Nouriel Roubini's 6 Reasons Trump's "Erratic, Destructive Policies" Could Crush Markets

Tyler Durden's picture

Authored by Nouriel Roubini, originally posted at Project Syndicate,

When Donald Trump was elected President of the United States, stock markets rallied impressively. Investors were initially giddy about Trump’s promises of fiscal stimulus, deregulation of energy, health care, and financial services, and steep cuts in corporate, personal, estate, and capital-gains taxes. But will the reality of Trumponomics sustain a continued rise in equity prices?

It is little wonder that corporations and investors have been happy. This traditional Republican embrace of trickle-down supply-side economics will mostly favor corporations and wealthy individuals, while doing almost nothing to create jobs or raise blue-collar workers’ incomes. According to the nonpartisan Tax Policy Center, almost half of the benefits from Trump’s proposed tax cuts would go to the top 1% of income earners.

Yet the corporate sector’s animal spirits may soon give way to primal fear: the market rally is already running out of steam, and Trump’s honeymoon with investors might be coming to an end. There are several reasons for this.

For starters, the anticipation of fiscal stimulus may have pushed stock prices up, but it also led to higher long-term interest rates, which hurts capital spending and interest-sensitive sectors such as real estate. Meanwhile, the strengthening dollar will destroy more of the jobs typically held by Trump’s blue-collar base. The president may have “saved” 1,000 jobs in Indiana by bullying and cajoling the air-conditioner manufacturer Carrier; but the US dollar’s appreciation since the election could destroy almost 400,000 manufacturing jobs over time.

 

Moreover, Trump’s fiscal-stimulus package might end up being much larger than the market’s current pricing suggests. As Presidents Ronald Reagan and George W. Bush showed, Republicans can rarely resist the temptation to cut corporate, income, and other taxes, even when they have no way to make up for the lost revenue and no desire to cut spending. If this happens again under Trump, fiscal deficits will push up interest rates and the dollar even further, and hurt the economy in the long term.

 

A second reason for investors to curb their enthusiasm is the specter of inflation. With the US economy already close to full employment, Trump’s fiscal stimulus will fuel inflation more than it does growth. Inflation will then force even Janet Yellen’s dovish Federal Reserve to hike up interest rates sooner and faster than it otherwise would have done, which will drive up long-term interest rates and the value of the dollar still more.

 

Third, this undesirable policy mix of excessively loose fiscal policy and tight monetary policy will tighten financial conditions, hurting blue-collar workers’ incomes and employment prospects. An already protectionist Trump administration will then have to pursue additional protectionist measures to maintain these workers’ support, thereby further hampering economic growth and diminishing corporate profits.

 

If Trump takes his protectionism too far, he will undoubtedly spark trade wars. America’s trading partners will have little choice but to respond to US import restrictions by imposing their own tariffs on US exports. The ensuing tit-for-tat will hinder global economic growth, and damage economies and markets everywhere. It is worth remembering how America’s 1930 Smoot-Hawley Tariff Act triggered global trade wars that exacerbated the Great Depression.

 

Fourth, Trump’s actions suggest that his administration’s economic interventionism will go beyond traditional protectionism. Trump has already shown his willingness to target firms’ foreign operations with the threat of import levies, public accusations of price gouging, and immigration restrictions (which make it harder to attract talent).

 

The Nobel laureate economist Edmund S. Phelps has described Trump’s direct interference in the corporate sector as reminiscent of corporatist Nazi Germany and Fascist Italy. Indeed, if former President Barack Obama had treated the corporate sector in the way that Trump has, he would have been smeared as a communist; but for some reason when Trump does it, corporate America puts its tail between its legs.

 

Fifth, Trump is questioning US alliances, cozying up to American rivals such as Russia, and antagonizing important global powers such as China. His erratic foreign policies are spooking world leaders, multinational corporations, and global markets generally.

 

Finally, Trump may pursue damage-control methods that only make matters worse. For example, he and his advisers have already made verbal pronouncements intended to weaken the dollar. But talk is cheap, and open-mouth operations have only a temporary effect on the currency.

 

This means that Trump might take a more radical and heterodox approach. During the campaign, he bashed the Fed for being too dovish, and creating a “false economy.” And yet he may now be tempted to appoint new members to the Fed Board who are even more dovish, and less independent, than Yellen, in order to boost credit to the private sector.

 

If that fails, Trump could unilaterally intervene to weaken the dollar, or impose capital controls to limit dollar-strengthening capital inflows. Markets are already becoming wary; full-blown panic is likely if protectionism and reckless, politicized monetary policy precipitate trade, currency, and capital-control wars.

