What is Trumponomics? A simple explanation

Too good to be true? A ticking time bomb? A brilliant strategy? Short term vs Long Term?

A scene from Do the Evolution by Pearl Jam with artwork by Todd McFarlane

Trump as a President reminds me of a not so iconic Ronald Reagan since Trumpism doesn’t permeate culturally throughout the nation, i.e., it’s not equated with culture, aesthetics, art, and lacks an ideology that Americans can look to as a model for replication (nuclear family, house, etc.). This gap is largely due to his polarizing nature but also the fact that he’s effectively an ‘online president’ thus his reach or impact is lost in the abyss of cyberspace, solipsism, etc. He also reminds me a bit of Gerald Ford yet he also reminds me of President Hoover who signed in the Smoot-Hartley Tarriff Act which may have played a strong role in global economy what led up to WW2 during the Depression.

Reaganomics for low taxes and regulations (x) Keynesian ideology, subsidies, etc. for government stimulus (x) Easy Money policy with low-interest credit to provide incentive for consumption (x) Protectionism on products to block foreign competition but also protectionism on labor via his immigration stance (x) Corporatism since the USA is dominated by multi-national corporations who can (a) Maximize economies-of-scale and (b) spread US economic hegemony by opening markets – which thus expands the military, i.e., trade needs defending – and generating transactions backed by the US dollar, i.e., propping up the US dollar around the globe.

I made the comparison in the past that it’s basically Nazi economics with despite the term National Socialist insinuating socialist, the Nazi regime were actually Cartel Capitalist, but they used the socialist term for political reasons when they absorbed a part of the militant branch of the remaining socialists who had broke away from the liberal party in Germany. The Nazis ran a state-subsidized capitalist economy ran by Industrialist Cartels and Commissars, who acted in the free market but were given directives from the Nazi Party when need be such as regarding price-controls. It was state-subsidized capitalism, or 3rd Way and 3rd position that mixed socialist ideas with corporatism and capitalism and in many ways this is what the USA did under FDR but the USA was able to use its Industrial capacity and resource wealth to decimate the Nazis with the help of Russian manpower and British support.

Yet, it lacks centralized control methods and communication mediums to make direct and quick managerial decisions. I’m not advocating for this because it would be frightening for the Executive to dictate the economy, but, in theory, the lack of direct communication to make real-time managerial decisions is an inhibitor. Trump has Twitter to bully businesses but doesn’t have for example an actual Enterprise Resource Planning System such as SAP to pull all the economic data and make a direct decision, particularly when it comes to the lower level smaller businesses impacted by some of his policies. Trump has been good for corporate America economically, but many businesses are socially opposed to Trump since they’re adopting diversity, sustainability, etc., at least in theory, not necessarily practice. Corporate America is already aligned to Globalism to create profits and despite an easier business environment (cheap credit, low taxes, cheap energy, lack of pollution standards, etc.), the Trade War seems to have been a kink in their long-term growth plans. Plans which are arguably not purely business in nature but also socio-political, i.e., spreading business to spread America democracy such as policies dictated by think-tanks such as the Council for Foreign Relations, Trilateral Commission, Council of Americas, etc. Trumponomics also disrupted supply-chains, yet, in a good way, from both an economic diversification standpoint and that of national defense, since this has driven production from China and diversified supply chains to places such as Vietnam, India, Bangladesh, Mexico, etc.

Easiest way to understand the economy is to think of a Trinity or Triangle. Treasury issues an insane number of IOUs and bonds, i.e., it creates credit for itself. The Fed buys a lot of those bonds for its portfolio which it can sit on and wait for them to mature, sell to other buyers like other Central banks, etc. The Fed triggers the mints to print cash if necessary by monitoring economic health and making decisions at FOMC (Federal Open Market Committee meetings) regarding the Money Supply and uses “knobs” to “adjust” the flow of money such as the federal funds rate (rate at which banks issue uncollateralized loans to each other in overnight markets), discount window (rate at which the Central bank charges banks who take out loans from it and banks must put down collateral if they borrow from the Fed, i.e., discount rate, base rate, repo rate, e.g., the repo market. It’s as if the Fed is a Pawn Shop but banks turn in loans or securities but come back and purchase them when they have the cash to pay. Note: spikes in the overnight lending rates often indicates a problem, i.e., lack of liquidity in banks such as the cash the vanished during the subprime mortgage crisis), reserve requirements (the amount of cash banks have to keep in their vaults), and the prime rate (the rate put on loans given to borrowers, i.e., the public). The banks get that cash, loan it, make profit on interest. The money loaned is injected into the economy, spent, taxed. Taxes go to the government and the government pays its bond holders when Treasuries mature which loops back to the Federal Reserve. The cash throughout this process that was created is given life, is definitized, etc.

