Dear Mr Trump,
Hope you got my letter yesterday. I have been thinking about what I wrote you and thought it might be a good idea to give you some talking points for your next debate on the 19th. Since my last letter I suppose you have been thinking about my suggestion to tell the American public the truth about what is really happening in the world and what will need to be done about it. While I expect this may not sit well will you. Think of it as a cleansing of your Brand, or basically ridding yourself of that stench of national politics which has been following you around the last year or so.
The good news is win or lose the “Trump Brand” will move forward.
Now on to today’s topic.
A sober look at the current economic environment reveals overvalued, overbought, and illiquid markets everywhere. The global central bank community’s ultra-low and negative interest rates have created an environment of risk that is looking more and more like a bubble in search of a pin. If and when it bursts, it will take the retirement dreams of millions of Americans with it.
If the Fed had really believed their own post-recession forecasts, they would have been normalizing interest rates by 2012. Instead, they went on devising, deploying, and now winding down various shotgun stimulus tools. Maybe they honestly believe they hit the target, but the rest of us aren’t convinced.
What the Fed has done is to destroy the retirement hopes and dreams of multiple tens of millions of Boomers, and when we include the effects of the destructive policies of the rest of the world’s central banks, the number becomes hundreds of millions. The secure and protected world our central bankers live in is far removed from that of the American or European middle class retiree. The purity of their theory and the clarity of their economic thought is evidently far more important to them than people’s wellbeing is.
Next let’s look at fiscal reality. Sometime in the first year of the next presidential term, the US national debt will top $20 trillion. The deficit is running close to $500 billion, and the Congressional Budget Office which does not see a recession in the near term projects that figure to rise. The coming recession could add $1 trillion more per year to these totals. Then add another $3 trillion or so in state and local debt.
As you may imagine, the interest on that debt is beginning to add up, even at the extraordinarily low rates we have today. Once interest rates begin to rise the government will be replacing low interest debt with higher more expensive debt. Interest costs will continue consuming more and more of yearly tax revenue.
Sometime in 2019, entitlement spending, defense, and interest will consume all the tax revenue collected by the US government. Sooner if the US is in a recession. That means all spending for everything else will have to be borrowed. The CBO projects the annual yearly deficit will rise to over $1 trillion by 2023. By that point entitlement spending and net interest will be consuming almost all tax revenue, and we will be borrowing to pay for our defense. All this is predicated on no recession and above average GDP growth over the next 2 years. With a recession and increased government deficit spending these projections will only get worse.
Finally, here is the great irony and possibly the most absurd part of the Fed’s monetary policy initiative. In this low interest rate environment they wanted investors to move out on the risk curve. But did they bother to look at the demographics of this country? We have a huge bulge of Boomers – retirees and near-retirees who do not need to be moving out the risk curve at this time in their lives. They need consistent short and intermediate term returns, and they need to be reducing their risk, not increasing it.
By reducing the incomes of retirees and terrifying near-retirees, the Fed successfully reduced economic activity. Hopefully, that was not their intent, but that is what happened. Maybe this is what you should be telling the public, instead of talking about Bill Clinton’s love life.
These are the things you need to be telling people during your next debate. We need to know what is going to happen and how it happened. You have the chance to prepare the country for the coming storm..
Someone needs to be honest with the country. It should be you.