Love him or hate him, Donald Trump occupies 1600 Pennsylvania Avenue for the next four years. He has been compared to the man honored on our $20 bill, Andrew Jackson, because both rode waves of populist support into the oval office. Like Jackson, it appears that he is acting on his supporters’ issues despite the consequences.
However, Trump’s issues and his skill-set are much different from Jackson’s.
Jackson waged the “Bank War” of 1836, closing the nation’s central bank which precipitated the financial crisis of 1837, a major recession lasting over five years, characterized by deflation and unemployment as high as 25%.
Trump understands banking and business and conducts it with the natural adroitness Jackson brought to the battlefield. Except now he has got the reigns of the largest and most influential organization in the history of the world.
Opposition to increasing spending to stimulate the economy is plentiful. The national debt and deficit spending are popular political targets. Extremists would have the government pay the federal debt in full. Andrew Jackson is the only president ever to have paid off the national debt, which was celebrated on January 8, 1835 and enabled the ensuing bank war.
In a world where the US government had no debts, US Treasury bills, bonds and notes would not exist and then where would we make our safe investments? Most of the world recognizes the US government as its safest investment, mainly because there isn’t any fear that the government will go bankrupt.
It is easy to compare the federal government to personal or business finances. But the comparison is inherently flawed. Everyone except a sovereign nation like the USA has the obligation to spend less than they make, or face bankruptcy. This rule applies to any non-sovereign organization, including all the European countries that adopted the EURO.
But sovereign nations make their own money! Alan Greenspan, Warren Buffet and Donald Trump are all on record stating “we can always print more money.”
Beware!
Unless there is a corresponding change in “real” goods and services, creation of money causes inflation as more money in the system chase the same amount of goods and services.
Economist Stephanie Kelton argues that the current deficit neutral fiscal policies are causing problems to our growth.i Historically, there are two “levers” the government uses to stimulate or throttle economic activity: monetary and fiscal policy. The FED controls monetary policy, while the Congress and Executive branch control fiscal policy.
The FED’s weapons are largely spent, while the deficit-neutral policy incapacitates the fiscal lever. So how is Trump going to unleash the economic engines and get the economy growing?
To be sure, the current economic expansion following the great recession never ceased. It just slogged along as the most impotent expansion since the 1950’s. Plenty of expansionary opportunity remains just meeting the unmet expectations of the populace.
Congress tied its own hands related to fiscal stimulus, and they can likewise choose to remove those restraints. Since the President’s party controls both houses of Congress, and it seems that Washington is good at spending money, don’t be surprised if they find a way around the self-imposed restraints, if they don’t simply eliminate them.
Anemic worker productivity is likewise burdening the expansion. Companies reluctant to invest in domestic production capabilities are a big contributor to this trend, and the President is aggressively, some would say undiplomatically, encouraging companies’ domestic investments in plants and equipment.
Will Trump succeed in his goal to “Make America Great Again”?
His notion of greatness is defined by financial success. In an era when politicians become both powerful and wealthy, it will be interesting to see if an administration led by successful businesspeople with limited political experience can change Washington’s culture to one of expectant greatness.
Join us in one of our upcoming town hall meetings titled “After 100 Days of Trump the World has changed”, where our panel of investment industry professionals answer questions and discuss the implications of the developments in Washington on your financial life.
“Economic Update – Recession Looms: Are We Up the Creek Without a Paddle?” presentation to Financial Planning Association of Orange County Quarterly Education Meeting, February 15, 2017.
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