10/12/2017 08:00 AM EDT
By BEN WHITE (firstname.lastname@example.org; @morningmoneyben), AUBREE ELIZA WEAVER (email@example.com; @AubreeEWeaver)
NEW POLITICO MONEY PODCAST! - At long last, I'm joining the podcast game! "POLITICO Money" debuts Wednesday, Oct. 18th. Every week I'll take you behind the curtain, decoding the biggest issues at the intersection of Wall Street and Washington, from tax reform to the Fed and financial regulation. Very excited that my inaugural guest will be Treasury Secretary Steven Mnuchin! Listen to a teaser here and stay tuned for a link to subscribe on iTunes!
MNUCHIN WANTS POWELL - Speaking of Mnuchin, Nancy Cook, Victoria Guida and I report here that he is pushing President Donald Trump hard to select Fed governor Jerome "Jay" Powell as the next chair of the world's most powerful central bank. I'm also told that Vice President Mike Pence brought the issue of the Fed chair up at a meeting with some outside economic advisors on Wednesday, suggesting a decision is near.
Pence, according to MM's spy, asked about all the candidates including Stanford's John Taylor, who may join the Final Four of Powell, Kevin Warsh, Gary Cohn and current Chair Janet Yellen. There are those pushing for a "Dream Team" of Warsh for chair, Taylor for vice chair, though it's not clear if Taylor would take the number two spot to the 47-year old Warsh.
The top candidates now are clearly Powell and Warsh
. Trump is still considering Yellen but so many Hill Republicans are opposed to her re-nomination that it seems pretty unlikely. Trump also likes to reject anything President Obama did and Yellen was Obama's pick. Cohn remains a wildcard though one person close to the process told MM the NEC Chair is not likely to get the nod.
Here's why Mnuchin likes Powell so much
: "Sources close to the selection process say Mnuchin came to know and like Powell during discussions about changing bank regulations as part of a Trump executive action. And they say the Treasury secretary now regularly promotes Powell's candidacy for the top Fed job.
"'I don't know exactly what Steven said to the president on Friday but it would be consistent with what I do know if he recommended him," one person involved in the Fed chair selection process said. "He knows Powell and is comfortable with him."
Bloomberg reports that Taylor will get a Trump meeting this week.
TRUMP ADDS A SWEETENER
- POLITICO's Colin Wilhelm: "Trump added a new sweetener to his sales pitch for tax reform Wednesday, saying average Americans would benefit greatly if U.S. corporations bring money home from abroad under a special low tax rate. That move, combined with lower corporate tax rates, would pump an additional $4,000 into the average annual income of American households, he said.
"Trump called it a 'pay raise,' and added it 'could be a lot more' than $4,000. 'And you're gonna spend that money and jobs are going to be produced,' he said in Harrisburg, Pennsylvania"
BEHIND THE SCENES ON TAXES - A little intel from the great Nancy Cook: "The WH and congressional leaders are trying to keep any disagreements over tax reform under-the-radar and quiet until House & Senate pass their budgets that will set the parameters for tax reform and advance the action to the tax-writing committees.
"There is some quiet work being done on a compromise on the state and local tax deduction to appease GOP who oppose it. Thinking is cap the deduction instead of eliminating it, so that anyone who earns less than, say $200,000, could still claim it. $200,000 is a number that was floated before the framework came out but unclear where that could end up...up for debate.
"Next major action/fight after budgets pass: Figuring out income thresholds for the different tax brackets the Big 6 framework proposed. Again, this won't come up until the budget framework passes."
NO TAX CUTS FOR RICH? NOT EASY - POLITICO's Brian Faler: "Trump has promised that wealthy Americans won't get a massive tax cut as part of Republicans' plans to rewrite the tax code. But there's a problem with that: Higher earners already shoulder most of the tax burden while average Americans pay a relatively small share of income taxes, making it increasingly difficult to cut taxes, particularly tax rates, without favoring the rich.
"'It's basically impossible to have a large tax cut that doesn't involve most of the benefits going to high-income groups just because that's who pays taxes now,' said Adam Looney, who was deputy assistant Treasury secretary for tax analysis in the Obama administration. That's a big political problem for Republicans who want their plans to rewrite the tax code focused on helping the politically all-important middle class.
- "The top 0.1 percent of earners projected to pay more to the IRS than the bottom 80 percent combined. This year, official government data show, the top 20 percent will pay 95 percent of all income taxes.
"The top 1 percent - about 1 million families earning at least $379,000 - will pay 45 percent of all individual income taxes collected this year, and almost one-third of taxes overall, including corporate, payroll, estate and excise taxes." Read more.
DEMS UNDER FIRE FOR WEINSTEIN MONEY - POLITICO's Gabriel Debenedetti: "It took nearly a week, but leading Democrats hope they've done enough to wash their hands of politically uncomfortable ties to Harvey Weinstein. But Republicans aren't letting go just yet.
