Radio when he broke onto the national stage in 1988.

You can read Victor Davis Hanson’s tribute to Rush HERE. If you are a Rush fan, this is a must read. Even if you’re not a Rush fan, you should read it. I’m pulling for Rush in his cancer treatment! It will be a sad day for America if we lose him.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Trump Promises Farmers More Aid as USMCA Trade Deal is Delayed

Obama to Trump: You Didn’t Build That Economy

Gary's Between the Lines Blog: Half of Americans 55+ Have No Retirement Savings

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.