Today feels like the start of something new but what we're all actually experiencing is just a continuation of a decades long, evolving process which yesterday's inauguration of President Trump is simply the latest iteration.
For those of us who have to work there's precious little time to celebrate (or mourn) yesterday's changing of the guard since we all have to run our businesses and make payroll. I spend extra time writing this humble blog because I'm personally interested in how economic / political events affect business owners. My missives are meant to offer fresh perspective to my client friends and respected readers which they may not see otherwise from mainstream sources.
My perspective on the Trump administration is from Missouri: Show me!
Until we see what actual POLICY looks like nothing is certain except the stack of EO's Trump signed within an hour of his 2nd term including a 25% tariff on all goods from Mexico.
This will affect hundreds of thousands of small business owners and not in a good way.
I don't want to be a "buzz kill" for those who are happy to see the new administration take office since I am also quite frankly very happy to see the old one go. I can't possibly know how Trump will fare but I sure as hell know how horrible the Biden administration was for small business owners.
The problems facing Trump's administration are legion; some were created during the last four years like "stagflation" caused by printing literally 40% of all dollars in circulation just since 2020(!!). An absolutely epic level of dilution for any economy to absorb leaving us with almost $37 Trillion in debt and $1 Trillion per month in interest payments.
"While money printing is not a new phenomenon—the Federal Reserve has been printing money to service roughly $30 trillion in US debt—the scale of recent printing is unprecedented. Remarkably, 40% of all US dollars currently in circulation were printed in the last 12 months alone."
"The most recent data for December 2024 is out. The US govt had total revenue (taxes, fees, tariffs) of $454 billion. The US govt paid $140 billion in interest on the national debt. 31% of all govt revenue was consumed by interest payments on the debt. It is actually worse than that. The money revenue and payments for things like social security push up the revenue number, but it is all out the door to recipients right away. If you ignore the social security and unemployment insurance money, the US govt had $317 billion in revenue and paid $140 billion in interest on the national debt. About 44% of all revenue went to interest."
We add $6 billion PER DAY to the National Debt and interest rates continue to rise, because investors in the real world know this empire of debt is unsustainable and will fail in the not to distant future. But, let’s keep pretending everything is fine.
The new administration is walking into a buzz-saw of self-inflicted disasters some purposefully created to inflict chaos and others from mind-numbingly stupid policy decisions by elected public servants. For example:
The biggest economic issue Trump will face will be de-dollarization. More trade is happening in other currencies than ever before which means interest rates can't go down otherwise we can't finance our debt. So far, the only policy I've heard is a threat to impose 100%Tariffs on any country refusing to use our "Mighty dollars" acting in it's own sovereign interests or, God forbid, start another currency to compete with the dollar.
It won't work because there will be tit-for-tat sanctions on every country we do business with and prices will explode higher making white-hot inflation a feature of Trumps 2nd term. And it will make the dollar less, not more attractive in the process lowing Americans' standard of living for generations to come.
Stagflation is the biggest challenge we all face right now because it makes our entire asset base worth less while all the products and services we need get more expensive.
It's the dollars losing value that makes things look more expensive but I digress...
"The US government has been injecting vast sums of new money into circulation. Consider this: On January 6, 2020, the US Federal Reserve held approximately $4 trillion. By January 4, 2021, this figure had surged to $6.7 trillion. Money traditionally serves as a medium of exchange to facilitate transactions of goods and services. However, with no corresponding increase in productivity—meaning goods and services—backing up the trillions of dollars currently in circulation, printing more money doesn’t necessarily enhance economic output (productivity); it simply boosts the quantity of money circulating within the economy.
So, why does this matter? Well, it leads to inflation and devaluation. When an excess of money chases the same amount of goods, inflation occurs."
"The recent spike in 10-year yields has been explained away by many as the result of a strong economy, but they fail to mention that high inflation makes the 10-year yield harder to contain. High 10-year yields support higher rates for things like car loans and mortgages, and with the world still under the inflationary spell of COVID-era QE and free money “stimulus,” the only answer may be—you guessed it—more free money QE to “stimulate” an economy that’s already stuck in an infinite loop of inflation. As Peter Schiff said recently:
“I think that they’ve already lost control of the long end of the bond market…the Fed is going to be pressured to try to lower long-term rates, and the only way it would be able to do that is by buying the long term bonds, and the only way to get the money to do that is to print it.”
But not even the Fed has a clue for how it would deal with a stagnation scenario.
“It was almost humorous and even it got a laugh out of Powell. A reporter asked him at the last press conference, ‘What’s your plan for stagflation?’ And he laughed and says, ‘Our plan for stagflation is that we’re not going to have it."
But we already do. For now. markets are also still trying to figure out how to react to Trump’s win, and uncertainty breeds volatility. So, high inflation coupled with uncertainty and “strong” economic data are the three factors being attributed to the spike in yields. The inflation part is partially right; the only problem is that it doesn’t go far enough, because inflation is actually much worse than what’s being reported. The other problem is that the “strong jobs data” being partially blamed for the rise in yields is never really as strong as what gets reported, as the jobs reports and other economic data are unreliable and designed to paint as rosy a picture as possible."
Personally, I'm happy about the pardons for the J6 prisoners. There have been severe abuses of our justice system which has lost impartiality, the most fundamental aspect of dispensing justice. The abuse of Presidential pardons used in the waning hours of the Biden Presidency was particularly disgusting; those pardons and the reciprocal ones by Trump have made our entire system look like a free-for-all which it is.
"When the lawmakers become lawbreakers there is no law, only survival" - Billy Jack