‘Trump-flation’

What will you do when you go to buy your brand new TV and you find out it is 30% more expensive than it was yesterday. Then you look for that new car…. Up 30 ! Then you go to the supermarket and find that the shelves are all bare and people are scrambling to find the last traces of food? What would you do? What would be happening?

I recently had a chance to interview Mike Verge, author of the newly published book, ‘Global Deflation, and the Next Great American Decade to Come’ (now available on Amazon). In response to Trump’s implied economic policies, he has coined the term ‘Trump-flation’ in the national media. He says that applying a thirty percent tariff on imported goods would be an immediate thirty percent price increase on all imported goods. For items like food, suppliers may even choose to boycott the United Sates and send their products to other countries, slowing global trade considerably. “Building a wall” would be like applying an immediate tax on low-income households.  

To understand all this Verge says that we all must understand how deflation works on a global basis.In his book, he has created unique new visual models to explain complex economic concepts. He likens these models to ‘Deflation Sunglasses’.You put them on and all these economic complexities become clear. In a normal economic scenario, he predicts a world where the US enters a mild recession in 2017 but comes out of it in 2018 and then leads the world to a period of prosperity in the next decade. He says, however, that Trump policies would change all that! The world economy is already well into a delicate period of natural deflation, but that a strong dose of protectionism from Trump, would cause the world to slow even further sending us into a downward spiral. This self-induced deflation he calls ‘Trump-flation’.8 lines

In his book he goes on to describe a counter-intuitive world where oil prices drop, retailers are reduced to “Showrooms and phones”, banks are formed where nobody pays, and asset taxes replaces income taxes. To explain all of this, he depends on three key principles:

1.       The forces of inflation and deflation are always in a “tug of war”. On the deflation, side are ageing demographics, overcapacity, and extreme global debt levels. On the inflation side there is money printing, continual expansion of this debtand government infrastructure spending. 

2.       Deflation can only be fully understood from a global perspective (and in U.S. dollars) as all countries are trying to ‘export deflation and import inflation’.

3.       The internet is the “Silent Killer”. It is the greatest deflationary force of all time. By instantaneously sharing information globally, it increases the number of potential competitors in any market to infinity, thus reducing prices and profits forever.  

In his book, Verge does suggest some disturbing economic scenarios. However, even the worst of them never anticipated the economic policies of Donald Trump. He says that although isolationist policies (like building a wall at the border) may be popular rhetoric, they are not the answer. Periods of inflation and deflation are parts of a natural cycle, like breathing in and breathing out. Putting up a wall would be like suffocating the whole world in a giant plastic bag…..he calls it ‘Trump-flation’ …... And that should terrify us all!