"The Democratic Party's recent days have been punctuated by a flurry of statements condemning the Hollywood fixture ... and a flood of promises to send years' worth of donations to charity from nearly every prominent lawmaker to receive Weinstein's backing in the past ...
"But even as top Democratic lawmakers pledged to donate the cash they'd gotten from Weinstein, the Democratic National Committee itself stopped short of promising a full giveaway. The committee pledged 'over $30,000' of Weinstein donations to political groups that work to elect women" Read more.
FIRST LOOK: TRUMP AND MEXICO
- New Bloomberg Businessweek cover looks at the fight over NAFTA and trade with Mexico. From a piece in the issue by Lauren Etter: "Jaime Bermúdez has been building factories in Juárez, Mexico, and doing business all over the world, since 1967. ...
"Today, Bermúdez is in the middle of a raging storm over global trade as President Donald Trump prepares to renegotiate Nafta. Bermúdez is, if not sanguine about all this, at ease. If he loses favor with the Americans, the Chinese are eager partners, as are the Germans, the Dutch, and the Japanese"
And here's the cover image:
The new cover of Bloomberg Businessweek
GOOD THURSDAY MORNING
- Hope to see some of you at the IIF meeting in DC this Friday and Saturday. I'll be MC'ing both days. Email me on firstname.lastname@example.org and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on email@example.com and follow her on Twitter @AubreeEWeaver.
SPORTS BLINK: Won't gloat about that Yankee win. Will just say that the players love Joe Girardi, and rightfully so, and they fought their guts out so he wouldn't have to live with that Game 2 mistake. Great season, Cleveland. Now bring on Nats-Cubs!
THIS MORNING ON POLITICO PRO FINANCIAL SERVICES
- Patrick Temple-West on the CFTC's plan to keep the "de minimis" registration threshold at $8 billion through 2019. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or firstname.lastname@example.org.
DRIVING THE DAY
- House Speaker Paul Ryan speaks on tax reform before the Heritage Foundation at 8:45 a.m. and holds his weekly presser at 11:30 a.m. at the Capitol ... House Financial Services has a hearing at 9:30 a.m. on the future of housing in American featuring HUD Secretary Ben Carson ... House Financial Services has a multi-bill markup at 1:00 p.m. ... Producer at 8:30 a.m. expected to rise 0.4 percent headline and 0.2 percent core.
DEPT OF ... HUH?
- Trump to Fox's Sean Hannity on the national debt: "The country - we took it over and owed over $20 trillion. ... And yet we picked up $5.2 trillion in the stock market. Possibly picked up the whole thing in terms of the first nine months, in terms of value. And maybe in a sense we're reducing the debt. But we're very honored by it."
Needless to say, this is not how any of this works
. The value of the stock market does nothing to directly lower the national debt. Could some of the gains turn into tax revenue that eventually help the deficit situation? Sure! But otherwise this is an ... unusual argument.
FINANCIAL STOCKS RETREAT - FT's Robin Wigglesworth: "U.S. financial stocks gave up more of their recent advances after some doubts over the prospects of tax reform crept back in among investors, pushing the 10-year US Treasury yield off the three-month high touched last week.
"The S&P 500 financials index has gained more than 10 percent from its August lows as rising hopes that the Trump administration would manage to pass some kind of tax cut reignited the 'reflation trade' that initially dominated markets in the wake of Donald Trump's election as president in November." Read more.
JAPAN STOCKS HIT 21-YEAR HIGH
- NYT's Jonathan Soble: "Japan still faces deep structural problems. Its population is aging and dwindling. China has stepped up its manufacturing game. Corporate stalwarts like Toshiba and Kobe Steel have stumbled. Investors appear to be looking at the bright side.
"Japan's main stock index rose to its highest level in almost 21 years on Wednesday, buoyed by a broad rally in global markets as well as growing optimism about the Japanese economy. The surge came despite the continuing problems at Kobe Steel, a Japanese stock market stalwart. Its shares sank sharply for a second day after revelations that it had falsified data about the quality of aluminum and copper" Read more.
- FT's Stephen Smith: "The dollar was under pressure again after putting in its worst performance in a month on Tuesday. Weaker for much of the session, the U.S. currency dipped further after the minutes were released.
"The dollar index - the gauge tracking its strength against a basket of peers - fell 0.4 percent as the minutes from the Sept. 20 meeting showed policymakers expressing fears that low US inflation was not just 'transitory.'" Read more.
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BRADY BACKS BUSINESS ON NAFTA - POLITICO's Doug Palmer: "House Ways and Means Chairman Kevin Brady appeared to weigh in Wednesday on the side of business groups who worry that Trump administration proposals to revamp NAFTA could make North America a less competitive place to manufacture goods and grow crops.