To be sure, expectations of stimulus, lower taxes, and deregulation could still boost the economy and the market’s performance in the short term. But, as the vacillation in financial markets since Trump’s inauguration indicates, the president’s inconsistent, erratic, and destructive policies will take their toll on domestic and global economic growth in the long run.

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Yars Revenge's picture

Fuck Nouriel Roubini

buzzsaw99's picture

The child of Iranian Jews, he was born in Turkey and grew up in Italy...

american my ass.

ParkAveFlasher's picture

"...antagonizing important global powers such as China..."

That's called "competition", it's how you get to being "important".

rmopf2010's picture

BTFD please !!!!!!!!!!!!!!!!!!!!!!!

BaBaBouy's picture

He must be buying Paper GOLD ???

knukles's picture

What he's referring to had more traditionally and without pretension, "uncertainty"

Row Well Number 41's picture

"According to the nonpartisan Tax Policy Center..."

 

Is there such a thing as a nonpartisan NGO/Think Tank?

Pinto Currency's picture

AND #1...

TRUMP IS DANGEROUS TO THE MARKETS BECAUSE THE FED BLEW THE BIGGEST DEBT BUBBLE IN HISTORY AND IT IS NOW COLLAPSING.

Which makes as much sense as the Fed can create real growth by creating debt-based money from nothing.

Stackers's picture

"With U.S. employment at or near full capacity"

and you just lost all credibility with your analysis Mr Roubini.

What are these fools thinking when they say this with labor participation rates collapsing to 50 year lows ???

OfAllElaboratePlans's picture
OfAllElaboratePlans (not verified) Stackers Feb 2, 2017 3:07 PM

Kiss my ass you jew hypocrite.

 

Nouriel Roubini (born March 29, 1958) is an American economist.[1] He teaches at New York University's Stern School of Business and is the chairman of Roubini Global Economics, an economic consultancy firm.

The child of Iranian Jews, he was born in Turkey and grew up in Italy.

