What is the result of the Dow Jones industrial average breaking through the 20,000 mark?
I’m of the opinion that the psychological milestone is no different from breaking through 19,990, however rounded numbers are far more celebrated than others.
So the Dow won the race it was in with the National Debt Level, which is now $19,986,000,000. That’s $19.9 trillion we owe the Federal Reserve, China, Japan and the rest of the world.
From my perspective the debt level is the bigger 20 mark issue for all Americans including our new President.
President Trump knows debt and knows how you deal with it. In private life he has defaulted on debt numerous time whether it was through bankruptcy or reworking the loans to his benefit.
Sovereign debt is a little bit different, you don’t default if you are the US. Historically, the acceptable way to rework sky-high debt is to inflate your currency so that you are paying back 80% of your debt level with money that is not worth as much as when you borrowed the money.
To that end, if the Federal Reserve was to raise rates three times this year, however, than that would put a damper on any economic growth and inflation.
So, I will say right now in January of 2017 that the Fed will not raise rates until October of this year. It will again be a one and done year, like the last two years.
The Trump Administration will accept and actually celebrate a 3+% inflation level and will tell Americans this is a sign the economy is back. The Fed will sit on its hand saying that the economy is not too hot, because 3% inflation in an economy that is growing at 2%-3% is acceptable growth without a fear of runaway inflation.
Well before this gets too wonky, I will close with this axiom.
The Trump White House will state: After a near-decade long economic malaise, the muscle memory of the US consumer to pull money out of their pocket is muted, so letting the economy get a little more inflation than the acceptable level according to the Fed’s assessment, is perfectly acceptable t them. Look for Treasury chief Steve Mnuchin to say something along this line in April/May timeframe.
I will talk soon about how this policy could ultimately hurt the consumer if things get out of hand.