Fascist symbols in the US Congress.

The USA as a 3rd Way economy is a type of fascist model of economics regardless who is in power. It’s effectively state-subsidized corporatism ran by industrialist and the Federal Reserve who controls the cash, which is something that the National Socialist did in Germany. Yet, Trumponomics isn’t as organized considering it doesn’t seem to have councils of industry or Commissars over a given industry in organized bodies that report to him and he doesn’t really employ price-controls or mandates, yet, when it comes to his tariff policy such as that on steel, in a way he’s propping up, i.e., fixing prices for certain commodities. In a less scary way, Trumponomics might be equated with German Ordoliberalism though Trump isn’t organized enough as far as having a relationship between unions and trade schools to educate the works for the 21st century economy, particularly with his general theory of bring back jobs to the United States. Germany’s economy and Trumponomics have a lot in common but in Germany they have an educational system that facilitates the subsidized protected market-capitalist economy. In Germany which in high school you’re trained to essentially go directly to work for the big companies such as Bayer, Mercedes, Thyssen Krupp, etc. Trump’s notion of picking up an industrial city in China and landing it back in the Midwest with all the issues of pollution, toxicity, smog, slumping wages, etc., is naive in 2020 onward. Repatriation of manufacturing is important but a bit nostalgic and a little illogical. For example, the higher labor costs of the USA would mean manufacturing would have to automate and instead of direct manufacturing jobs, a nation such as USA which is advance would have to invest more in technician training, engineering, etc.

https://newrepublic.com/article/145331/art-laffer-intellectual-rot-republican-party.
Source. Art Laffer and the Intellectual Rot of the Republican Party
The godfather of supply-side economics and inventor of the “Laffer Curve” is largely discredited by his peers, but revered by Trump and the GOP.
By Jeet Heer
October 18, 2017

Trumponomics is a mix of Reaganomics particularly the ideas of Arthur Laffer, associated with Pepperdine University, who theorized that lowering the tax rates drastically would be able to generate an ample amount of revenues based on growth, consumption, and transactions. Easy. The more you spend at lower rates you can make just as much as if you spend less at higher rates. Yet, this requires a culture of avarice, materialism, consumption, and petty competition. This lower tax rate in theory can cause a repatriation of American money stashed in foreign banks, boost conspicuous consumption, encourage investing in equities but also in real estate and possibly improve the chances for mergers & acquisitions to maximize economies-of-scale in business. Yet, the money coming back doesn’t necessarily make it to the people or small businesses but is injected into stocks which are taxed at a lower capital gains rate as compared to income tax rate, thus the rich get richer without the benefits of trickle-down economics. Art Laffer despite what low taxes does believe you need taxes. His spin is that you can’t a nation into prosperity, which sounds logical, but it negates the fact that even as wealth arises in the Milton Friedman sense of “a rising tide rises all ships”, it doesn’t factor into account things such as the possible burden of inflation on the general public, wealth disparity, wealth hording, etc. Consumption is also highly wasteful and horrible for the environment. Further, it doesn’t resolve issues such as price gouging such as the steadily increasing cost of healthcare or prescription drugs for no reason besides profit, mark up, and middle men.

Then you add to this idea the overarching economic theory of Keynesianism which is an ideology developed by John Maynard Keynes after WW2 who theorized that states can create demand by making credit and central banks balance the money supply with actual productivity in the economy in order to curb inflation which is when the money supply exceeds demand. Inflation is just that. When you have too many dollars (think of them as bills of credit, or chunks of a massive US credit card in the form of paper dollars) is in circulation but they’re not being utilized, they simply don’t go to the burner, but they’re already booked against that “account” of the nation, thus the money supply raises or absorbs into prices. Inflation is an inevitability so it’s about jugging growth and the volume of money so the range between the two stays stable. Think of money like water and what you pay for as something that floats. Too much money and too little growth to work those dollars into existence, i.e., give them value, then water rises and in a worst-case scenario can spill over.

