Has Trumphoria Finally Hit a Wall?

February 6, 2018

Has Trumphoria Hit a Wall?Paul Krugman

When talking about stock markets, there are three rules you have to remember. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.

So the market plunge of the past few days might mean nothing at all. On one side, don’t assume that there was a good reason for the slide (although the fact that the Dow fell 666 points on Friday hints either at satanic forces or at some mystical link with the Kushner family’s bum investment at 666 Fifth Avenue). When stocks crashed in 1987, the economist Robert Shiller carried out a real-time survey of investor motivations; it turned out that the crash was essentially a pure self-fulfilling panic. People weren’t selling because some news item caused them to revise their views about stock values; they sold because they saw that other people were selling.

Image result for Donald Trump and Wall Street

And on the other side, don’t assume that the stock price decline tells us much about the economic future, either. The great economist Paul Samuelson famously quipped that the stock market had predicted nine of the past five recessions. That 1987 crash, for example, was followed not by a recession, but by solid growth.

Still, market turmoil should make us take a hard look at the economy’s prospects. And what the data say, I’d argue, is that at the very least America is heading for a downshift in its growth rate; the available evidence suggests that growth over the next decade will be something like 1.5 percent a year, not the 3 percent Donald Trump and his minions keep promising.

There are also suggestions in the data that risky assets in general — stocks, but also long-term bonds and real estate — may be overpriced. Leaving Bitcoin madness aside, we’re not talking dot-coms in 2000 or houses in 2006. But standard indicators are well above historically normal levels, and a reversion toward those norms could be painful.

About that plummet: If there was any news item behind it, it was Friday’s employment report, which showed a significant although not huge rise in wages. Now, rising wages are a good thing. In fact, the failure of wages to rise much until now has been a deeply frustrating deficiency in the otherwise impressively durable economic recovery that began early in the Obama administration.

But we’re now seeing fairly strong evidence that the U.S. economy is nearing full employment. The low measured unemployment rate is only part of the story. There’s also the growing willingness of workers to quit their jobs, something they don’t do unless they’re confident of finding new employment. And now wages are finally rising, suggesting that workers are gaining bargaining power, too.

Again, this is all good news. But it does mean that future U.S. growth can’t come from putting the unemployed back to work. It has to come either from growth in the pool of potential workers or from rising productivity, that is, more output per worker.

Image result for Trump and the Ostrich

Did the markets believe Trump? At the very least, they’ve been acting as if the U.S. economy still had lots of room to run; throwing cold water on that belief should mean both higher interest rates and lower stock prices, which is what we’re seeing.

But should we be worried about something worse than a mere downshift in growth? Well, asset prices do look high: A widely used gauge of stock valuations puts them at a 15-year high, while a conceptually similar measure says that housing prices have retraced a bit less than half the rise that culminated in the great housing bust.

Individually, these numbers aren’t that alarming: Stocks, as I said, don’t look nearly as overvalued as they did in 2000, housing not nearly as overvalued as it was in 2006. On the other hand, this time both markets look overvalued at the same time, at least raising the possibility of a double-bubble burst like the one that hit Japan at the end of the 1980s.

Image result for Fed Chairman Jay Powell

Fed Chairman Jerome ‘Jay’ Powell– How well he would handle a crisis if one developed, asks Dr. Krugman

And if asset prices take a hit, we might expect consumers — who have been spending heavily and saving very little — to pull back. Still, all of this would be manageable if key policymakers could be counted on to act effectively. Which is where I get worried.

It’s surely not a good thing that Trump got rid of one of the most distinguished Federal Reserve chairs in history just before markets started to flash some warning signs. Jerome Powell, Janet Yellen’s replacement, seems like a reasonable guy. But we have no idea how well he would handle a crisis if one developed.

Image result for Donald Trump and Wall Street

Secretary of the Treasury–Steven Mnuchin

Meanwhile, the current Secretary of the Treasury — who declared of Davos, “I don’t think it’s a hangout for globalists” — may be the least distinguished, least informed individual ever to hold that position.

So are we heading for trouble? Too soon to tell. But if we are, rest assured that we’ll have the worst possible people on the case.

Image result for Paul KrugmanDr. Paul Krugman


10 thoughts on “Has Trumphoria Finally Hit a Wall?

  1. For day trader “Horny Donny” once it felt like Stormy Daniels got the best out him.It seems like he had something huge shoved down his throat.Or else why was he not screaming his lungs out what the stock market was doing.Having it’s biggest losses in points this “black monday”.

