Two weeks ago, the Trump administration presented a detailed version of one of Trump’s most important election promises: a tax reform. Not only does the Trump administration propose to lower corporate taxes, their proposal also includes other tax reforms. However, the trouble is that Trump wants to lower taxes without cutting spending. As a result, the budget deficit and the enormous public debt are bound to swell. And, moreover, what does all this have to do with the Federal Reserve?

The Federal Reserve ended its QE3 large-scale asset purchase program already in 2014, which consisted of monthly purchases of billions of US Treasuries and mortgage-backed securities (MBS). But the Fed never did really end QE. The Fed reinvested the principal of maturing bonds automatically into new bonds. The Fed´s balance sheet thus never shrunk. Until this month. The Fed has now finally decided to no longer automatically reinvest the principal of maturing bonds. The grand finale of QE is

In 2007, value investor David Einhorn wrote a fascinating book titled “Fooling Some of the People All of the Time: A Long, Short Story”, which is about how companies over the course of the business cycle begin using accounting tricks and the indifference of stock investors as long as stock prices are rising. This “accounting cycle” is intimately connected to the business cycle. In boom times, businesses can easily get away with creative (though, in many cases, perfectly legal) accounting methods, only to be corrected by markets when a recession sets in. I argue that the current cycle is nothing different. And I will share a few cases which prove my point.