The value of money is a complicated thing. Value is part perception based on the mind alone but it’s also what generates as supply and demand work themselves out. The value of money to me could bu summarized as 1) perception 2) volume, i.e., supply 3) productivity of the nation 4) demand 5) liabilities and debts and 6) the underlying value of assets of the nation as a whole such as land, resources, precious metal reserves, etc.

Regardless, Trumponomics adds to the Reagan/Laffer idea of lower taxation with Keynesian deficit-spending to help facilitate growth in the overall economy. So, Donald Trump isn’t Anti-Federal Reserve because they control the money supply and he’s not a true conservative as far as cutting federal spending, or at least cutting federal spending that isn’t from social welfare programs. For example, he’s added on more than 100 billion to the already $600+ billion Defense Budget.  

John Maynard Keynes

Trumponomics could be best understood as steroid capitalism with tariffs. Low taxes for growth, a low-interest credit card for growth, and tariffs to stimulate domestic industry (though, labor costs and regulations are much higher in the USA).

The only issue with Trump’s view on Monetary Policy is that since the 2008 Financial Crisis the Federal Reserve has injected billions, if not trillions, of dollars into the financial system since the money we thought was there prior to the collapse, simply vanished and caused a ripple effect throughout global markets. With so much money in circulation that was effectively made from thin air (well, really, they were printed by holding Treasury bonds and notes as collateral) the Federal Reserve must monitor inflation by reviewing economic growth, job numbers, etc. Essentially, ensuring growth doesn’t slump too much with so much excess capital. This why things seemed so anemic under Obama. It was a slow crawl out of that mess. It wasn’t his fault that from Alan Greenspan in the 1990s under the Clinton Administration and the poor fiscal policies of the Bush Administration. Yet, when the Fed engaged the economy in 2008 and 2009, they were able to use Quantitative Easing to essentially create a simulation economy with printed money & manipulated lower rates into order to keep our economy running with accessible liquidity and cash, but an incentive to use that cash without much penalty.

I was obsessed with understanding what went wrong in 2008 and 2009. I use to own this copy of Ben Bernanke as Times Person of the Year. He implemented Quantitative Easing by holding excess IOUs from the Treasury to trigger the mints to print cash and with low interest rates. This basically made a simulation economy to make things seem better while growth restored to catch up to the money supply over a decade. Now the Fed wants to raise rates to reconcile this era but Trump wants low rates for his economy and economic record.

By the time Obama left, a lot of the Feds work was paying off with the economy recovering, but Trump came in as it was rebounding and took the credit for it, however, granted he did inject a massive steroid shot into the economy. Yet, arguably it could be considered he injected steroids into a marathon runner who just had a heart attack and the stress of speculative growth could cause it to pass out, i.e., have a recession.

Donald Trump using Twitter has often antagonized the Federal Reserve, likely appealing to the Tea Party Ron Paul Anti-Fed crowd he absorbed, to get the Fed to do the things that Tea Partiers state they dislike, which is printing money. Yet, the Tea Party’s “Gold Standard” ideas is archaic since there’s not enough gold to meet the demand of massive global liabilities, credit, etc. Trump wants lower interest rates, so credit stays cheap and even chimed in on the idea of having negative interests’ rates, which means you’d be taxed for savings but rewarded for taking loans. This money for nothing and tricks for free (Dire Straits reference) type of economics can have a negative effect particularly when it comes to the valuation of stocks. For example, the Fed “prints” money (holds bonds as collateral and chimes the mints to print), that goes to banks, but banks must loan that money, but they typically loan it in massive loans to corporations. Corporations in turn use accounting tricks to book the loan as an asset rather than liability, so their accounting statements makes them look better off than what they are, and this bloats their stock price, which continually bloated by the nature of speculation by traders on the floor hunting for commissions. Or, companies waste the cheap credit by giving large CEO compensation packages, attempt poor acquisitions, or they invest in assets such as real estate, but real estate prices can implode. So companies do the right thing such as investing in capital equipment upgrades, or pay of their current “credit card” with another low interest credit card.

A major problem of “Money for Nothing” economics is that it promotes “Poser Capitalism” in that companies that should be closed or bought out can sustain themselves on credit rather than take away profits (not to be confused with EBITA. Earnings Before Taxes, Interests, Taxes, and Amortization). Yet, what happens if they can’t even pay their principal back because they’re not profitable? There’s been major credit downgrades in the corporate bonds market because even if with cheap external credit, companies still are issuing corporate bonds, but many are rated as junk. This phenomenon is called “Zombie Companies”. Things look nice and feel nice largely on speculation, but the numbers aren’t as great as what they seem.

