Trump Policy Favours Wealthy; Strong Dollar Will Hurt Exports
Corporate sector’s animal spirits may soon give way to primal fear
Therecord-settingstockmarket rally that followed Donald Trump’s election victory will soon peter out as investors realise the economic negatives in his political agenda vastly outweigh the positives, according to crisis-famed economist Nouriel Roubini.
“It is little wonder that corporationsandinvestorshavebeen happy,” the professor wrote in an opinion piece for Project Syndicate. “This traditional Republican embrace of trickledown supply-side economics willmostlyfavourcorporations and wealthy individuals, while doing almost nothing to create jobs or raise blue-collar workers’ incomes.” He cites a study from the nonpartisan Tax Policy Center showing nearly half of Trump’s proposed tax cutswouldbedirectedatthetop 1%highest-incomeAmericans.
“Yetthecorporatesector’sanimalspiritsmaysoongivewayto primal fear: the market rally is already running out of steam, and Trump’s honeymoon with investorsmightbecomingtoan end,” Roubini concludes. As markets became hyped up Economist about the possibility of a fiscal stimulus that is still undefined, they have pushed up bond yieldsandmortgagerates,making it more costly for firms and consumers to borrow. The dollar strength that accompanied Trump’s victory is harmful to theverymanufacturingexportsectorsthe Republican president has promised to help. Bill Gross, who manages Janus Capital’s total return strategies and unconstrained bond fund, says the $12 trillion now held by central banks is a permanent fixture of global finance, acting a bit like methadone. Methadone manages the craving, but does little to end a patient’s addiction. He said the 10year Treasury is now at 2.45% because of QE-like measures at the European Central Bank and the Bank of Japan. Without it, the 10year would be at 3.5% and the US would be in recession. –