Investors saw the GOP budget with huge deficits, little investment in infrastructure and huge increases in spending for defense, and sold big. For a year Trump sold investors on plans to improve infrastructure and productivity but Trump’s plans proved to be shams. Instead Trump and the GOP gave corporations a huge tax cut which executives are using for stock buy backs instead of improving productivity. Instead of improving infrastructure and building a resilient economy based on renewable energy, a smart grid with distributed power and a world class American internet, Trump and the GOP are pouring money into defense. Defense spending has a very low return on investment to the economy and will compete for dollars with activities which would build a stronger economy over the next decade.
Thus, not only will interest rates rise because of budget deficits at a time of near full employment, the money will be spent on things that won’t improve productivity and won’t spur economic growth.
Trump and the GOP are doing exactly the opposite of what basic economic theory recommends.
www.bloomberg.com/...
The ballooning federal budget deficit under President Donald Trump will force the U.S. to borrow more than $1 trillion this year and risks worsening the frenzy behind the global sell-off in stock markets.
The budget deal Senate leaders reached late Wednesday would add nearly $300 billion in government spending over two years and push the deficit higher. Even beforehand, Bank of America Corp. senior U.S. economist Joseph Song warned in a report that the federal deficit was on track to exceed 5 percent of gross domestic product by 2019, by far the largest for the economy while at full employment since World War II.
That is “exactly the opposite of what the economic textbooks say lawmakers should be doing,” Mark Zandi, chief economist of Moody’s Analytics Inc., said in an email. “Deficit financed tax cuts and spending increases in a full-employment economy will result in more Fed tightening and higher interest rates.”
The combined impact on the deficit of the Republican tax cuts and the spending deal over the next two years will likely exceed the $580 billion President Barack Obama’s economic stimulus added in 2009 and 2010 during the depths of the recession.
Of course, the next step of the GOP plan is to say that we are bankrupt so they will have to cut grandma’s Social Security check and Medicare. Investors are not impressed.
