Sunday, 20 November 2016

Have the markets got it right about Trump?

After it looked as though Trump was walking away from many of his very silly policies equity markets rallies and bond markets sold off on the basis Trump's policies would be quite expansionary and inflationary. is this correct.

We can assume Trump's unfunded tax cuts will breeze through Congress. Republican only worry about the deficit when Democrats are in control. They never said a thing when Reagan and Bush vastly increased the structural deficit in their day.
The big question is what will the spending on infrastructure will do. I assumed it would be spending on roads , repairing bridges , electricity grids etc..

Let us read some people who have loked at this.

 So we might just have fiscal policy which blows the budget ( tax cuts always increase the structural deficit without commensurate spending cuts) but does not increase GDP as much as the market expects.

One other thing we are probably going to see is Trump fighting the Fed as the Fed increases interest rates.Carola Binder think so. Those of us who can remember how the Reagan Whitehouse certainly gave Paul Volker a hard time once inflation got to 4%. They did not think he should have been trying to get it below 4%!