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Trump's Short-Term Economic Policies

I wonder if Donald Trump has read Joseph Heller’s 1961 novel Catch-22?

According to reports, Trump doesn’t read, so probably not…

But he’s probably heard the term catch-22 nevertheless.

It’s a paradoxical situation in which you’re damned if you do and damned if you don’t.

In Catch-22 we follow Captain Yossarian, a US Air Force bomber pilot, as he tries to make sense of the insanity of war, as well as the mental conundrums he endures trying to get out of flying these dangerous missions.

The term catch-22 comes from a fictitious bureaucratic rule in the novel.

It’s used to invoke all sorts of incoherent rules.

The most famous one was that people who were crazy did not need to fly missions, but anyone who applied to stop flying was showing a rational concern for his safety and was therefore sane enough to fly.

In other words, telling the army you were crazy so as not to fly proved you weren’t crazy. And flying meant you were maybe crazy, but who would know…so you flew them anyway!

The phrase caught on in popular culture.

Which brings me to Trump who, over the weekend, came under attack in Michael Wolff’s new book, Fire and Fury.

Trump’s three-part plan

The book reveals that many people close to Trump question his sanity and stability.

So, Trump did as Trump does. He took to Twitter and replied.

‘A very stable genius’ is how he described himself.

I don’t know about you but I think that anyone who has to describe himself as a genius probably isn’t.

Maybe that’s a catch-22? I don’t know.

But it sounds ridiculous.

However, investment markets don’t seem to care one way or the other.

And I don’t think Trump is mad. Just egotistical. He’s not as smart as he thinks. But he’s a lot smarter than his critics think.

His three-part economic plan has been deceptively simple. Most of the narrative around Trump ignores how simple yet effective it’s been.

The first part of the plan was to talk up his tax and infrastructure plans. Old-fashioned jawboning…

Indeed, since his election, the stock market has boomed mainly because of these two expectations. Don’t forget the stock market is a forward-looking indicator.

The levels and prices today represent future expectations — not current reality. And that’s why so often good news can result in share price falls and bad news in share price rises. The market is always trying to figure out what happens next.

But jawboning only gets so you so far. And Trump played his second card late in 2017. He got his tax cuts through.

This should result in a surge of economic activity in 2018 as funds are repatriated to the US and companies have more money to invest.

I’m not 100% sure how long it will last but I would imagine the first half of 2018 will continue to boom at least.

The last economic card Trump is a massive infrastructure boost. He is a construction guy after all. And it will help the working-class voters who make up part of his strange coalition of voters.

An economic catch-22

None of this is rocket science.

Indeed, Trump flagged all of it well in advance.

The populism…the culture wars…the controversies…all are mere sideshows to fill in time as, like a careful poker player, he plays his hand and raises the stakes at the right time.

This is the genius of Trump. Give him a hand to play and he will play it well. This is street smarts and commercial smarts — not PHD-level smarts.

But it’s also where Trump falls down. He overestimates his abilities too.

The US has amassed record debt. And this debt is growing every month.

At the same time the wealth gap is widening.

These policies do nothing to alleviate any of these problems.

In fact, they exacerbate them by putting pressure on future governments to cut spending. There’s a strong chance that the US will never pay its debts back.

In the past the only two ways a country would get out of such a mess is by strongly devaluing their currency. Yet such a move would almost certainly end the era of US economic dominance.

The other way is by going to war with creditors — China in this case.

Neither of these outcomes is particularly good for anyone. Not the US, not Australia, and not the world.

But it’s the potential long-term cost of Trump’s populist short-term economic policies.

It could be a catch-22 for you, me, and everyone else.

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