Trump’s debt burden

The almost 1,400 point, two day drop in the Dow was the market putting its money where its mouth is on Trump’s economic and trade policies. .

Just as Trump was gifted $400+ million dollars from his father and claimed to be a Self Made Man, so, too, he inherited an economy and stock market from Obama that had been rising for the prior eight years, since March 2009. In true Trumpian fashion, he claimed to have created the greatest economy of all time.

In truth, the whole of Trump’s economic policy has been a massive injection of debt into an already healthy economy. His tax cuts for corporations and deficit spending for military expansion have added more than $2 trillion to the national debt in just two years. It’s like injecting adrenaline into an already healthy runner in

Borrowing money when the economy is already strong raises interest rates. It’s just supply and demand. Trump’s aggressive deficit spending has pushed up the demand for borrowed money. The price of borrowed money is the interest rate. So, interest rates are soaring.

The interest cost on a 10-year Treasury note is up almost 36% from a year ago, from 2.2% to 3.0% today. Rates on 30-year mortgages are up 19% over the same period. Remember, the interest rate is the cost of borrowed money. So, when interest rates rise, everything that requires borrowed money – think cars, homes, credit cards, student loans, inventories – becomes more expensive.

As you would expect, when things get more expensive, people buy less of them. It’s hitting the residential construction industry especially hard. Existing home sales are down by more than 400,000 units since this time last year. Building permits are off 6% year-over-year. Mortgage applications areoff 15% from a year ago. Housing starts are off 5%. It’s the beginning of a debacle.

At the same time, higher interest rates drive up the value of the dollar, because foreigners need to purchase dollars to be able to buy those Treasuries that are now yielding higher rates. But a stronger dollar means that foreign goods become cheaper to American buyers, who spend more on imports, while American goods become more expensive to foreigners, who buy less of them. A trade deficit drains money directly out of the economy.

So, the trade deficit, which Trump promised to reduce (just as he promised to reduce the budget deficit) just jumped dramatically, up 9% year-over-year in June.In August, exports were off .8% while imports were up .6%. This is textbook economics 101.

The trade deficit with China, an especially important measure of Trump’s economic prowess – jumped 10% in July. Since Trump took office, the overall trade deficit – that is, money draining out of the U.S. economy – is up a startling 17%. Notice, Trump doesn’t talk about the trade deficit any more. Guess why.

These are the canaries in the coal mine of an economy that has been driven beyond its sustainable capacity by too much government borrowing and is now cresting. Think of the marathon runner as the adrenaline starts to wear off. The crashwill be agonizing. This is what the stock market is now signaling.

The market and its players know that the recent runup in stock prices was driven entirely by companies using their Trump-given tax cuts to buy back their own stock. That drove up the prices of stocks. The companies have conspicuously not used the money for big investments in plant and equipment, or research and development, or, God forbid, higher wages for employees.

This article has been excerpted from ‘The Market Weighs in on Trump’s Economic Policies’. Courtesy: Commondreams.org