by David Stockman, DailyReckoning:
There have been numerous eruptions of irrational exuberance since Alan Greenspan launched the modern era of monetary central planning in response to the 25% crash of the stock market in October 1987.
But for my money, the Trump-O-Mania since the wee hours of election night is the greatest folly of all.
That’s because Donald Trump is destined to be history’s Great Disruptor — not the 11th hour savior of the mutant financial system and giant bubbles that have been generated by our Wall Street/Washington rulers over the past three decades.
The latter is a product of massive financial asset inflation fueled by the Fed’s cheap debt, falsified financial prices and the tidal wave of Wall Street speculation they have induced.
But the Fed (and its convoy of central bank imitators around the world) is finally out of dry powder. If it resumes quantitative easing (QE) preemptively to thwart the now incipient recession, it will generate a panicked sell-off — stoking fears in the casino that it “knows” something the gamblers don’t.
Likewise, if it even hints at reversing course toward sub-zero interest rates, it will bring the aroused populations of Flyover America, which elected Donald Trump, descending upon the Imperial City with torches and pitchforks.
The savers and retirees of America have already been so severely savaged by 96 months of zero interest rates (ZIRP) that they are not about to take it any more or have their savings flat-out confiscated by the elitist fools who inhabit Eccles Building.
In short, after having impaled itself on the zero bound and hideously bloating its balance sheet — from $900 billion to $4.4 trillion since the Lehman event in September 2008 — the Fed has no capacity whatsoever to forestall the oncoming recession or reflate the economy and financial markets once it begins.
The market should currently be in panicked retreat because it is inconceivable that the Donald will appoint to the Fed even more aggressive money-pumpers than the paralyzed posse currently in command, led by clueless Janet Yellen.
But in one of the most ludicrous stick saves ever confected in the bowels of Wall Street, the day traders and robo-machines have been induced to slam the “buy” button on a theory so preposterous that even CNBC’s chief circus barker, Jim Cramer, could not have invented it.
That is, the notion that Donald Trump is the second coming of Ronald Reagan and that a huge deficit-fueled “stimulus” is just around the corner is just plain nuts.
There will be no such thing.
Trump-O-Mania is the greatest eruption of irrational exuberance yet because it occurred in the wake of an election outcome that is a repudiation of the very regime of Bubble Finance from which it took flight.
Donald Trump’s shocking election victory was in fact due to the fact that the nation’s economic prospects and future growth potential has dimmed dramatically since 1987.
Since the Greenspan era of Bubble Finance began in October 1987, the value of corporate equities owned by households has soared from $1.8 trillion to nearly$15 trillion, representing a 7.5%annual gain.
That means that equity values have increased 65% faster than the 4.5% annual gain in GDP during the same 29-year period.
There’s a word for that sort of imbalance: unsustainable. Does anyone with a pair of brain cells to rub together think it can last much longer?
But the greatest headwind Trump faces is his wildly inconsistent and irresponsible fiscal program. It will not result in a smooth hand-off the “stimulus” baton from the Fed to fiscal policy and the vaunted “Trump Stimulus” as Wall Street so blithely expects.
Instead, it will actually produce a political conflagration and Fiscal Bloodbath like the Imperial City has never before witnessed. Trump’s already facing Congressional opposition to his spending plans and Inauguration Day is still two weeks off.
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