Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22
State of the Stocks Bear Market - 15th June 22
The Gold Market Is Getting Ready for Another Interest Rate Hike - 15th June 22
The Dow Industrials’ Big 8-Wave Cycle is Incomplete - 15th June 22
7 Things You Need to Know About Finances - 15th June 22
Dow Stocks Bear Market Forecast Trend Trajectory - 13th June 22
Why Putin has KILLED Russia - 12th June 22
Trading the Calm Before the Stock Market Storm – Consider Putting On A Long Strangle - 12th June 22
Shrinkflation! - 12th June 22
6 Useful Tips To Help You Create A Good Marketing Strategy - 12th June 22
Big Inflation Will Spur Gold Price - 11th June 22
Economic "Hurricane": Here's a Take on a Bank CEO's Warning - 11th June 22
Axie Infinity (AXS)Mmade a lot of People Rich… Temporarily, What We Learned - 11th June 22
The CRACK UP BOOM! Implications for Stocks, Housing. and Commodities, Silver Potential - 10th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Midnight in America

Politics / US Politics Nov 10, 2016 - 05:25 PM GMT

By: Peter_Schiff

Politics

Stunned political analysts are missing the most plausible argument explaining Donald Trump's unexpected victory. The misreading of the American electorate stems from the political class' acceptance of mistaken (and increasingly insane) economic dogma that has arisen over the past generation. Based on their flawed understanding of economics, the pundits could simply not understand why the electorate had become totally disillusioned.


According to the ideas favored by economists on Wall Street, in government, and in the Federal Reserve, Americans should be enjoying a marginally good economy. Unemployment is low, home values and the stock markets are high, credit is cheap and plentiful, prices are stable, auto sales are robust, healthcare is available to all, and GDP is growing, albeit at levels that are below optimal. These are conditions that would normally favor the incumbent party, and would discourage voters from taking a chance on an unknown who has promised to tear down the entire system. But that is precisely what happened. There can only be two explanations: Either Trump supporters were motivated by hatred strong enough to cause them to vote against their own economic interests, or they understood the economic reality better than the Ph.D.'s. I believe the people got it right.

In countless commentaries over the last few years, I have argued that the economy has been getting worse, not better, since the Great Recession of 2008. My points were simple. I suggested that the economic signals created by the Government's deficit spending and the Federal Reserve's eight year stimulus program were not creating growth but were actually hollowing out the real economy. I argued that prices were rising faster than Washington cared to admit and that inflation was an economic problem for ordinary Americans, not a magic elixir for growth. I argued that unemployment came down only because people either gave up looking for work (and then dropped out of the labor force), or took multiple low paying part-time jobs to compensate for the loss of good-paying full time jobs. I argued that increased workplace regulations, minimum wage increases, and Obamacare would create hostile conditions for small businesses and would stifle job creation. I argued that zero percent interest rates and quantitative easing were simply a benefit for the investor class and did nothing to generate real or sustainable growth (in fact those monetary policies guaranteed stagnation). I argued that these low rates would inflate debt bubbles in the auto and student loan sectors and would set up our economy for years of pain when those bubbles burst.

That is why my gut told me that Trump would win, despite the polls and the widely held belief that a Clinton victory was assured. I believed that voters (who live in reality, not the fantasy world concocted by the elites) would express their dissatisfaction the only way they could, by voting for Trump. Obama came into office eight years ago promising change but delivered more of the same. Clinton's promise to continue that failed legacy was a loser from the start. The rank and file saw things the way I had, and reacted the way I believed they would.

But just because the electorate has finally noticed the emperor has no clothes does not mean that we are now on the path to recovery. Donald Trump has proven to be a master of identifying the hopes and fears of voters, but whether or not he has the wisdom and courage to do what is necessary to restore the country's economic health is an open question. While it is true that Trump is less likely to continue with the status quo, no one really knows what path he will follow broadly. His election likely sounds the death knell for Obamacare and for a slew of environmental and workplace regulations imposed by Obama executive orders, but beyond that, it's anybody's guess.

He has said that he wants to lower taxes and reduce regulations, which are needed goals, but he has said nothing about the hard work of reducing spending or reining in our country's runaway national debt. Trump has openly admitted that his business successes have been based on his ability to go deep into debt, and then to emerge, Phoenix-like, on the back of good deal-making, marketing, and braggadocio. He probably thinks he can do the same on the national level. But there the rules are much different.

It is unlikely that he understands the chemicals he will be playing with, nor is it likely that he will rely on the opinions of those who do. It's clear that his only solution is that we "grow our way out of debt." This is a gambler's mentality that is likely integral to his DNA. It didn't work for him in Atlantic City, and it won't work for him now.

Our best hope is that the real Trump is actually a lot cagier than his campaign persona. The wisest leader can do nothing if he can't get elected (a phenomenon with which I have some experience). Trump managed to get himself elected to the most powerful position in the world. Perhaps he has a better understanding of the problems that face us than he let on during the campaign. Perhaps he knows how excessive debt will choke the economy, that entitlement spending will overwhelm us if we don't enact Social Security and Medicare reform, that unending monetary stimulus will create a zombie bubble economy, and that trade wars will do more harm than good. Only time will tell.

Of particular concern is that Trump fails to understand how American living standards have been subsidized by our trade deficits. Yes, the hollowing out of our manufacturing sector has meant the loss of millions of good American jobs. But it is not the trade deals that are responsible for their loss, but rather the inability of American manufactures to compete in a high cost, high regulation world. And while we have lost jobs, we have nevertheless gained access to very low cost foreign goods and services, without having to expend the resources necessary to produce them. We have been able to consume these things despite the fact that we can't pay for them in full. For now, the trade deficits are a problem for our creditors, not for us. Of course, they will become a big problem for us if our creditors decide to cut us off. Trade wars may not bring back good American jobs, but they will surely raise prices and reduce choices for American consumers.

For now we should celebrate that the election of 2016 shows that the American public knows that they have been misled, that they are mad as hell, and that they refuse to take it any longer. But as bleak as the picture Trump painted of the current state of the U.S. economy, it was not bleak enough. Before things can actually get better, they must first be allowed to get much worse. Decades of government promises to supply voters with benefits taxpayers can't afford must be broken, starting with many of the promises Trump made himself to get elected. Rising consumer prices and long-term interest rates can bring this decades-old party to a catastrophic end.

Ronald Reagan was the last Republican president who was swept into office promising great change. He made good on his "Morning in America" promises to cut taxes and regulations. But he failed in his promises to reduce spending. Trump has never even paid any lip service to spending cuts. And while Reagan's failure to deliver on spending cuts was cushioned by the steady declines of interest rates during his presidency, Trump will not have that wind at his back. Plus the economy of 2016 has far deeper problems than the economy of 1980. Reagan's morning now looks more like Trump's midnight.

Trump did not make this mess, but he will likely be in office to clean it up.

Best Selling author Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital. His podcasts are available on The Peter Schiff Channel on Youtube

Catch Peter's latest thoughts on the U.S. and International markets in the Euro Pacific Capital Summer 2015 Global Investor Newsletter!

Read the original article at Euro Pacific Capital

Regards,
Peter Schiff

Euro Pacific Capital
http://www.europac.net/

Peter Schiff Archive

© 2005-2019 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