Presidential election, 2016

[Galen]

(11-14-2016, 02:03 AM)Warren Dew Wrote:

(11-14-2016, 12:47 AM)Galen Wrote: In short the bust and the necessary clearing of malinvestment was aborted in 2009.  In my opinion the day of reckoning was simply postponed at great cost which will probably be revealed in the next year or so.

While they wouldn't put it this way, the Fed was attempting to clear the malinvestment gradually through inflation.  The malinvestment in 2009 was largely in overvalued housing.  Inflation should eventually permit the actual value of housing to reach the nominal value.  This would ease the process of clearing the malinvestment since people could keep their houses and just keep paying inflated mortgages down until the mortgages were no longer inflated.

Obviously this produced other distortions.  I believe the malinvestment has been partially transferred from housing to equities.  But a collapse in equities is less societally damaging, since most people who are heavily invested in the stock market can afford losses without becoming homeless.

I don't think the day of reckoning will be severe.  This is because the natural growth rate of the economy, and thus the natural interest rate, has been declining.  As a result, some of the asset inflation has been turning into a real increase in value.

Correct fiscal policy - as you say, letting people keep their money, by reducing tax rates, and also reverting various forms of welfare benefits to where they were before Obama increased them, if not below that - will of course increase the economic growth rate above the natural growth rate for a time, which would be expected to cause pain with respect to inflated assets.  However, that will be partially or fully compensated for if Trump cuts immigration and increases deportation, as people coming off the welfare rolls or unemployment to work will be compensated for by illegal immigrants leaving.

If Trump follows these policies, I believe the net result will be a fairly rapid and painless rise in wages, but pain in the equity markets for the investor class.  Once the investor class realizes what is going on, they will fight him tooth and nail.  This may end up in a fight between the financial investor elites and the business owning elites, with Trump on the side of the latter.  I'm not sure how that turns out.

Thoughts on any of that?  Am I missing anything?

Yes, they did attempt to solve the problem through inflation.  Inflation tends to maintain the capital structure that failed rather than let the economy restructure.  The politicians wanted to avoid the pain to stay in office.

Not to bad except that the process will be painful but it won't drag out over many years.  You have a pretty solid grasp of the likely outcome if Trump performs as expected.  Looking at the manufacturing number over the last year it looks like the US is or will soon be in a recession.  That was already baked into the cake.  With Trump there is a chance of getting an actual recovery this time where with Hillary there was none.