Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Mainstream Media Feeding Frenzy in the Echo Chamber - 28th Jun 17
The Fed Has Undermined the US Economy’s Ability to Grow - 28th Jun 17
“Secular Stagnation” Is Nonsense… Here’s the Real Reason Behind the US Downturn - 28th Jun 17
Sheffield Broomhall Hanover Flats Tower Block Cladding Could Take Months to Remove! - 28th Jun 17
Shrinkflation In UK – Real Inflation Much Higher Than Reported - 28th Jun 17
Are the UK Elections a Forgone Conclusion? - 28th Jun 17
Is the Tech Stock Market Bloodbath is Finally Here? - 28th Jun 17
Crude Oil Sinks 20%: Why "Oversupply" Isn't the Half of It - 28th Jun 17
Important Money Management Tips For Teenagers - 28th Jun 17
The Coming Battery Bonanza - 28th Jun 17
Overlooked Stock Investments To Keep An Eye On in 2017 - 27th Jun 17
The Federal Reserve And Drug Addiction – A Prediction - 27th Jun 17
Charts Show Why Emerging Markets Will Be an Essential Part of Your Portfolio Going Forward - 27th Jun 17
Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year - 27th Jun 17
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Will Trump Bring Inflation to America’s Shores?

Economics / Inflation Dec 29, 2016 - 11:05 AM GMT

By: MoneyMetals

Economics

By Stefan Gleason: Something is brewing in the economy. Since the election of Donald Trump, interest rates have spiked, copper prices have surged, and various sectors of the stock market have swung “bigly” on speculation of what “Trumponomics” will bring.

Scores of triumphant Republican commentators are already painting a bullish picture of the Trump economy. The GOP – which will control the White House, Congress, and most state governments – has a rare opportunity to implement a pro-growth agenda.


Republicans squandered their last great window of opportunity. George W. Bush and his Congressional allies grew government spending at a faster clip than the economy and saddled the country with trillions of dollars in new debt.

It’s too early to tell whether Republicans will finally get serious about fiscal responsibility. No one knows exactly how Donald Trump will govern or how the economy will perform under his presidency. But one trend that is now being signaled by markets is a pick-up in inflation.

Bonds and Base Metals Are Signaling Future Inflation

The yield on the benchmark 10-year Treasury note spiked from 1.9% on Election Day to as high as 2.5% by Christmas. For the bond market to move that far that fast is unusual. In fact, it was the sharpest yield surge in 15 years.

What may be worrying the bond market is the potential for the government’s borrowing needs to grow under the Trump presidency. Rising debt means rising credit risk and inflation risk, which means higher bond yields.

“Trumpflation is coming,” declares Forbes columnist Kenneth Rapoza.

The president-elect proposes a combination of tax cuts and spending increases that could swell the deficit. The Committee for a Responsible Federal Budget claims that Trumponomics will add $5.3 trillion to the federal debt over 10 years.

Of course, Trump disputes that figure. He says that faster rates of economic growth will add to federal revenues and pay for the tax cuts. It’s possible. But you have to be a committed optimist to believe the deficits won’t grow at all over the next four years.

At the core of Trump’s domestic spending agenda is an ambitious infrastructure program. Stocks related to building and construction have boomed since Trump’s election win. So, have the prices of copper and palladium. These economically sensitive industrial metals moved in the opposite direction of gold and silver post-election.

Inflationary and Deflationary Forces Competing with Each Other

Are rising base metals indicating rising inflation dead ahead? Or does the recent slump in gold prices suggest disinflationary pressures to come?

Let’s take a step back and consider the larger trends. Gold and silver prices still show positive gains for 2016. The recent selloff occurred as a result of a rising U.S. Dollar Index and investor optimism on the prospects for the Trump economy. Base metals tend to benefit from optimism, while precious metals tend to thrive more on pessimism.

The early stage of a rising inflationary trend tends to be associated with positive things such as rising demand for raw materials, new job creation, and increased economic output. Only later do concerns over rising price levels and rising interest rates cause investors to react fearfully and seek the protection of precious metals.

Gold and silver would also be expected to perform well when economic indicators start turning down and investors seek safe havens from cyclical assets.

Trump May Use Government to Stimulate Growth If Free Market Doesn’t

If a recession starts in the months ahead, it’s unlikely that Donald Trump would be the sort of president who takes a hands-off approach and lets the economic downturn run its course. After all, he made bold promises to the effect of being “the greatest jobs president that God ever created.”

If his grandiose job growth touts don’t materialize through the free market, expect President Trump to try to generate jobs by other means. He’ll go to Congress for new stimulus measures. He might instruct government agencies to embark on new spending and hiring spree. He could even pressure the Federal Reserve to better fulfill its “full employment” mandate by pumping out more cash into the economy.

Then there’s Trump’s trade policies. He vows to pull the U.S. out of the Trans-Pacific Partnership and raise new import tariffs. Those tariffs could well help protect U.S. manufacturing jobs. But they will also make imported goods more expensive for U.S. consumers.

Some worry the forthcoming Trump administration could pursue a high-stakes trade and currency war with China and other major exporters. Trump has repeatedly accused Beijing of being a currency manipulator. He has said in so many words that he favors a weaker dollar to make U.S.-produced products more competitive in the international marketplace.

A weaker dollar tends to exert inflationary pressures in the economy. So far, however, the post-election trend in the dollar versus foreign currencies is up. The dollar can gain against other fiat currencies while still losing value against hard assets.

But gold bugs and “Trumpflation” forecasters will be looking for the dollar index to reverse course and confirm the other signals markets are giving for rising inflation during the Trump years ahead.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2016 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife