What may have gotten lost in the tug-of-war of presidential campaign resolutions has been President Trump’s plan to shift America firmly into an internal economic powerhouse.
With 68% of the nation’s world-leading gross domestic product of goods and services comprised by the consumer sector, such a dramatic economic reassessment would likely increase costs of consumer goods and drastically reduce both imports and exports.
While domestic buyers will literally be forced to buy “American,” the gamble that President Trump is advocating would reverse the grievous loss of manufacturing jobs and closing of factories. But it would also likely cause the prices for “American-made” consumer and producer goods to go up.
The good news is that much of the 90 million-plus unemployed would be absorbed into the “producer” segment at substantially higher wages than exist today. Such resultant cost increases to the consumer sector, therefore, will likely reduce overall demand, severely impacting the major, multi-faceted conglomerates that have moved much of their production base overseas. This loss of low-cost production would undermine the revenues and profits of such corporate “giants” and likely reduce their stock market value.
On the positive side, the ambitious Trump economic plan would offset such overall “rearrangement” by greatly expanding the domestic energy sector. Currently, more than half of America’s 20 million barrels of oil derivatives per day are imported from the Middle East, Venezuela and Nigeria. Real energy independence would come close to doubling America’s ongoing demand.
To ease the negative impact of “producing” and “buying” American, a severe cutback in regulatory restrictions, and the reduction of bloated Washington, D.C.-based agencies, would be necessary to facilitate lower taxes across the board. But, like similar economic plans that have been attempted to reduce imports, such as “Smoot-Hawley” in 1930, there is no way of predicting the ultimate outcome of such revolutionary changes.
It will remain to be seen whether much of the initiatives inherent in “buy/produce primarily American” will actually see the light of day. Whatever happens in Trump’s first 100 days may largely foretell the long-term impact of the Trump economic doctrine.
Will infrastructure revival be 2017’s surprise?
Of all the incomparable list of laggards to be righted, the long overdue upgrading of America’s wide-ranging infrastructural modernization tops the list.
With trillions of dollars wasted on unproductive renewables (solar panels, wind power, geodesic experimentation) as well as food stamps for the multi-millions unable to find jobs, the catching-up process commands the greatest attention since the Reagan Administration successfully played catchup during the 1980s.
What makes environmental restructuring especially urgent is that the U.S., in general, has slipped into a third-world infrastructure status when it comes to the facility of its highways, railroad tracks, and the overall infrastructure of bridges, dams and pipelines.
While Congress and the most influential media pages focused on the presidential healthcare plans, and the increasingly strangulating U.S. Environmental Protection Agency restrictions, the U.S. Treasury debt doubled from $10 trillion to $20 trillion in the eight years of the Obama Administration. The outgoing president also attempted to restrain future production of commodities, especially coal, oil, and natural gas, available in large areas of federal lands. President Obama reiterated that the outgoing Administration was ready to “downsize” America’s incomparable potential in favor of climatological purity adventures along with maintaining the world’s highest corporate taxes.
The latter provided the multi-national conglomerates with a ready-made opportunity to leave America’s shores while positioning its headquarters in low-cost and tax friendly havens such as China, Southeast Asia in general, and neighboring Mexico. While this temporarily provided the American consumer (comprising 68% of the U.S. world-leading gross domestic product) with low-priced goods, this Obama Administration hypothesis reduced the manufacturing sector to a record reduced level. This cut factory worker numbers almost in half during President Obama’s eight years.
While Trump is looking at an overload of priorities, such as infrastructure, rational taxation, and return of foreign monetary profits to the homeland, it is fervently hoped that this voter-granted opportunity of a conservative House and Senate, working with the White House, will be prioritized advantageously.
Pent-up investment funds assure 2017 business boom
With the first quarter 2017 nearing a close, and the “Trump 100 days promise” in the midst of increasing realization, pent-up “monetary” inventory of the recent past is already being unleashed on factory expansion, equipment upgrades, and advanced technology implementation.
Spurred by the optimism of President Trump’s “Buy American” emphasis, growing business sector hopefulness and confidence is translating into renewed expenditures as corporate regulatory reductions and massive tax breaks appear in the offing.
Despite years of near-zero interest rates that made for cheap borrowing, many big and medium-sized corporations had held back from an overall U.S. business environment, considered increasingly antagonistic. This has led to spending holdbacks as well as the transfer of production facilities to offshore locations like Asia or Mexico.
While automobile production, railroad cars, and record re-purchase of corporate stock proved the “spending exception,” the “Trump declaration” is proving the major stimulus behind the current corporate spending expansion. At the current overall investment spending percentage, in comparison to 2016, 2017 is destined to exceed not only last year, but all those months of climbing out of the depth of the Great Recession of 2008-2011.
The extent to which this investment comeback will achieve new records is based on the level of success that President Trump will achieve in his administration’s business/professional tax restructuring, elimination of an estate tax that has discouraged “independent business” and the penalty tariff on multi-national U.S. businesses. These have increasingly “farmed out” their production worldwide to bring back into the homeland at much lower costs.
As the multitude and extent of legislative initiatives proposed by the Trump Administration takes shape, the reaction on both conglomerates and “small” businesses will become increasingly more intense. Unquestionably, the measure of success achieved by the president and his congressional allies will be synonymous with the comeback of America’s business and industry, in the months and years rounding out the Trump Administration’s hold on power.
