Opinions wildly vary following the Presidential election as to whether we are facing an economic feast or famine. There is the notion the stock market will continue to melt up with Trump riding to rescue America's economy. He is doing this with his new best friend Elon. This of course discounts the idea momentum is to the downside and the bull market in stocks is long in the tooth.
What some economic pendants refer to as the "everything bubble" has propelled the wealth effect forward at the same time higher interest rates have bolstered the spending of savers. It is important to remember that much of this economy has been built on this so-called "wealth effect" which has over the years come off the rails leading to economic crisis.
This leaves the question of, where things go from here. These include the effects of inflation or deflation and how they are destined to play out. Below are a few of the factors being spun by those making a bullish or bear case:
The government deficit and spending is out of control and must be cut
Tax cuts may stimulate the economy and consumer spending but may result in a larger deficit
Cutting government spending will cause many government layoffs adding to unemployment
Janet Yellen financed America's debt with short-term notes and a lot of debt needs to be rolled over
Government workers, many in unions, will be demanding huge wage increases driving inflation higher.
Increased sovereign debt will drive long-term bond yields higher.
A healthy economy flows from a vibrant middle-class based on the small businesses that we have destroyed.
Trump not known for his spending restraint, has benefited from inflation, will he now save the masses?
Will egomaniac Elon Musk with his history of feeding at the government trough put America first?
Expanding the money supply faster than the supply of goods debases fiat currencies.
Promises of higher productivity "without cutting jobs" are easier said than done.
Bringing companies and jobs home is good for America but tariffs come with some cost to consumers
Many of the things RFK is correctly advocating to make America healthy will impact company profits.
My point is that many of us who watch the economy don't agree on where things are going. The above factors and many more feed into this and the course forward may be volatile. In short, turning around many of the strong negative trends haunting America will not be easy. This will be difficult and akin to turning around a battleship in a bathtub.
A Paul Gabrial, Everything Money video titled; "My Brutally Honest Thoughts On The Great Melt Up" recently promoted his own views about a Clear Value Tax video series called “The Great Melt Up” claiming his message needed to be heard by the masses. The reason I mention this video is it does an interesting job of highlighting the problems ahead.
The effect of the concentration of wealth that has occurred has yet to be felt. We should also remember the GDP is a rather worthless gauge of economic growth considering it includes things such as non-productive government spending. It is difficult to argue the economic effect and the kind of growth flowing from the soaring debt after the Covid nightmare has been fully felt but easy to argue little good will come from it.
Of course, this only fueled a surge in the concentration in wealth and inequality that started long ago. Note the CEO-to-worker compensation ratio in America and how it has exploded over the years.:
1965 : 20.4 ---
1975 : 26.6
--- 1985 : 50.5
--- 1995 : 118.8
--- 2005 : 318.4
--- 2015 : 318.8
--- 2021 : 389 All this has been make worse by hollowing out America's middle-class by sending manufacturing jobs overseas.
President-elect Donald Trump won the 2024 election in part because working-class voters continued their migration toward the America First populism. For over a decade I have railed against Amazon a company with strong links to the government helping to destroy small businesses and communities. Still, this is a company many Americans continue to support, this proves we the masses are not as smart as we like to pretend. The task facing Donald Trump is fraught with peril.
(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)
It's been a while since I've commented as I wanted to let some time pass and see what happens, especially with the election. Here's my take: President Trump will not be able tame inflation, and in fact I believe that his policies of cutting taxes and demanding lower interest rates will only make things worse. He makes the claim that increasing energy production will lower costs, but the fact is that U.S. energy production is already near all-time highs and lowering oil prices by 10 or 20% isn't going to eliminate inflation or lower costs by very much at all. It wouldn't affect things like insurance costs for example. Home prices have nearly doubled in the past 6 years, and the only way to bring this down is to build million of new houses to increase supply, which I doubt will happen. Tax cuts to put more money in people's pockets are actually the wrong remedy here, and will not only increase inflation, but will blow up the debt even more. Trump will be lucky if he can cut the deficit by 25% in the next 4 years, and can forget about ever getting a balanced budget no matter how many agencies and personnel Elon Musk manages to eliminate. Another thing is that Trump wants to bring back a lot of manufacturing to the USA, which I agree with as it's a bad idea to be too dependent on China. The problem is that American workers are extremely expensive, so anything made here will cost a lot more than the same thing made overseas. There's just no easy way out of this mess, and the root of the problem is that Americans in general are spoiled, greedy, and unwilling to make any real sacrifices.
ReplyDeleteThanks Dave, great points, also glad to hear from you again.
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