Trump’s Recipe For Disaster
Posted December 13, 2016
The global economic bubble came very close to collapsing into a new Great Depression in 2008. That disaster was prevented by ultra loose Monetary Policy. Central banks slashed short-term interest rates to very close to 0% and then “printed” trillions of dollars worth of new money and used it to buy financial assets. That strategy allowed credit to expand and caused asset prices to soar, thereby reflating the global economic bubble and staving off economic collapse.
What happens next will depend on interest rates. If interest rates rise significantly, credit will contract, asset prices will plunge and the economy will spiral into crisis.
In the latest Macro Watch video, we analyze the five factors that will determine which way interest rates will move over the next two years. They are:
- The US Government’s Budget Deficit
- The US Current Account Deficit
- Quantitative Easing by central banks outside the US
- The Inflation Rate
- The Chinese RMB Exchange Rate vs. the US Dollar
We then consider how President-elect Trump’s proposed economic policies would impact each of those factors. What we find is that a combination of tax cuts, increased government spending and policies that would curtail international trade would be a recipe for disaster for the economy and for the price of stocks, bonds, property and commodities, including gold.
It is too early to know if President Trump will actually implement the policies he advocated during his campaign. If he does, however, the consequences are likely to be dire. This video explains why.
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