  2. When stocks go up, Donald Trump takes credit for it and his Trumpanzees run around trumpeting how Trump’s “policies” (which he has none) are good for business. So what does Trump do when stocks tank? Nothing, yet.

    Trump’s silence amid this February stock carnage wouldn’t be unusual — except that he’s a frequent stock-market commentator. He simply can’t keep his mouth shut. He has tweeted about the rising stock market at least 47 times since Election Day in 2016, often claiming credit for the gains. And his Trumpanzees went around trumpeting Trump’s claims. If Trump gets the credit for rising stocks, he must also get the blame for falling stocks. And this February market meltdown, which is probably temporary, foreshadows the kind of trouble Trump is likely to face later in his term when the markets and perhaps the broader economy are much more likely to run out of gas. This is the second year of his presidency, he can no longer ride on the coattails of Obama’s policies.

    Let me reiterate what I’ve said in previous post: presidents often get too much credit or too much blame for what happens in markets and the economy. The business cycle is generally independent of political calendars, with the economy expanding and contracting on account of many complex factors that are largely beyond political control. The Federal Reserve probably has more influence over the economy than any president, and the best the Fed can ever hope to do is moderate the extremes of the business cycle. Jerome Powell met the market meltdown the very same day he took the rein of the Federal Reserve. Now, let’s see what he can do.

    From his past behavior, I believe Trump will deny all responsibilities to find others to blame for this market meltdown — the Democrats, the Mueller “witch hunt,” “fake news,” illegal immigrants, maybe even NFL protesters or NBA players. Like the stock market, voters can be unforgiving. Voters other than the Trumpanzees have stopped believing Trump’s deflections and hold him fully accountable.

    • Some possible comments from Trump diehard supporters :

      1) Xenophobes : Must be due to sinister machinations of the Mainland Chinese. Can’t be the Russians, they love our President
      2) Neofascists : Jewish plot !
      3) Christian Right : God’s punishment for our sins (especially the sins of the gay-loving, gun-hating Democrats).
      4) Right-wing economists : Minor market correction
      5) Huckabee Sanders : what drop ?
      6) Kellyanne Conway : My Alternative Fact is — what are you guys talking about ? Trumpist tax cuts created a stock market boom, another boom is on its way. Buy stocks in Ivanka’s companies now, y’all.

      7) Anderson Cooper (not a diehard Trump supporter) : “Alternative fact? Ha ha ho ho he he”

  3. I think the stories about Trump could serve our readers in Malaysia only if the stories could be related back to the context of Malaysia. One of the greatest inventions in politics throughout human history is the freedom of political expression, which is also enshrined in Malaysia Constitution when Malaysia Founding Father rode on the wave of modern-day political system. In this script shown below, the freedom of political expression has serves two purposes:
    a) The freedom of expression enables democrats leaders to speak their minds. What they have in the mind, without them knowing the effect at the moment they said the ideas, reveals themselves so thoroughly that you thought they are tortured to confess their treasonous crimes. They did the confession voluntarily! No arrest is needed but the next election shall take care of it.

    b) Someone with a skill and brain can shine light to sliminess of politicians so that we the people are constantly reminded to uphold self-government, not kingdom of the older time, regardless who is the political leader of the moment. Regardless how cumbersome is self-government. Self-government means final sovereign is to the people.

    Enjoy this short script:

    • Of course what Trump says and does has an impact on 1Malaysia.

      His local best friend is copying Trump and blabbering on
      about “fake news”.

      Like Trump, LBF is launching attacks on rule of law etc. under the guise of right-wing populism.

      Are you finally admitting that your hero Trump is another slimy politician ?

    • “Are you finally admitting that your hero Trump is another slimy politician ?”, Dr. Phua.

      Only if you show a measured assessment of the sliminess of the characters in the video above.

  4. I’ve given commenting on Drumpski. I dislike his persona and methodology, but since i’m somewhat anti-globalization – i can see some of the benefits of US disengagement of Taikorism. Frankly, i don’t give a damn what happens to USA, since i’m not plunked into the stock-market nor international financial markets. I’ve enough to worry about in Malusia..

    So while i’m disconcerted about the condition of world at large, it has always been a background, chronic pain/discomfort. Taking away the politics, propaganda and glim-glam, i basically think the world needs to reset it’s priorities. Perhaps a heterodox view from my favorite “Black Swan” theorist should be taken into account. I’ll leave Americana outta it:

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