In a time not so long ago, the art of clear reasoning and effective communication through writing was highly valued. We seem to have lost this appreciation since the mid-20th century, particularly after the 1936 release of John Maynard Keynes’ complex work, *The General Theory of Employment, Interest, and Money*, which has often made readers feel more confused than enlightened.
This seminal work has captivated politicians and mainstream economists, providing them with a framework to rationalize their penchant for accumulating debt and funding often ineffective programs. Among Keynes’ more outlandish suggestions was the idea of burying money in coal mines for people to find as a means to tackle unemployment, an absurdity that he somehow positioned as a genuine solution.
Since then, this line of thinking has inspired countless governmental efforts aimed at salvaging the economy. Recently, Paul Krugman, a notable proponent of Keynes’ ideas, took this rationale to the extreme, suggesting that massive borrowing to prepare for an alien invasion could stimulate economic growth—a proposition that requires a unique kind of thinking typically reserved for Nobel laureates.
Better Markets
Sadly, Keynes’ convoluted theories have become a benchmark for errant economic reasoning, still influencing financial dialogue today. It’s hard to scroll through Yahoo Finance without encountering the fallout of this illogic.
This week, for example, we stumbled upon an article titled The Coming Trump Financial Crash. The author, Dennis M. Kelleher, serves as the President and CEO of the non-profit organization Better Markets, which claims to advocate for the public interest in financial markets.
The exact function of this Washington, D.C.-based non-profit remains ambiguous. What is evident, however, is Kelleher’s flair for creating alarmist prose that suggests financial deregulation under Trump will inevitably lead to catastrophe. His assertions include:
“If the Trump administration follows through on its economic and financial regulatory promises, a financial catastrophe is almost guaranteed. And, if it occurs, the fallout will likely be far worse than what we’ve seen before.
“Why another crash? Because it seems he will spark an asset and stock market bubble while simultaneously stripping away crucial financial regulations designed to mitigate high-risk speculation on Wall Street. Tax reforms benefiting the wealthy and the repatriation of foreign profits will primarily fuel stock buybacks and mergers, providing only a temporary boost to the market without addressing the need for sustainable economic growth.
“We’re already witnessing the beginnings of a stock market bubble, led by financial stocks, as investors are betting on risky high-yield activities. If regulations designed to protect everyday jobs, homes, and savings from Wall Street’s excesses are diluted or removed, these speculative actions could culminate in a major financial collapse.”
Can you follow this reasoning?
Don’t Blame Trump When the World Ends
Here at Economic Prism, we believe Kelleher may be overestimating President Trump’s influence over economic dynamics. While the potential for a stock market crash looms, we contend that when it inevitably arrives, Trump shouldn’t bear the blame.
The regulations Kelleher champions miss addressing the fundamental challenge: the chaotic nature of today’s fiat currency system. Until reform is undertaken, we risk continual cycles of significant asset bubbles and subsequent crashes.
Trump’s efforts to modify corporate tax policies or financial regulations are minor compared to the turbulent market effects resulting from unchecked credit expansion. If we had a responsible monetary framework, we wouldn’t see corporate profits piling up offshore.
Your opinions of Trump aside, it’s crucial to recognize that he has inherited a uniquely challenging economic situation, perhaps more daunting than any previous president since James Buchanan. He steps into the role at a time when the national debt has escalated exponentially over the past four decades, growing from less than $400 billion in 1971 to nearly $20 trillion today.
In essence, the trajectory of national debt is reaching unsustainable levels. No amount of monetary manipulation will allow it to ascend indefinitely. The addition of unfunded liabilities—including Social Security, prescription drugs, and Medicare—balloons the total debt to an astonishing $104.6 trillion, making each taxpayer responsible for over $874,800.
Concurrently, stock valuations are skyrocketing. For example, the Shiller Cyclically Adjusted Price Earnings (CAPE) ratio is currently 28.5, a staggering 70% above its historical average.
Historically, there have only been two instances in the last century where the CAPE ratio exceeded today’s levels—prior to the 1929 stock market crash and the internet bubble burst in the late 1990s.
Similarly, the Buffett indicator, which compares total market capitalization to gross domestic product, indicates that stocks are significantly overvalued, currently sitting at approximately 126%. A balanced valuation would fall between 75% and 90%, with anything above 115% deemed excessively valued.
The systemic mismanagement of currency over the past century has pushed our economic and financial systems to their limits. With unprecedented levels of government debt and inflated stock prices, something major is on the horizon. One can be certain of that.
Ultimately, don’t pin the blame on Trump when the inevitable upheaval arrives. There’s nothing he—or anyone—can do to avert it.
Sincerely,
MN Gordon
for Economic Prism
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