Wednesday, May 17, 2017

Should Trump Take Credit for 4pct Growth?

Stop Press: The Atlanta Fed is forecasting four percent GDP growth for the second quarter.

Should President Trump take credit for that, or is this finally the economic policy of the former President Obama taking hold?

There are two obvious answers to that.

Point One: This is taking place on Trump's watch. So he takes the credit.

Point Two: After a major economic meltdown like the Crash of 2008 it takes about ten years for the economy to get back on track. That was true in the Crash of 1873, the Crash of 1929. So whatever the  government does, it takes about ten years to shake off the meltdown.

The point is that major crashes are major failures of the credit system. Millions of people lose everything they  have or at least take huge haircuts and can't do what they usually do: start businesses, buy houses, etc.

Now the theory: Per Walter Bagehot in Lombard Street, a healthy credit system requires that loans be properly collateralized and that borrowers should make their payments. If the market thinks that either is in question then you get a credit collapse, and a Lost Decade.

So right about now, the credit system should be getting back into gear, especially as housing prices have recovered. Did you know that one of the biggest ways of financing a new business is by taking a mortgage out on your house? People can't do that when their houses are under water.

Of course, I think that the way this worked out is rather cool. The Crash of 2008 was on Bush's watch, so he is to blame, even though the crash was caused by the Democrats encouraging non-creditworthy people to take out low-down-payment mortgages, and calling opponents to their policy red-lining racists. See Bagehot, above, regarding questionable borrowers and questionable collateral.

But the ten year hiatus after the crash took place on Obama's watch, so he is to blame whether or not he had anything to do with the case. Of course, he did a lot of stuff to slow the recovery, including raising welfare payments, putting a huge burden on small business with Obamacare, putting the financial system in a Dodd-Frank administrative strait-jacket, and throwing money away on crony-capitalist green energy. So there is that.

But now the ten year hiatus is over, and it is starting to look like the economy is ready to take off again. It's happening on Trump's watch so he takes the credit. But imagine if we had had a Republican president the last eight years. Imagine the fake news coming from the Democratic operatives with bylines about the cruel Republicans that didn't care about the suffering of the American people! The Republicans might have been out of power for a generation like after 1929.

But here is what I worry about. I worry that the economy will get such a boost from Trump tax cuts and the Trump Obamacare-lite and the lower energy costs of the fracking revolution, that the economy will overheat in a couple, three years, and we will have a nasty crash and recession.

But that is all in the future. Why, before then we might have Trump impeached and thrown out of office and President Pence impeached and thrown out of office and Hillary Clinton appointed president by acclamation.

So let's not worry about the future. Let's have another cup of coffee, and let's have another piece of pie. Yeah, that song came out in 1932, at the very bottom of the Great Depression.

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