A chilling decline in the stock market of 1500 points (last Friday and Monday) could actually be a result of “winning.” President Trump promised that “we’d win so much we’d get tired of winning” during the campaign. So, is Wall Street tired?
It certainly appears that America is winning again. Black unemployment is the lowest since it was first measured. The stock market is up nearly 50 percent since Mr. Trump took office. Women’s unemployment is the lowest in 17 years, and data suggests we’re poised for an economic boom unlike this country has seen in 30 years. Then, why did the stock market fall over 300 points the day of Mr. Trump’s State of the Union speech, nearly 700 points last Friday and another 1100 points on Monday?
We’re winning. And, with winning comes even more risk.
Over 80 percent of the American people approved of Mr. Trump’s speech. Not only was it a unifying speech, it represented some of the most positive economic data distributed from that podium in more than a decade. The speech’s central focus was that our economy is strong and we were no longer in “recovery.”
Mr. Trump’s speech highlighted that our economy has changed positively and dramatically in his first year in office. It also unwittingly brought attention to the biggest economic risk during expansion: Inflation and rising interest rates. This unnerves Wall Street investors and thus they’re taking profits (in this sell-off) to mitigate risk.
I interviewed Treasury Secretary Steve Mnunchin last week at the White House. I pressed him about inflation risks and he assured me that there were no concerns. He didn’t seem concerned that we had printed over $4 trillion to recover from the financial crash.
To his credit, the fundamentals in our economy are incredibly strong. Investors are reasonable to expect business revenue and profits to continue increasing.
This tumultuous week in the stock market may simply be profit-taking before another big surge. But, could it be the “canary in the coal mine” that, as our economy improves, rapid inflation is the next economic headwind we’ll have to embrace?
I think so. We now face different circumstances than during the late-1970s and early-1980s where inflation and interest rates seemed unfettered.
We don’t have as many inflation pressures today as then. However, the reality is that we have flooded the world with dollars in order to reach this new modern-era recovery and expansion period.
Many Democrats believe Mr. Trump is taking credit for an economic recovery he didn’t create. While they fall short of crediting President Obama, they realize that Mr. Trump’s deregulation and business acumen are to credit.
Mr. Obama inherited a stagnant economy. The Obama era was further burdened by his excessive regulations. Many say he successfully brought us back from a major financial collapse. While that may be technically true, it dismisses the fact that President George W. Bush actually started the bailout-economic and monetary policy at the end of his tenure that Mr. Obama simply continued.
The foregoing observation is important because we have to realize that the inflationary pressures that the Trump administration must now address are a direct result of the monetary policy of Mr. Obama.
Ultimately, it will be easy for Americans to fall prey to propaganda and lies that blame Trump for high-inflation and its stifling effects on stocks.
The reality is that once our economy breaks free of its lost decade, inflation becomes a substantial issue that starts to make an economic boom a bumpy ride.
As the economy and stocks continue to defy the turbulence and growth continues, we risk creating another bubble.
Stagnation in the stock market (even a mild correction) is the most healthy recipe for long-term economic expansion. If stocks continue the pace of growth we’ve seen in the past 12 months, the risk of another bubble-burst is substantially higher. The last thing conservatives need is another big crash on our watch.
President Ronald Reagan was considered one of our greatest leaders because he took us through a period of high inflation and economic malaise into an expansion that lasted 20 years.
The big question of our time is whether we are embarking on another similar journey or experiencing a weakened nation incapable of returning to its greatness.
We’re not economically-safe yet and the recent big losses in the stock market are hopefully a wake-up call to this administration that they must guide our country through a phase of healthy growth – not just growth at all costs.
Published in Daily Times, February 12th 2018.