"'We want to make it easier for North American businesses - our manufacturing, our farmers - to compete as an North American trading bloc,' Brady said at the start of a closed-door meeting on Capitol Hill with Canadian Prime Minister Justin Trudeau." Read more.
HASSETT: TAX CUTS SHOULD BE PERMANENT
- POLITICO's Colin Wilhelm "Council of Economic Advisers Chairman Kevin Hassett said ... that tax cuts will be most effective at boosting the economy if they're permanent. Republicans are considering a combination of permanent and temporary tax changes to help get their tax overhaul plan through the Senate.
"'If the tax goes down and then goes back up ... you get a much smaller effect in the near-term,' Hassett said at an event hosted by The Hill. Even if those changes expire 10 years out they will still have less impact than permanent tax changes, he added"
TRUMP TURNS BACK TO TAX OVERHAUL - AP's Catherine Lucey and Josh Boak: "Trump pitched his tax plan as a boost for truckers at an event Wednesday in Pennsylvania, saying, 'America first means putting American truckers first.' Trump appeared before about a thousand cheering people at an airplane hangar dramatically draped with American flags. Two big rigs were in the background.
"'It will be rocket fuel for our economy,' Trump said ... Trump said a cut to business taxes would help truckers because there will be 'more products to deliver and more contracts to fill.'." Read more.
FED STILL ON TRACK TO RAISE RATES
- NYT's Binyamin Appelbaum: "The persistence of slow inflation was the dominant topic at the Federal Reserve's most recent policy-making meeting in September, but most officials were still inclined to raise the Fed's benchmark interest rate later this year.
"The Fed is likely to raise rates so long as the medium-term economic outlook remains unchanged, according to an official account of the meeting that the Fed published on Wednesday. The account said that recent hurricanes had not disrupted that outlook. The Fed expects slower growth for a few months, but it does not expect a long-term effect."
IMF IDENTIFIES NINE BANKS LIKELY TO STRUGGLE - WSJ's Josh Zumbrun: "The International Monetary Fund said some of the world's largest financial institutions-including Deutsche Bank AG, Citigroup Inc., Barclays PLC and a few Japanese institutions - could struggle in coming years to remain sufficiently profitable.
"'About a third of banks by assets may struggle to achieve sustainable profitability, underscoring ongoing challenges and medium-term vulnerabilities,' the IMF said, referring to the world's most important financial institutions" Read more.
GOLDMAN HAS A NEW WAY TO BET ON NEXT CRISIS
- Bloomberg's Alastair Marsh and Tom Beardsworth: "Less than a decade after the last major banking crisis, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are offering investors a new way to bet on the next one.
"The two financial giants are now offering trades in derivatives that enable investors to bet on or against high-risk bank bonds that financial regulators can wipe out if a lender runs into trouble. Others are also planning to start making markets in the contracts" Read more.
Goldman also announced today the creation of a 'brain trust' - Reuters' Olivia Oran: "Goldman Sachs Group Inc is betting it can get its money-making mojo back by pitching creative deals to big, complex clients, marking a return to its investment banking roots as trading revenue slows.
"The Wall Street bank is forming a group, known internally as the Innovation Lab, focused on generating compelling deal ideas for companies like Warren Buffett's conglomerate Berkshire Hathaway Inc or Japan's SoftBank Group Corp's $93 billion investment fund."
JUNK BOND BOOM REACHES FAR CORNERS OF THE WORLD - WSJ's Carolyn Cui and Manju Dalal: "The global bond boom has reached Tajikistan. The central Asian country last month raised $500 million in its first-ever international bond sale, paying just 7.125 percent in annual interest on the debt after the U.S.-dollar offering drew a swarm of American and European buyers" Read more.
S&P ON THE GLOBAL ECONOMY - Via S&P report: "The global economy is set to grow at around 3.5% this year and next, helped by still very supportive monetary
policy in the developed world"
NAFTA AND IP
- Via new Steve Moore paper: "As the Trump administration seeks to renegotiate [NAFTA] ... a key issue for U.S. trade negotiators is better and more enforceable protections of intellectual property (IP) rights.
"This must include more legally binding protections of patents, copyrights, trademarks, trade secrets, and other engines of invention and creation, which face a growing array of threats in foreign markets, including even our closest North American trade partners." Full paper.
TRANSITIONS AT OCC - Via release: "Amy Friend, Senior Deputy Comptroller and Chief Counsel at the Office of the Comptroller of the Currency ... announced that she will retire from federal service and step down from her position on November 11, 2017.
"'Amy has made far-reaching contributions to the OCC and to the federal banking system,' said Acting Comptroller of the Currency Keith Noreika. 'Her work at the agency and on Capitol Hill helped shape financial services as we know it"
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