Trump’s Short-Term Economic Policies Will Result in Huge Losses


I wonder if Donald Trump has read Joseph Heller’s 1961 novel, Catch 22?

According to the weekend’s reports he doesn’t read, so probably not… But I bet he’s heard the saying ‘catch 22’.

It’s a paradoxical situation where you’re damned if you do and damned if you don’t.

In the famous book we follow Captain Yossarian, a US Air Force bomber pilot, as he tries to make sense of the insanity of war. As well as the mental conundrums he endures as he tries to get out of flying these dangerous missions.

The phrase ‘Catch 22’ comes from a fictitious bureaucratic rule in the novel.

It’s used to invoke all sorts of incoherent rules.

The most famous one was that people who were crazy did not need to fly missions, but anyone who applied to stop flying was showing a rational concern for his safety and was therefore sane enough to fly.

In other words, telling the army you were crazy so shouldn’t fly proved you weren’t crazy. And flying the missions meant you were maybe crazy, but who would know so you flew them anyway!

The phrase caught on in popular culture.

Which brings me to Trump over the weekend, who was under attack by the new book Fire and Fury, by Michael Wolff.

Trump’s three-part plan

The book reveals many people close to Trump question his sanity and stability.

So, Trump did as Trump does. He took to Twitter and replied.

A very stable genius’ is how he described himself.

I don’t know about you, but I think that anyone who has to describe himself as a genius probably isn’t.

Maybe that’s a catch 22? I don’t know. But it sure sounded ridiculous to me.

However, investment markets don’t seem to care one way or the other.

And I don’t think Trump is mad. Just egotistical. He’s not as smart as he thinks he is, but he’s a lot smarter than his critics think.

His three-part economic plan has been deceptively simple. Most of the narrative around Trump ignores how simple yet effective it’s been. 

The first part of the plan was to talk up his tax and infrastructure plans.

Old fashioned jawboning.

Indeed, since his election, the stock market has boomed mainly because of these two expectations. Don’t forget the stock market is a forward-looking indicator.

The levels and prices today represent future expectations, not current reality. And that’s why so often good news can result in share price falls and bad news in share price rises. The market is always trying to figure out what will happen next.

But jawboning only gets so you so far. And Trump played his second card late in 2017.

He got his tax cuts through.

This will result in a surge of economic activity in 2018 as funds are repatriated to the US and companies have more money to invest.

I’m not entirely sure how long it will last, but I would imagine the first half of 2018 will continue to boom at least.

Trump’s last economic card is a massive infrastructure boost. He is a construction guy, after all. And it will help the working-class people who make up part of his strange coalition of voters.

An economic catch 22

None of this is rocket science.

Indeed, Trump flagged all of it well in advance.

The populism, the culture wars, the controversies are mere side-shows to fill in time as, like a careful poker player, he plays his hand and raises the stakes at the right times.

This is the genius of Trump. Give him a hand to play and he will play it well. This is street smarts, commercial smarts, not PHD level smarts.

But it’s also where he falls down. He overestimates his abilities, too.

The US is in record debt territory. And it’s growing every month.

At the same time, the wealth gap is widening.

These policies do nothing to alleviate any of these problems.

In fact, they exacerbate them by putting pressure on future governments to cut spending. There’s a strong chance that the US will never pay their debts back.

In the past the only two ways a country would get out of such a mess is by strongly devaluing their currency. Such a move would end the US’s economic dominance. Or by going to war with their creditors. China in this case.

None of these outcomes is particularly good for anyone. Not the US, not Australia, not the world. But they’re the potential long-term costs of Trump’s populist short-term economic policies.

It could one day be a catch 22 for you and I.


Ryan Dinse,
Editor, Money Morning

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

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