“We have assembled a best-in-class team of policy advisors to drive President Trump’s bold plan for job creation and economic growth.” — Gary Cohn, Chief Economic Advisor to President Trump
Promises of Change
Handling the intricacies of public spending is no simple task; it’s a complex art that requires skill and dedication, especially when other people’s money is at play. True advocates of economic improvement must possess an unwavering commitment to uplift those in need, irrespective of the challenges involved.
Among these advocates are lawyers, bankers, economists, and government policy experts—individuals with impressive credentials from prestigious institutions. These are the key members of President Trump’s team of economic advisors, tasked with realizing Trump’s ambitious economic vision. The question remains: are they equipped for the challenge?
Only time can provide the answer. However, it is already clear that the economic advisors have tough hurdles to overcome. In his recent address to Congress, Trump advocated for increased job opportunities, enhanced education, stronger military support, and more accessible healthcare.
The speech resonated well with many, filled with promises to distribute government support widely. Trump’s pledges garnered applause from almost everyone, save for the occasionally grumpy Bernie Sanders.
While discussing these plans is one thing, executing them through government action is an entirely different matter. This is the critical role of the advisory team.
From Aspirations to Reality
Wall Street responded positively to Trump’s address, with the DOW soaring over 300 points to surpass 21,100. Despite a brief pullback, the index remained above 21,000 by the end of the day. What’s driving this trend?
William Dudley, President of the New York Federal Reserve, commented that the market’s “animal spirits have been unleashed,” indicating a growing appetite for monetary policy adjustments. He noted that strong job growth, rising inflation, and increasing optimism among consumers and business owners have made the case for tightening monetary policy more compelling.
As a result, Dudley suggests that the Federal Reserve may raise interest rates in its upcoming Federal Open Market Committee (FOMC) meeting. The CME Group currently places the probability of a rate increase at over 75 percent, while Bloomberg estimates it to be 90 percent. If there is no significant downturn in the stock market before March 15, a federal funds rate hike appears highly probable.
Whether the market might crash before or after that date remains uncertain. One Bank of America analyst paints a dramatic picture of a potential market downturn later in 2017, describing the transition from an “Icarus Trade” to a “Humpty Dumpty Trade”—foreshadowing a significant decline.
A Longstanding Economic Challenge
It is evident that Trump’s economic advisors face significant obstacles. Stock valuations are currently at record highs, while the Federal Reserve is poised for interest rate increases. Meanwhile, GDP growth for the fourth quarter of 2016 limped along at a mere 1.9 percent.
Furthermore, by March 16, the government is expected to max out its debt ceiling. Treasury Secretary Steve Mnuchin will then need to resort to “extraordinary measures” to maintain operations, and unless Congress acts by October, funding may run dry.
Trump’s advisors must devise a strategy to stimulate the economy without increasing spending. Currently, their proposal focuses solely on increasing funding for defense and infrastructure. However, without any accompanying rise in overall spending, the source of funds remains unclear.
Recent reports indicate that Trump aims to boost military spending by $54 billion without escalating the deficit. This increase would necessitate cuts to other government sectors. While it avoids widening the existing $500 billion deficit, it certainly does not decrease it, meaning that an additional half trillion dollars would still be added to the national debt.
In just under two weeks, Washington, D.C., will likely buzz with activity as a contentious Congressional standoff over the debt ceiling unfolds. David Stockman, who served as a Budget Director during the Reagan era, refers to this impending showdown as a fiscal bloodbath:
“I anticipate we are facing a fiscal bloodbath rather than economic stimulus. Unfortunately for Donald Trump, the public voted to oust the establishment, but they left him to deal with the burdens of 30 years of reckless debt accumulation and an imprudent fiscal policy.”
“Many hope Trump will usher in an era reminiscent of Ronald Reagan, leading to a resurgence of prosperity. Yet, I fear the situation is far more daunting than what we faced when I joined the Reagan White House as Budget Director in January 1981.”
Sincerely,
MN Gordon
for Economic Prism
