Judging by the mail we’ve been receiving, dear readers would like to see a more positive attitude towards the president-elect.
We would like to take a more positive approach; we like wishful thinking as much as anyone.
In particular, we’d like to see Mr Trump do away with the inheritance tax.
In the meantime, we’re just reporting what we see. And what we see now is a parade of swamp rats making their way to Trump Tower.
Donald versus the ‘Swamp’
Maybe Mr Trump has some clever strategy…
Maybe he is doing a feint — putting the varmints at ease while he prepares a full assault.
Or maybe he just doesn’t know what to do and finds the rats agreeable.
But so far, in the fight between Donald and the Swamp…the Swamp is winning.
Take this headline from Bloomberg: ‘Wall Street Wins Again as Trump Picks Bankers, Billionaires.’
The article tells us that less than 24 hours after he was chosen as Trump’s new secretary of the Treasury, Goldman Sachs alum Steven Mnuchin contradicted his boss. Trump says everyone will get a tax cut. Mnuchin says the rich will get nothing.
The Goldman guy (Mnuchin was at the firm for 17 years before starting his own hedge fund) is probably just trying to head off criticism. After all, the last thing the country needs is another Goldman plant in the Treasury lobby. They’re all over the place already.
But we’re not complaining about the swamp critters…or about Donald Trump.
The whole thing continues to be immensely entertaining — so many myths and misconceptions colliding…so many false promises and frauds crashing into one another.
We’re delighted; everywhere we look, we see a train wreck.
But in Flyover America, people turn their lonely eyes to Mr Trump.
‘Touch us! Heal us!’ they wail.
They thought he was the Manhattan Messiah…who has come to give them life, and give it to them more abundantly. They expect him to bring back their jobs…and to make them proud as he makes America great again.
But to do so, he has to ‘drain the swamp’.
And they must be wondering, as we are, why so many crony insiders amongst the disciples?
The two biggest lizards in the swamp are Wall Street and the military-industrial complex.
Yesterday, we saw the celebrations in northern Virginia in full swing. Now they’re setting off fireworks in lower Manhattan, too.
The Parasitocrats seem sure they’ve got Donald in their pocket. The voters still think he’s their man. Someone is going to be disappointed.
Meanwhile, emanating from the Goldman Sachs Tower on West Street, word circulates that ‘Trump will be good for the Street.’
Mnuchin adds that the Trump tax cuts will double the rate of US growth.
We wonder if he’s thought this through.
Doubling growth would put pressure on wages. Businesses, suddenly in need of money and people to expand, would bid against one another.
Consumers, with more money in their pockets, would go on a buying spree, too.
Prices would go up. So would bond yields (as bond prices go down in anticipation of higher inflation).
Interest rates generally go up as an expansion intensifies. With today’s rates at a 5,000-year low, where else could they go?
But if interest rates go back to more normal levels, it will be a death sentence to an economy sky high with debt. This economy can survive absurdity but not normality. Again, someone is going to be disappointed.
By our calculation, the US has about $35 trillion more in debt than it should have. It can carry the debt…but only as long as interest rates remain at ultra-low levels. Otherwise, the whole kit and caboodle blows up.
For interest rates to remain so low, Mr Trump cannot succeed in setting off a sustained and substantial boom. It just doesn’t work that way.
A boom would mean a rout in the bond market…with higher rates that would stop the boom long before it even started.
That’s what the plunge in bond prices since Election Day has been telling us: Even the hope of higher growth rates sends the bond market off the edge.
You can’t have a boom when you have so much debt; you can’t even have a normal economy. You can’t afford it.
Again, someone is going to be disappointed.
Stocks are going up in anticipation of something that won’t happen: a big fiscal stimulus package from the new administration.
When Congress sees the real deficit figures…and the bond vigilantes get on the case…the politicians will balk. Then the gamblers, now betting on big fiscal stimulus measures, will trade their long positions for long faces.
They’ll sell…setting off a rout in the stock market!
Ultimately, the question is not whether there will be a disaster during Mr Trump’s time in the White House. It’s what kind of a disaster it will be.
A whimper? Or a bang? A Japan-like deflationary bust? Or an Argentine-style inflationary boom? Or both?
For Markets and Money, Australia
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