We’re Almost at the Last Chapter of This US Economic Boom

 

Hillary Clinton probably didn’t come up with it herself. But it was the best line of the US election campaign.

Trump has written a lot of books about business—but they all seem to end at Chapter 11.

Note to Bill Shorten, that’s a real zinger.

A nice little reference to self-proclaimed success story Donald Trump’s six Chapter 11 bankruptcies.

Alas, the tweet in question wasn’t enough to get Hilary into the White House. Not that it would have mattered much.

Who’s to say such a creature of the establishment would be any better than the current incumbent?

But the quote came to me today after reading about the exploding level of US debt.

From Agora Financial US’ Bill Bonner:

Starting next year, federal deficits are expected to reach over $1 trillion a year — with no emergency anywhere in sight.

So far in this century, the feds’ debt has been growing eight times faster than GDP.

Total government debt is already programmed to hit US$30 trillion within 10 years… but will more likely hit US$40 trillion when deficits explode in the next recession.

So there you have it.

Inevitable disaster awaits.

The government must do something, surely?

Don’t worry, Donald Trump is on the case. And in his big State of the Union address yesterday he laid down the plan…

The never-ending US debt

He’s going to increase the debt. Bigly!

A massive US$1.5 trillion infrastructure plan. Throwing good money after bad. Or should I say printing more money to pay off printed money.

This shouldn’t come as a surprise. Trump’s a big construction guy. And he’s no stranger to building up debt to finance his grand plans.

But as the zinger from Hilary Clinton at the start alluded to, in business there’s always the safety net of chapter 11 bankruptcy to fall back on.

That’s not really an option for a mature country. Especially the world’s dominant economic superpower.

What to make of it all?

It’s like the US almost doesn’t care about its growing debt. This can only mean two things. They think somehow it will become less of an issue as economic growth kicks in.

This is pretty unlikely but it could be ‘the plan’.

Or instead they simply don’t plan on paying it back.

And each successive President is instead happy to live for the moment. An insane game of pass the parcel with a ticking time bomb for the loser left holding when the music stops. 

But if history has taught us anything it’s that all empires, no matter how great, eventually end. From the Assyrians, to the Romans, to the Ottomans, through to the British Empire.

Usually it’s a combination of forces. And economics is at the heart of it.

Even as Rome was under attack from outside forces, it was also crumbling from within thanks to a severe financial crisis.

Constant wars and overspending had significantly lightened imperial coffers, and oppressive taxation and inflation had widened the gap between rich and poor.

In the hope of avoiding the taxman, many members of the wealthy classes had even fled to the countryside and set up independent fiefdoms.

That sounds familiar…

In these fearful times what’s an investor to do?

Why you have to bet on Trump

Given all that, this might sound surprising. But I think you’ve got to bet on Trump.

At least in 2018.

After all, he’s been winning against the odds his entire political life.

So, a good strategy might be to forget the fear, buy the dips and ride the wall of money he is throwing at corporate America.

Tax cuts, infrastructure spending, it’s all going into the stock market this year.

You invest knowing it can’t end well.

That’s the gamble investors have to decide on.

If it all plays out well in the long term, I’d be very surprised.

After all, if governing was so easy then this physics-defying path of cutting taxes while raising spending would be the de-facto agenda for every politician in the world.

Sadly, not even Trump’s ego is big enough to alter fundamental economic realities.

But he’s a good street fighter, and he’s playing it punch by punch.

He’s hung his hat on the stock market boom. On his Mexican wall. On his reputation as a businessman who will get America working again.

In the short-term it might actually work.

The jolt to the economy will increase employment and drive spending. In turn that might increase profits. And with the year-long dollar lows, US exporters will benefit and the cycle of spending will continue.

I wouldn’t bet against such an outcome.

In 2018, despite the fearful press, the stock market looks set to continue its rise.

I wrote on Monday here how a correction shouldn’t be viewed with panic. The timing of the article seems spot on this week.

Yesterday the correction may have begun. This could be a buying opportunity for traders who buy the dips.

Or not. It won’t be the first time I’ve been wrong about what happens next.

But at some stage I think this will be clear for everyone to see. The growing debt in the US will come back to haunt them.

And it could end up being Trump’s last Chapter 11 ending…

Kind regards,

Ryan Dinse,
Editor, Money Morning

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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.  


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