Trump-o-nomics: How would it work.

  • I. Premises first:
  1. Reduce labor pool occupied by illegal immigration.
  2. Raise tariffs on foreign manufactured goods for which America equivalents exist, or which we want to incubate.
  3. Spend lots and lots of public money on:

a. Tax cuts,

b. Subsidized business loans (SBA like),

c. Public spending on hard and soft infrastructure. Roads, bridges, public education.

  • II. Expected Effects.

Massive public stimulus (see above) will create small business to meet demand created by market conditions (i.e. ability to compete with global manufacturing as result of tariffs).

Deficits will be huge, 10–50 trillion added debt — staggering numbers.

Employment growth. Wage growth. Businesses chasing college grads. Students chasing education as path to wealth again.

Fiat money, i.e. Dollars value drops in response to stimulus policies. Real asset values (real estate, goods, etc.) increase dramatically, mostly on a nominal basis, but later on a real basis. Pre and early stimulus debts become easier to pay in now inflated fiat currency (i.e. Dollars). Dollar value relative to other currencies drops, making prospect of export economies possible. Mutual counteracting tariffs will prevent many American goods from being competitive, but America specialty/hi-tech (for which there are no foreign national equivalents) won’t be effected. No country will spite itself is it doesn’t have the capacity to fill the need itself.

Money in the bank will be inflated away…i.e. Lose value — remember “King of Debt.” Goods and services will become expensive-inflation effect (See North Dakota frack boom example, real assets quantity stays roughly equal, frackers get high wages, Big Mac meals cost $18).

  • III. End Game Inflation.

As with other fiat inflation mechanisms, the Trump stimulus plan will work in allowing new fiat money to purchase real assets/value without the market accounting for the diluted money effect immediately. But this has an endpoint as well. Eventually the jig will be up as stimulus entering the ‘real economy’ will have diminishing effects as saturation creates more assert value speculators vs productive economy creators. At that point virtue is lost.

This is what would happen IF Trump were able to get his way, best case scenario. The inflation scenario would be unpopular, despite common misconception people LOVE deflation. Ease of buying power for commodities, goods and services is of far greater benefit (all other things being equal) than inflation on long term capital assets. Time preference for immediate value, far greater than future value — especially for vast majority with little to no net worth.

Next article, how to profit off of Trump-o-nomics.

Copyright (c) 2016

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