Will the Trump Effect live long and prosper? Not for long, warns Nouriel Roubini, otherwise known as Dr. Doom.
Writing in the Project Syndicate, Roubini outlined six reasons why Trump’s policies will eventually crush the markets, spur inflation and impact middle-class workers. Here are those six reasons:
– Trump’s fiscal stimulus has driven up long-term interest rates, which hurts capital spending and impacts sectors sensitive to interest rates, like real estate.
– Trump’s spending programs could fuel inflation, something that will force the Federal Reserve to raise interest rates faster and potentially even higher.
– Labor markets, middle-class/blue-collar incomes and overall financial conditions could take a hit from extensive fiscal policy and monetary tightening as well as Trump’s protectionist measures.
– The economic interventions already proposed by the Trump administration may go beyond that of protectionism.
– The United States President’s questioning of long-term alliances, cozy relationships with American rivals and irking global players may spook international markets.
– If Trump doesn’t get his way with the Federal Reserve then he may intervene to weaken the greenback, impose capital controls and appoint Fed members who are dovish.
Many of these arguments are sound, particularly when it comes to inflation fears, the Federal Reserve and protectionist measures. With the U.S. central bank’s balance sheet expanding by $5 trillion since the economic collapse, and the Fed continuing to accelerate the money supply, you will certainly see the Fed hiking rates.
Moreover, protectionism never helps anyone; free trade spurs economic expansion and makes everyone wealthier.
However, questioning the likes of NATO, NAFTA and other global pacts, trade or otherwise, is always a good thing, and it is about time someone in power did that. Perhaps Trump should take it one step further and question the America’s role in the United Nations. Also, encouraging better relations with another country should be welcomed, even if it is a so-called rival.
Trump may be good for short-term growth, but long-term will be a different story.
Overall, this is pretty good analysis from Roubini.
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