Yet despite some concerns in corporate bond markets, everything seems OK in this field, but we’ll see. We’ll see.
Greed is Good, Milton Friedman

Regardless, the last major factor of Trumponomics is that is an experiment since he is using Protectionism with tariffs. This is logical on a paper. If you’re going to implement tariffs you need to do as much as possible to boost growth in other ways such as slashing taxes, cutting energy regulations for cheap energy, and continuing federal spending. Essentially, Trump has hedged his bet on bringing jobs back to America by making a pro-business pro-growth policy at home. The overall issue with his fiscal policies and his view of Monetary policy is that we’re spending more than what we make but also the cost of living is ticking upwards naturally due to inflation. The US right now seems to be undergoing a type of “passive inflation”. The money is out there but not really in the pockets of the people but since the money is in existence and not being used properly that inflation ticks up, slowly, but surely. You can’t hide the fact that X amount of bonds are attached to X amount of excess dollars in circulation. They’re on the books. So, while the majority of capital is in the hands of corporations and thus their majority investors, that cash not in circulation, is sitting there, slowly ticking on inflation, but inflation is trickled to the average American via Cost of Living Increases, higher prices (also due to tariffs in theory), etc. The average Americans are likely paying a higher effective tax rate in proportion to income to that of the rich but also paying a slow inflation tax. In addition, they’re priced out of the marketplace when it comes to stocks.

Low interest rates are great but not always responsible in the long run. The worst case scenario that we may face if things due ever hit a recession again is that the Fed can hold on to the leverage it has currently such as the bonds from the Recession era it hasn’t off-loaded, but the Fed won’t have many tricks to again besides negative rates or potentially lower reserve requirements mandatory for banks (keeping more cash in circulation). I fear that we might go to a type of 1970s Inflation Era which will only be curbed by massive interest rate hikes such as that done by Paul Volker in the early 80s, or we might enter the Japanese Lost Decade. An era where all tricks have been used but there’s an excess of debt and excessive printed cash that prices goes up and growth stays anemic lows. Yet, the funny thing about recessions is that by the time the general public notices them is that recessions may already be on their way of being over with. Further, there’s “different” types of inflation such as earnings recessions as opposed to industry recessions, i.e., companies not making as much money as what was projected versus a specific industry taking a massive hit. Recessions are often triggered by large “strikes” to economy such as what went down in the Tech Bubble of the late 90s, Housing Crisis of the late 2000s, the rampant spending of Reagan after the Cold War, or the Inflationary Era of the 1970s as the USA adjusted to the dropping of the gold standard, high war spending in Vietnam, and the Oil Crisis when Saudi Arabia protested Israel. The general rule of thumb on Recessions is that they also tend to appear every nine years or so, meaning that if 2009 was a Recession then we should’ve been in one by 2018 but…we had Trumponomics to divert it with his steroid package but it doesn’t mean the internal issues aren’t there, aka, it has been kicked down the road. I don’t want a Recession, though they can afford good buying opportunities particularly since equities are expensive, but I can predict a recession happening sometime after the 2020 election. If Trump wins it will be kicked down the road but something will likely explode such as a Corporate Debt bubble and he won’t’ be able to run, or Democrats will win and on perception alone (not even economics) people (rich people) will make a run on market (Cayman Islands, Switzerland, pillow money).

Gerald Ford’s Whip Inflation Campaign

The one way to reconcile any sort of issues with Trumponomics would’ve been to have done a direct Quantitative Easing to the public, i.e., give the people money to spend by crediting money into people’s accounts based on income, dependents, and liabilities, so Americans spend that cash to stimulate economies, pay off debt, but then likely take out more debt for lifestyle upgrades (homes, cars) at higher interest rates so banks stay healthy. Additionally, a higher tax rate is needed to fulfill bond obligation, pay down federal debts that are interdepartmental debts (money other departments own each other), and reduce the tax burden on majority of Americans, i.e., the 95% who spend money everyday in ways based on their individual choices which thus aligns with the capitalist concept of creative destruction and supply and demand. The middle class is better essentially as spending money than the rich and they often are better at selecting products which meets their desires and demands, which thus translates into the actual winners versus posers in the stock market. Then a reasonable higher interest rate policy while things are still healthy is probably needed.

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