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By Tyler Durden
Paul Krugman wants you to know that, in his view, the markets are misinterpreting “Trumponomics” and because he is far smarter than you, the markets, and pretty much anyone else, it's important to pay attention.
Of course, this shouldn't be terribly surprising as Trump could literally announce that he found a cure for cancer and Krugman would immediately take to the New York Times to pen an op-ed defending malignancies, and how its eradication would mark the end of “hope” for mankind.
In any event, Krugman posted a short article to his twitter account this afternoon warning that the markets' interpretation of “Trumponomics” is all wrong. While the confused Keynsian would ordinarily praise aggressive infrastructure plans, like the one proposed by Trump, in this case he's willing to make an exception and notes that the plan looks more like a “privatization scheme” than an “actual plan to boost public investment.” And while Krugman has never before seen a budget deficit that he didn't criticize for being too small, Trump's “privatization scheme” combined with “tax cuts for the rich” suddenly has him extremely worried about federal debt balances.
Financial markets seem to have decided that the Siberian candidate will pursue strongly expansionary macroeconomic policy. Long-term interest rates have risen sharply; expected inflation is also up, although not as much.
But are the markets getting this right? I suspect not: fiscal policy probably won’t be expansionary as expected (or maybe at all), and Trump’s economic team is looking like a gathering of goldbugs, who will if anything push for deflation.
On the fiscal side, I’m still seeing people talking about a huge infrastructure push. But there’s no indication that Republicans in Congress are at all eager to get moving on this push; their priorities seem to be repealing Obamacare and tax cuts for the rich, perhaps especially the estate tax. And in any case what we know about that supposed infrastructure push is that it looks much more like a privatization scheme than an actual plan to boost public investment.
So what we’re really looking at is a combination of tax cuts and spending cuts. Overall, this will surely increase budget deficits. But the tax cuts will go to the wealthy, who won’t spend much of their windfall, while the spending cuts will fall on the poor and struggling workers, who will be forced into sharp cutbacks in spending. The overall effect on demand is therefore likely to be negative, not positive.
For proof of his view on “Trumponomics,” Krugman provided the following tweet storm, for your reading pleasure, highlighting the “gathering of gold bugs” known as Trump's cabinet. Apparently Mnuchin “hangs out” with John Paulson so he's guilty by association. Meanwhile, Mulvaney had the audacity to imply that the Fed's 0% interest rate policy might result in a weak USD. And Larry Kudlow, well everyone knows that he is under the perpetual illusion that we're still living in the 1970's.
Treasury goes to a guy with little
Source: Krugman: "Trump’s Economic Team Is A Gathering Of Gold Bugs"
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