What to expect

[ag]

The biggest immediate problem right now is what to expect from the financial system. Finance operates on trust, and a big component of that trust has always been the belief that US is going to service its obligations. To the extent that trust is not absolute, a banking panic becomes a distinct possibility. In fact, there is a distinct feeling shared by many in the economics profession is that, at this point, all that is missing to start a panic, is a match: if a bank run were to start anywhere now, it would get out of hand very fast, worldwide. Those of you who pray, should be praying - might help. The rest should, probably, think of putting your savings into tangible assets.

Assuming this does not happen (and I am praying it does not: I myself have assets that are not very liquid, which I would lose fast in that case: I need a few months, at the very least), the next danger will come a few months later. Once the new government starts imposing its protectionist policies, inflationary pressures in the economy will start building up very fast.  The Fed will be forced to respond to them by sharply tightening the monetary policy: all that slack that has been built up over the years and absorbed till now by foreign imports would have to be gotten rid of. This, of course, would be very painful, and the government would blame the Fed for sabotaging its efforts. At this point, one of the two things will happen. Either the Fed folds (resulting in inflation levels rapidly building up) or there is a major political blow up between the Fed and the administration (possibly resulting in a panic, which will have been prevented till then).  I suspect it will be the former.

An immediate response to the pick-up in inflationary expectations will be a fiscal/debt crisis. The markets will price in the expectations and would ask for much higher rates on all future US debt. At this point (and taking into account that nominal tax revenues will be lagging: it takes time for people to report increases in nominal income, while expectations can move fast) the administration will be tempted to insist on debt renegotiation, possibly using a temporary suspension of payments as a negotiating device. If and when that happens, it is curtains.

Could that be avoided? Well, yes, it could. The new president would have to repudiate most of his promises and reassure the markets that he has been bullshotting all along (I just hope the Russians do not get the transcripts of that Goldman Sachs speech). Praying that this is indeed what happens, but alas, there are problems with my prayers: I do not believe in god. In any case, other than moving our assets into tangibles, there is little else anyone of us can do, but pray.

[ag]

Actually, in the process.

And, strongly suggest, you do too. If shoot happens, and you have not done it, you will only have yourself to blame.

[🦀🎂🦀🎂]

I assume the tariff won't pass congress, unless Paul Ryan is passes the worst Faustian bargain in the world so he can gut Medicare and Medicaid freely.

[ag]

I assume the tariff won't pass congress, unless Paul Ryan is passes the worst Faustian bargain in the world so he can gut Medicare and Medicaid freely.

Even without a new tariff law, barriers can be raised sharply. NAFTA can be wrecked, regulatory barriers can be imposed, etc., etc., through executive action.

And, then, if all your have to stand on are Paul Ryan's principles, it is a very shaky stand.

[The_Doctor]

What about inflationary pressures meeting deflationary pressures? Wouldn't Trump's policies, in the short run, create positive inflation? By which I mean, pushing wages up given they've been pushed down so far by globalization, skills mismatch, etc issues?

[ag]

What about inflationary pressures meeting deflationary pressures? Wouldn't Trump's policies, in the short run, create positive inflation? By which I mean, pushing wages up given they've been pushed down so far by globalization, skills mismatch, etc issues?

As soon as that is going to happen, Fed will (be obliged to) tighten monetary policy, so that inflationary pressures go down. And if it does not, you will be even worse off.

US is not in a recession. Actually, it is pretty damn close to full employment.

And, BTW, there is no better way to ensure that skills mismatch becomes a real problem, than to force through a major economic restructuring, requiring millions of people to change jobs within a short period of time. You are sure that is exactly what you want?

[muon2]

One sign of what to expect is from the tax revenue seen at the state level and it may have little to do with the specifics of a new administration. This is from yesterday in The Hill.

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The details suggest that this is not from the consumer side, but from decreases on the business side. The current fiscal year in IL shows that corporate tax is down 46% from the same period last year. Personal income tax is down 2% and sales tax is flat which isn't what one expects if the economy is expanding. But the business tax tends to be a leading indicator for state revenue, so there is definitely cause for concern.

[Devout Centrist]

One sign of what to expect is from the tax revenue seen at the state level and it may have little to do with the specifics of a new administration. This is from yesterday in The Hill.

You must be logged in to read this quote.

The details suggest that this is not from the consumer side, but from decreases on the business side. The current fiscal year in IL shows that corporate tax is down 46% from the same period last year. Personal income tax is down 2% and sales tax is flat which isn't what one expects if the economy is expanding. But the business tax tends to be a leading indicator for state revenue, so there is definitely cause for concern.

The canary in the coal mine.

[Pericles]

The President can raise tariffs without Congress. This has been done in the past, with the example of Bush's steel tariffs in 2002.

[Ban my account ffs!]

Yeah I'm almost certain a recession is coming.  Probably 2nd half 2017. 

And we'll see what happens with the stock market.  I think this wont be a traditional "we all see it coming" recession.  And I think it will sting a lot because people will be so scared of 2008 redux that they panic and pull back too much.

[Shadows]

What about inflationary pressures meeting deflationary pressures? Wouldn't Trump's policies, in the short run, create positive inflation? By which I mean, pushing wages up given they've been pushed down so far by globalization, skills mismatch, etc issues?

As soon as that is going to happen, Fed will (be obliged to) tighten monetary policy, so that inflationary pressures go down. And if it does not, you will be even worse off.

US is not in a recession. Actually, it is pretty damn close to full employment.

And, BTW, there is no better way to ensure that skills mismatch becomes a real problem, than to force through a major economic restructuring, requiring millions of people to change jobs within a short period of time. You are sure that is exactly what you want?

The Fed will anyways raise rate by 25bps odd every quarter or half a year. That will go on.

The problem is bar healthcare & a few stuff, inflation is very low & Fed is trying hard to raise inflation.

So tariffs could actually be a good boon as of now as people are looking @ higher inflation. There is tremendous fear of a deflation.

Secondly if they impose tariffs, it won't be blanket but sectoral. Also the effect of tariffs would take a while, they ain't the only thing. It won't be that high to change the nature of industry. On the long term, if it helps create more jobs than lost than it is a big plus for the economy.

In general I like free trade, but I would advocate considering tariffs in 2 sectors which give good wages & are labor intensive - Automobiles & textile! I wouldn't suggest a blanket Tariff.

Also prior to imposing Tariffs, I think there will be multiple negotiations with other countries & the solution will be phased in & will be acceptable.

[Bunwahaha [still dunno why, but well, so be it]]

Well, yeah, often thought the huge American debt could become a big enough problem for the geopolitical equilibrium of the world (amazingly original thought, yeah i know).

That being said i hadn't thought about hhe election of Trump in this regard (yeah the US debt isn't part of my daily coffee thoughts either), and it would effectively quite relevant to point this out.

That being said too, i think the election of Donald Trump has been noticeable enough worldwide, then a good deal of concerned with US debt people might have already begun to take measures for a while, long enough time anyhow that those same people don't see the US debt as a graal anyhow, and had already begun diversification.

In short, unless very brutal Trump policies or a serious banking blast anywhere in the world, i'd think it's overall people within US that should be concerned by an as slow as certain decline of the economy of their country, according to current economical standards anyways.