The most obvious fact right now is that the economy is doing very well. Job creation is accelerating, economic activity is improving, and GDP is growing. First off let's deal with this 3% growth idea. We have heard for over a decade that the Federal Reserve throwing trillions of dollars into the economy would wreck the economy by inducing waves of high inflation and disruption in free markets. Truth is since there was never much demand for that money from new business expansion or consumer demand in effect almost all of those dollars remained in the banking system doing little but earn some small interest for participating banks. Business profits remained flat in the small business sector and in large corporations since there was almost no increased demand for products there was no need for increased loans for business expansion. Many large corporations did nothing but increase buybacks with those profits and added to dividends thus pushing up the stock market. That financial engineering was enhanced by the Obama high tax policy and the huge federal spending that kept many consumers on the government plantation without much spending power. As we opined many times to be asset rich during the Obama economy was a good thing and government elites and the already well off remained well off. The middle class and below felt the pain of no real jobs and no increased wages. Going forward the new Trump economy of less regulation and lower taxes will produce 3% plus growth and some additional inflation, but we expect inflation to remain in check since the new economy will be centered more on production than consumption.
We are not a fan of tariffs, but in the current case we see some long term benefits. First and most importantly we see the opening of markets in China and elsewhere to our exports as perfect for our unique time in that American consumers, notably younger people, are not spending with abandon. The recent economic crisis seared many of these people into saving instead of spending. The result is the continuing loss of retail stores and the weakness in all the retail sector from grocery to clothing. This is further hit with the move to online shopping which is driving costs down and killing off even more retail outlets. So with an economy that was for decades pushed upward by consumer demand from where does the new growth come? Simple, exports, and that is already showing up in the recent employment reports with nice gains in factory jobs and the increased spending by businesses in technology and other capital spending. Unlike others I believe Trump will find a new middle ground on tariffs that will spur even more exports and thus more export jobs. The fact that America is unique in the world being all but energy self sufficient due to the huge new finds in oil and gas that will fuel these new factories with cheaper than anywhere else in the world energy is a big plus too. America is moving from a consumption economy to a production economy.
Now remember all that money sitting in the nation's banks from the recent Federal Reserve easing. As the Fed draws back the punch bowl also expect some of that money to be lent out by those banks for expansion of factories and business as the export economy grows. Also note that in a economy based on production and exports and not consumption larger amounts of money stays in bank deposits and that in turn holds down inflation and spurs home building and business expansion. Yes this is the real new normal a new normal that is like the old normal in that America is returning to a export economy with frugal consumers who work, save, and invest and make American great again for themselves and more importantly for generations to come. We are headed back to our father's economy of after World War Two and we see nothing but positives for all.
So invest and have skilled employment to participate fully in this American economy. Betting against American for now going on 242 years has been a suckers bet.
