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Is This the Beginning of the Trump Economy? DOW loses over 1,000 points to start 2018.
Feb 4th, 2018 by Admin Mugsy

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(UPDATE: Monday, DOW falls an additional 1,175 points… the largest one day drop in history.)
(UPDATE #2: DOW falls another 1,032 points on Thursday.)

Like the old saying goes: “Facts can be stubborn things.” Last week, the Dow Jones Industrial Average suffered it’s worst week (day?) in two years (I’m having some trouble confirming that statistic, but the 666 point drop on Friday may have been the biggest one-day drop since Bush-43’s final year in office.)

Now, there is no denying that the DOW set numerous records in Trump’s first year… which was easier to do when you START with a strong economy and the DOW already near it’s record high. Under Obama, the DOW grew nearly as quickly his first year in office (see corner thumbnail graph) as it has under Trump, but it wasn’t “setting records” because Bush left him an economy in free fall, needing to gain nearly 6,000 points just to get back up to where it was before the crash. So in very blunt terms, Trump had a 6,000 point “head start” on growing the Stock Market.

In reaction to a good jobs report for January (190K jobs created, first hourly wage increase in eight years), investors panicked… believing either (GOP version) the economy is doing SO good the Fed will be forced to raise interest rates next month to stave off inflation (which is nonsense because we’ve had periods of lower unemployment and higher job growth without needing to raise interest rates), or (MY interpretation) the jobs report confirmed what they already KNOW: that the Fed MUST raise interest rates next month… and will do so at the first opportunity… to fill the budget shortfall Trump’s massive tax cut for corporations and billionaires will create, which caused the DOW to plunge nearly 666 points… it’s worst one day drop since January 2016 (and the less said about that number, the better.)

And that “good jobs report” is terribly misleading: 1) Note the “jobs expansion” is now in its EIGHTH year (so this isn’t a new phenomena thanks to Trump) and Congress has YET to pass a new budget, so we are STILL operating under Obama’s final December 2016 budget.

2) The reported “first hourly wage increase in eight years” was a whopping NINE CENTS and due almost entirely to 18 states raising the Minimum Wage. Unless you have a healthy 401k or other investment in the Stock Market, the average person is actually seeing very little benefit from the rise in the Stock Market.
 

Job Growth by Presidental Budget
Job growth by president
(Trump’s first year in purple, but he has yet to pass a budget.)

 

That region in purple… a straightline continuation of the seven years before it… is what Trump has been taking bows for. As you can see from in the region in green, the last budget of the preceding president continues to impact the economy long after they are gone, and passing your own budget can set the trajectory of the remainder of your presidency. (That little spike at the start of Obama’s first budget is “The Stimulus”.)
 

Don’t be fooled. Trump deserves little (if ANY) significant credit for the good Jobs Report that came out last week (other than he has yet to do any “significant” damage.) And whether or not the economy “takes off like a rocket” as promised as a result of his policies (which are taking effect only now this year) is left to be seen. We won’t know for sure until well after he passes his first budget… and right now, that doesn’t look to be any time soon.

And because of Trump’s massive corporate tax cut, they are going to have to cut spending somewhere. And you KNOW the first place Republicans are going to look. They can’t look to the wealthy & corporations whom they just gave a massive tax cut to, and Republicans will NEVER cut the Military Budget (in fact, Trump wants to INCREASE IT… MASSIVELY… along with Billions to start his ridiculous border wall), so they are going where they always go… Medicare, Social Security and programs for the poor.

But not right away. Republicans still believe Trump’s massive tax cut will increase tax revenue due to all the “economic growth” they are certain it will create. Bush senior called this “Voodoo Economics”, and he was right. Both Reagan, Bush-41 and Bush-43 all tried it, exploding the deficit and massively increasing the National Debt. Reagan and Bush-41 both tried to mitigate the damage by raising taxes 11 times and by hiring tens of thousands of additional government employees. Bush-43 however gulped down the Kool-Aid, steadfastly refused to do either, and nearly tossed the entire planet into another Great Depression.

And now Trump and Republicans with an almost evangelical belief in “Trickledown Economics” are looking to do it again. (And this budget-timebomb is set to go off on the Democrats watch after retaking Congress in the midterms.)

Congress will be meeting again this week in yet another attempt to finally pass a budget. Don’t hold your breath. Nothing has changed and they are no closer to passing a budget now than they were when they kicked the can down the road two weeks ago. We have been operating under Obama’s final budget… passed in December 2016… Trump’s entire time in office. And for all of 2017, corporations have been operating under Obama’s tax rates and Obama’s “Job Killing” healthcare mandate. Trump simultaneously brags of the economy we’ve seen so far despite those “obstacles to growth” while claiming those same obstacles were “destroying jobs.” Clearly they weren’t. Extending the Obama budget may not be the worst thing to happen to Trump. Look how well it has served him so far. Unfortunately we can’t run on the same budget forever. New legislation needs funding. Old projects expire and no longer do. Eventually, Trump is going to have to remove the training wheels and peddle his own damn bike.

I noted in both of my last two Op/Ed’s that the federal government will HAVE to borrow Hundreds of Billions… pushing the Deficit into the stratosphere… to pay for Trump’s massive tax cuts for corporations and the wealthy. And the only way to encourage people/nations to lend us money to fund the federal government is to raise interest rates… which sucks Billions out of the economy as more & more people tie up their money in savings instead of spending it. This creates a deadly feedback loop… last seen during the economic collapse of 2008… where less money being spent means corporations need fewer workers and start laying off people, who now have no spare cash, slowing the economy still further. It’s Keynesian Economics 101 and why “Trickle-down Economics” doesn’t work.

Republicans insisted that Trump’s tax cuts will “turbocharge the economy” (here in Houston, we already have one Republican woman running for Congress using that exact phrase in her ads) as lower tax rates encourage corporations hiding “Trillions” overseas in tax shelters to bring that money home (because what company wouldn’t prefer to pay a low 25% corporate tax rate vs leaving the money overseas in a tax-free tax shelter? Right? #SMH)

I’m being factious, of course.

So last Monday (Jan 29th), The DOW plunged 177 points. On the 30th, it fell an additional 362. A slight rebound of 72 & 37 points on Wednesday & Thursday, only to lose a whopping 665.75 points on Friday (possibly the largest one-day loss since December 2008… Bush’s final full month in office.) And Update: An additional 1,175 points today/Monday.

And right now, there is NO reason for investors to believe the Fed ISN’T going to raise Interest Rates in March. They sure as heck didn’t take to the airwaves Friday to reassure investors that they were worried for nothing and they are unlikely to raise rates next month.

They didn’t say that because they CAN’T. hey KNOW Trump’s tax cuts are going to break the bank and they will HAVE to find a way to pay for it. That means a rate hike… whether the economy needs it or not.
 


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