E Bannonomics, Not Trumponomics Will Crush The Economy

Steve Bannon threw major confusion into the markets with an interview at Hollywood Reporter where he said:

"I’m the guy pushing a trillion-dollar infrastructure plan," said Bannon in the interview. "With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks."

This is essentially a call for the New Normal on steroids. The problem with this is that it is the opposite of the euphoria pushing the markets up, a strong dollar and higher interest rates! It is the opposite of the Trumponomics analysis given by Wilbur Ross. But Bannon would have to allow the recession that is expected as we are at the end of the business cycle, in order for stimulus to work in its aftermath, because there may not be enough slack in the economy. And Bannon would likely have to turn it into a major depression!

The Republicans actually made a mistake as to timing, and probably should have allowed Obama a bigger stimulus package when there was slack in the economy in 2009. But they were selfish and determined to destroy Obama from the start, wanting him to be a one term president. An additional stimulus, at the beginning of Obama's second term, still prior to the end of the business cycle would have been more effective than now.

So now, at the end of the business cycle, where there is little slack, that fiscal stimulus could be a big mistake. Steve Bannon appears to understand this in a diabolical way. But for his plan to work the dollar would have to crater and rates would have to plunge and the stimulus would have to be delayed! Millions of people could lose their jobs and a credit crisis of epic proportions would be the result. This would be Bannonomics, not Trumponomics. 

The question is, are Bannon and Trump on the same page as to the timing of the stimulus? Would Donald Trump sanction a massive economic depression? 

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Gary Anderson 4 years ago Author's comment

Correction: Duy and Tarullo view. Not Trujillo.

Moon Kil Woong 4 years ago Contributor's comment

Yes the Fed will raise rates and rates will rise even if they don't. There is not much they can do about this.

Yes negative rates will be the death knell of any economy that undergoes it. Not permanently, but it will kill their economy. Anyone proposing them should not be allowed to be in a position to implement them.

Yes real estate will fall like bonds have and poorly performing stocks will not hold up either as the cycle ends. That said, it will be a while before a collapse. It depends on how and if Trump reverses the current state of things as to when the cycle ends and how bad it gets. In the meantime, enjoy 6 or more months of decent but not incredible days of our current economic cycle. Don't blame Trump entirely when the cycle ends, it will end no matter who took office.

Gary Anderson 4 years ago Author's comment

I agree, Moon. The cycle ends when it ends. But Trump may be between a rock, Trumponomics and a hard place, Bannonomics.

Moon Kil Woong 4 years ago Contributor's comment

Yes and sadly any fiscal stimulus may have to be countered by Fed tightening since it should have done so long before and not doing so may yield inflation and a stagnant economy which would be worse than it is now.

Gary Anderson 4 years ago Author's comment

The only other option is the issuance of #HelicopterMoney or 100 year #bonds, or perpetual bonds. Perpetual bonds have been issued by the government of the US before.