Western birth rates face steep decline
While Western Europe and the U.S. are stirring with increasing consternation over the millions of desperate refugees fleeing Syria and Iraq, an equally serious problem is developing in the lack of birth rates among the existing Western nations’ populations.
Although it is not openly spoken about, German Chancellor Angela Merkel’s unpopular plea for an incoming surge of Mideast refugees had more to do with Germany’s world-lowest birth rate. This is not only causing a decrease in that once dominant nation’s population, but is facing Germany’s future with a shortage of maintaining its current status quo economically, and its ability to maintain the nation’s industrial/commercial pace.
This is necessary for continued import/export leadership among the big four world nations — U.S., China, Germany, and Japan. The latter (Japan) is also suffering from a downward turn in its viable population replacement. But unlike its former Axis partner, Germany, Japan is totally lacking and disinterested in an “open door” immigration policy to solve its economic growth problems.
While most of the publicized anti-immigration policy in the U.S. focuses on the “wide open” Mexican borders, the influx from Asia has overtaken those coming over America’s southern border, legally or illegally. In fact, current projections of America’s population in the next 25 years (350 million plus) place China, South Korea, and India at the percentage top of overall U.S. citizenry by then.
Another factor affecting birthrates and available labor force in Western nations over the past half a century is the increasing number of women in the workforce. This has proven to be a major plus for America’s dynamic expansion in all aspects of economic growth, and it has also influenced birth rate as many women postpone having a family for a myriad of reasons, including pursuing their careers.
While this justifiable equality in the U.S. has also spread throughout an increasing number of world nations, and added to their economic growth generally, it will likely enlarge the same problem of growth in the countries that are suffering population maintenance the most at this time.
While modern evolving technology is setting a blistering pace, requiring less hands-on workers, the population dearth in the world’s most economically advanced nations will continue to pose an increasing problem in their overall global status.
Will negative-yield phenomenon persist?
When looking back at the wild and unpredictable financial aspects of last year, the strong emergence and sharp rise of negative bond yields takes top billing as the most unexpected happening of 2016.
The total amount of overall global fixed income with a negative yield reached a September peak of $13.3 trillion, more than double the amount existing at the beginning of the year. But there were more than $10 trillion of negative yielding bonds globally near the end of the year. German negative yields are still extended out to 2024.
This emphasized the previously minor role that these bonds yields had played in past disinflationary periods. As the fixed-income bond markets saw their values plunge, Germany and Japan led the field among major gross domestic product achievers worldwide. But as could be expected, the rock-solid financial Swiss Investment market 2064 government bonds turned negative after the U.K. voted to leave the E.U. last summer.
Even more bizarre was the rally of the first half of 2016 that took long-dated yields into negative territory, and turned this conservative investment sector into a speculation vehicle. The price of the Swiss 2064 bond topped 200% of face value at its peak. With a coupon of 2%, investors were being asked to pay more up front than the total value of future coupon payments, and the principal combined.
As has already been proven earlier this year, the hectic bond market sell-off of fourth quarter 2016 has greatly moderated. And with the Federal Reserve Board signaling further interest rate increases, along with inflationary winds picking up, the negative-yield phenomenon may well join the Bitcoin as a temporary expedient.
While U.S. Treasury yields will likely continue to move higher, the European Community Bank seems stuck at minus 0.04, which will impact the short end of the German curve simultaneously. While occasional speculative negative yields will lessen, this unusual investment scheme will remain as an oddity rather than as a long-term investment trend. But the undertow of lacking investment confidence will make the financial world at large more wary than ever in viewing the global bond market as a conservative investment vehicle.
Is the climatic hoax theory being exposed?
The recent resignation of a prominent scientist from the University of Georgia, due to what she considered the “crazy distortion” of “climatological purity,” reemphasized the grave doubts of those questioning its validity.
While the foul air of big U.S. cities such as Pittsburgh, Los Angeles, and even New York City was decidedly improved during the early 1960s, due to President Richard M. Nixon’s Environmental Protection Agency regulating the unrestricted fouling of the air by factories’ production activities, and with increases in transportation, the newly-developed EPA set standards that balanced economic activity and clean air requirements. This seemed to be satisfactory for subsequent decades.
While the current obsession with “climate control” has become a continued global concern, resulting in multi-national discussions and highly-publicized decisions, the EPA has gone well beyond its charge and cracked down on business in general at the behest of the Obama Administration. This has made “clean air” its prime objective, without any concern for that agency’s economic impact.
While countries attending international meetings in Copenhagen, Denmark, and recently Paris, have signed on to major “clean air efforts,” only the U.S. has taken stringent action, even if subsequent regulations are business-unfriendly.
The early efforts of the Obama Administration, in league with former Vice President Al Gore, had hoped to impose “cap-and-trade” on the American economy, which would have rewarded those companies passing muster on CO2 limitation while penalizing those considered “air polluters,” according to EPA standards. Gore was to have been in charge of “brokering” this program.
While strenuously opposed by the then GOP House minority, cap-and-trade never became active due to the tea party-inspired mid-term election results of 2010, which switched the House majority to Republican. Obamacare was also on the prospective GOP chopping block, but that slipped through the final approval process before the Republicans took control of the House.
While the other world economic leaders such as China, India, Germany, and India give lip service to increasingly stringent climate control, this theory continues to be debated as the Trump Administration is taking steps to significantly restrain the previously free-wheeling EPA.
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