Very recently, I published a blog on Trump’s Tax Overhaul and its impacts on the future of broader US Economy and especially on the Technological sector. As mentioned in my blog published on EBN the same day, entitled “Trump Tax Overhaul & the Future of Tech Industry”, Trumponomics can be compared to Reaganomics. Just like Reaganomics led to a growth of stock market followed by a major crash in 1987, I forecasted that Trumponomics will also lead to near term growth of the stock market, but it will be followed by an inevitable crash.
If you look at what happened post Trump’s tax overhaul, the huge tax breaks were used by all corporations to buy back their stocks. Hence, the extra tax savings did not help in growth of investments into the economy. The share buybacks in 2018 have averaged $4.8 billion a day, double the pace for the same period a year ago, before Congress slashed the corporate tax rate in December, according to TrimTabs . According to JP Morgan, these buy backs would total a record $800 billion this year alone. As you can observe, the stock market is expected to keep doing better for the rest of 2018 as I had forecasted on the day of Tax Overhaul went into effect.
However, I mentioned that the fundamentals of macroeconomic growth are absent in Trumponomics and we would expect a major crash by end of 2018 or in early 2019. A few days ago, Trump’s chief economic advisor, Gary Cohn, resigned after Trump imposed Tariffs on Steel and Aluminum imports. In my 2014 book MASS CAPITALISM: A BLUEPRINT FOR ECONOMIC REVIVAL, I have analyzed the myth of Free Trade and suggested that US needs fair trade over free trade to reduce its trade deficits. Hence, I support President Trump’s Tariff to protect American jobs if there cannot be a fair trade negotiated between the U.S. and its trading partners. However, I had also proposed an alternative remedy in the final chapter of MASS CAPITALISM. My proposal was to give more dollars to China for a fewer yuan to make American exports artificially cheaper for Chinese Consumers. This way trade deficit with China can be reduced not just on Aluminum and Steel products but several other products which could be exported to China. In my blog “Federal Reserve Help Needed to Help OEMs Reduce U.S. Trade Deficits”, I had explained how these new ideas would help reduce US trade deficits by increasing US exports of electronic goods.
Regardless of what Trump does with US trade policies or with US tax policies, the fundamental reform that needs to happen is the US is w.r.t. monetary policy of the US Federal Reserve. In a recent Interview with DP TV, I have answered questions about what to expect in the near term and long- term future of US economy and its tech sector. Please do watch this 20-minute video explaining what lies ahead for US economy and its Tech sector.
On 3 March 2018, I was also invited again Wealth Money Radio show where I mentioned about what NEW MACROECONOMICS (2018) has to offer to the US economy. Please listen to the Audio Interview below.
In this interview, I mentioned about the works of several famous economists in the world. A notable one to mention for the Technological sector is the French economist, Jean Baptiste Say. The progress of Moore’s law in US economy has been driven by Say’s law of Supply Side Economics. I provided a justification in the above radio interview about why Say’s law is no longer valid and why Wage-Productivity Model provides a better and more sustainable progress for the Technological sector of US and global economy.
To conclude this blog, I would say that unless Trumponomics ensures that Fed follows a free market monetary policy such that Wages keep pace with productivity, US economy is headed for a worst crisis when the Fed starts hiking its bench mark interest rates. I forecasted in my book How Information Revolution Remade the Business and the Economy (2016) that as Fed starts hiking its bench mark interest rates, USD will start to rise, because of which the U.S. will not be able to increase its exports. This rising USD will be the cause of coming crash of stock market in 2019. Only time will tell whether my forecasts will come true this time as Fed is expected to raise rates as they believe the economy is doing great. Besides, Trump’s tariffs are expected to start a new trade war in global economy.
The selection of Larry Kudlow as President Trump’s Economic Adviser and Powell as his Fed Chair hints that the Fed funds rate are going to keep rising and this will result in funds moving from developing economies to the US. TThe rising USD will make US exports less competitive and eventually profits of US based MNCs will start crashing. Additionally, the domestic economy will also be in doldrums due to rising interest rates because of domestic residents being unable to pay higher interest rates on their loans. The explosion of Debt bomb could happen as early as 2019. I am confident of my analysis and hence I am updating this blog.