WHAT TO EXPECT IN THE TRUMP YEARS

In two days we crown the new champion of social media and the populist king of angst.

What are the foreseeable realities to seeing Trump’s campaign promises happening?  We wish him and the country well, but let’s take a look at what is likely to play out.

“There’s not a snowballs chance in hell we can see 4% growth, unless pigs can fly,” according to Harry Dent, President of Dent Research, who offers analysis and predictions based on extensive demographic research.

“A new supply-side strategy?  Just when we have overcapacity everywhere thanks to the greatest debt bubble in modern history; one that’s caused consumers, businesses and governments to overinvest and buy?

“Do they actually think that businesses are going to expand under their new strategy?  Ha!  Businesses didn’t expand with zero interest rates.  Instead, they bought back their own stocks and financed near-meaningless mergers and acquisitions.

“Sure, Ronald Reagan became president following the greatest inflation and supply-side crisis in history.  Hence, his supply-side strategy worked.  Inflation means excess demand versus shrinking supply!  More people wanting the little there is.  That’s when a supply-side strategy and greater deregulation actually can and does work.

“We don’t need more supply, we need more demand, and we’re not going to get it.  Not while the greatest generation in history (both in size and influence) are saving more and retiring in droves.

“Aging people (Baby Boomers) don’t create more demand, they shrink and shrivel up, and then die.  They don’t produce more or expand supply either for that matter.  I’m sorry for being so blunt, but it’s simply the truth.

“We’re only going to grow our population to 360 million from today’s 323 million by 2060 at best, and not to 420 million as the clueless, straight-line experts forecast.  And I’m being optimistic with that estimate.  I’m accounting for immigration rates dropping to only 400,000 a year instead of zero, which is what happened in the 1930s depression.

“Do couples have more babies in a questionable or downward-looking future?  History says they have substantially less.  That’s 60 million-plus people that won’t be there to buy houses and have kids and smoke medical marijuana, or whatever!

“The ONLY way to reignite the middle and working class that elected Trump against the odds and polls, that has been sucking wind since the mid-1970s, is to let this damn bubble burst.  But do it in a more civilized way than how it happened in the 1930s.

“The ONLY way to make America great again is to admit to and fully accept our massive debt and unfunded entitlements…and then restructure them, like a Chapter II debt re-organization in business.

“And we shouldn’t cut off immigrants that come into our economy ready to work and start a high proportion of new small businesses and even 40% of Fortune 500 companies…we should welcome them more than ever!  But only if they have the skills we need and enter legally do we embrace them—like the Canada and Australian models.

“As for 3%-4% growth…as they say in New York:  ‘Fugedabit.’”

A more nuanced view is offered from the UCLA Anderson School of Management who has revised their outlook for 2017 and 2018.  The reason for the revisions, of course, relates to the November election.

“Clinton was going to raise taxes and spend more.  Trump says he will cut taxes and spend more,” according to David Shulman, Senior Economist with UCLA.

Shulman believes that Trump will implement a personal tax cut for higher wage earners that will total $300 billion a year, impose a $200 billion- a-year corporate tax cut, push for a $20 billion-a-year infrastructure program going into effect by the end of 2017, seek a $20 billion-a-year cut in Medicaid and the Affordable Care Act, and make modest changes to trade policy that will lead to net reductions in food and aircraft exports.

“With $500 billion in tax cuts arriving in the third quarter of 2017, we expect economic growth to accelebrate from the recent 2 percent growth path to 3 percent for about four quarters,” Shulman wrote.  “Thereafter, growth will slip back to 2 percent.”

GDP will eventually slow down because the economy will need a productivity miracle to continue to stimulate growth.  “Whether that will come, as the Trump partisans expect, from the supposed supply-side effects of the tax cuts and the proposed regulatory reforms remains to be seen,” Shulman noted.

Shulman predicted that Trump’s take on the economy will lead to the federal deficit doubling to more than $1 trillion by 2018, which in the long run will pose a problem when the government needs more funds to pay for Social Security and Medicare.

With an exploding federal deficit and a higher inflation rate, the long-quiet Federal Reserve will become more aggressive and raise the federal fund rate to more than 2 percent by the end of 2017 and to 3 percent by the end of 2018.

With that in mind, the yield on 10-year U.S. Treasury bonds is forecast to exceed 3 percent by the end of 2017 and 4 percent by the end of 2018.  But mortgage rates are also going up, which means fewer houses will be built.

I share some optimism that the Trump administration can accomplish a lot with a simpler tax code, including lower corporate taxes, reduced regulations and some hard-nosed negotiating on trade deals.

Will lower corporate taxes that will allow the repatriation of overseas profits and swell the coffers of domestic companies be used to expand and create more jobs or will they continue to buy back stock, reduce debt or continue the merger and acquisition route?  Much will depend on the outcome of this question.

There is little chance that manufacturing jobs sent overseas will return.  Putting a tariff on those products will hurt all Americans.  Hard to believe Congress will go along with that proposal.

We are already spending billions of dollars on infrastructure.  At best, Trump’s plan to boost infrastructure will be incremental, not transformational.

His cabinet and executive appointments include a number of critics of the departments they will run and have created a lot of hue and cry from the anti-Trump crowd.  Are you surprised?  What did you expect?

You may recall that Barack Obama, at the start of his presidency, proclaimed loud and clear that he would transform America.  He tried, but his success in that regard has been minimal.  Donald Trump will more than likely follow the same path with his appointments and his pronouncements of “draining the swamp.”  It will be hard to achieve.

We’ll probably see a continuing stream of tweets from the president and that will tell us more about what he is thinking than we’ve heard from his predecessors.  Some of it he probably ought to keep to himself.  Patience is not his strong suit.

Small business will probably benefit the most from Trump’s policies, but I’m not sure how much America will significantly change, and that may be okay, too.

Don’t despair, Illinois Senator Dick Durbin said, “The office makes the man.”

ArtSchwartzSig

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1 Comment

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One response to “WHAT TO EXPECT IN THE TRUMP YEARS

  1. Dan G

    You write that Obama’s success in transforming America was “minimal”. In many regards that may be true, but in two ways, at least, I don’t believe your assessment is correct. First, when Obama came into office, unemployment was at 10%; now it’s at 4.7%. Of course, you’ll argue that a lot of folks left the labor force or gave up looking for jobs, so the 4.7% is too low. And maybe real wages are too low but that seems to be changing, too. In any case, real unemployment was cut substantially. Secondly, Obamacare, for all its flaws, is transformative. Almost every other president in our lifetime would have liked to achieve universal coverage (or near universal coverage). Obama was the first to make it happen. Yes, Obamacare is flawed and needs fixing, but it takes us in the direction where the tide of history will eventually take us. Four years from now, let’s see if (and hope that) America has been made great again.

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