 

~~~

 

Jews shoving their 'self interested' opinions down your throat, expecting you to swallow it whole & laughning at your stupid @ss after you take the bait.

 

IT.FUCKING.NEVER.ENDS. (does it)?

detached.amusement's picture

you've got to be able to recall 6 million individual instances first

11b40's picture

Then there is this:

"and immigration restrictions (which make it harder to attract talent)."

Not harder to attract talent....harder to attract CHEAP talent and destroy America's STEM programs.

 

I found ZH back in the early days, and migrated here from Roubini's blog when he sold out to TPTB and cut out the free parts of his service & jacked up his rates to over $4K/yr.  His voice was strong leading up to the market crash of 2008/09, but it seems that someone reached out and "touched" him & he started parrroting the establishment line.  He had a very lively comment section, too, and several of us came here.  Most have melted away over time, or at least stopped commenting.  Too bad.  When CAPTCHA was eliminated, and math skills were no longer a requirement for comments, we lost a lot of those with real financial acumen willing to share.

 

mophead's picture

"Indeed, if former President Barack Obama had treated the corporate sector in the way that Trump has, he would have been smeared as a communist; but for some reason when Trump does it, corporate America puts its tail between its legs."

That's why I've been saying: Trump is a liberal posing as a conservative, just like Obama was a conservative posing as a liberal (wall st bail out).

None of you get it!

NoDebt's picture

@41-  I don't think there's any such thing as nonpartisan any more.  Period.

Like my Dad told me a long time ago:  "It's all bullshit, son.  The trick is to pick a level of bullshit you're comfortable with and stick to it."

 

zombiefarmer's picture

Peter Schiff is one of the only economists that I listen too and he's rather nonpartisan.

 

Forbes's picture

Tax Policy Center is a joint project of Brookings and the Urban Institute--both on the left. But in fairness, they usually do pretty good work most of the time.

NoDebt's picture

Well, Nouriel, I'll put it to you this way:  We couldn't keep going like we were going.  We couldn't stomach the alternative.  So we're doing this.

And don't be so fucking pessimistic all the time.

 

Omen IV's picture

Roubini is a Neo Liberal Whore - he doesnt know how far the Trump labor policies will be enabled. The dollar must be devalued  but Trump already knows that

 

so watch and wait

Lost My Shorts's picture

I predict the market might crash right away.  Or it might crash in the long run.  I am a genius too.

Chris Dakota's picture
Chris Dakota (not verified) buzzsaw99 Feb 2, 2017 2:40 PM

He is double butthurt.

Jew

Iranian

Fredo Corleone's picture

Is this not the same Nouriel Roubini who, according to New York Magazine, has plaster vulvas patterened on his walls ?

Which begs the question, was Nouriel at the pussy march ? Did he get a hat ?

assistedliving's picture

feel sorry for you buzz.  pity actually

GUS100CORRINA's picture
In responts to "Nouriel Roubini's 6 Reasons Trump's "Erratic, Destructive Policies" Could Crush Markets", I will list my six reasons markets are headed south no matter who is president:

1. DEBT LOAD

2. GOVERNMENT CORRUPTION

3. CORPORATE CORRUPTION

4. FAKE "STATISTICAL MEASURES" USED TO VALUE EQUITIES AND BONDS

5. MSM FALSE WITNESS CREATING FEAR

6. Nouriel Roubini's FEAR MONGERING ANTICS AND KEYNESIAN BABBLE!!!

Nouriel ... SHUT UP AND GO AWAY!!

 

 

Chupacabra-322's picture

@ GUS,

1. DEBT LOAD

2. GOVERNMENT CRIMINAL CORRUPTION

3. CORPORATE CRIMINAL CORRUPTION

4. FAKE "STATISTICAL MEASURES" USED TO VALUE EQUITIES AND BONDS

5. MSM FALSE WITNESS CREATING FEAR

6. Nouriel Roubini's FEAR MONGERING ANTICS AND KEYNESIAN BABBLE!!!

Nouriel ... SHUT UP AND GO AWAY!!

EDITED FOR BETTER CONSUMPTION

Lanka's picture

The market essentially went up since 2009.  Its overdue for a serious correction.

gatorengineer's picture

I'll give you a different number one.  1) 20+ years of globalism entrenched in the MSM, Coprorate Kleptocracy, and Education systems.

BabaLooey's picture

Oh go fuck off with this red meatish, click baitish shit headlines ..........Roubini....

Jesus Tits....these cocksuckers are begging for a beat down.

 

Dolus's picture

And the number one reason 1. Trump inherited the largest CB created bubble in monetary history from Obama. 

orangegeek's picture

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration.

 

So what we have here is another fucking snowflake that sucks Hillary's cock for a living.

 

EAT SHIT AND DIE NOURIEL DOUCHEBAG!!!!

TeethVillage88s's picture

Neoclassical Economics isn't it?

"Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the neoclassical synthesis which dominates mainstream economics today.[2] Although neoclassical economics has gained widespread acceptance by contemporary economists, there have been many critiques of neoclassical economics, often incorporated into newer versions of neoclassical theory."

beijing expat's picture

Oh man; don't tell me Roubini is a fucking libtard too. Don't blame Daddy, blame that unfaithful bitch Yellen.

deplorable nation's picture

Roubini is still around? I predicted that he would become irrelevant a long time ago...

orangegeek's picture

He abandoned his goats and returned to media.

Forbes's picture

Roubini went silent for 8 years. I guess that was his irrelevant period.

Jason T's picture

So wrong!!

Trump game plan is going to lite a fire on productivity.

Dien Bien Poo's picture

Why do you say that? Becuase Joe Kiernan told you on CNBC? you toothless shit grinning moron.

Bill of Rights's picture

Are you blind or just a fucken retard?

Dien Bien Poo's picture

Am not blind, neither a moron. I just understand economics better than you and the orange idiot. 

gatorengineer's picture

I dont think it will be productivity that will increase per se.  I think aggregate production will increase as the 90,000,000 out of work re-enter.  Its going to be damned hard to get more productivity as those that work are bled to death by both taxes, and the corporate slavemasters....

Atomizer's picture
Nouriel Roubini, Donald Trump announced the market crash before being elected President. Stop your doom stories. It will take me time to pull video. In the meantime, watch a empty advertising gap. To promote your bullshit. 

Norton Furniture #1 - YouTube

Cursive's picture

How do they say it in Khazarian?  Chutzpah?  This guy is part of the Economics profession racket that has provided cover for this Fed-induced ponzi scheme and he purports to warn us of the dangers of Trump?

skunzie's picture

Friggin' dildoes.  How about an article about how Trump's policies will likely ignite long dormant innovation and productivity in this country?  The MSM, close friend and ally to the depressed, downtrodden, victims.  Get out of the way and let's have some positive reporting.

newworldorder's picture

Roubini is an ideot in his reading of the Poltical tea leaves.

thestrength's picture

So much garbage every day.

Sofa King's picture

If heard some of this dolts comments over the past few weeks, seems like he was in-line to get on his knees and suck Hillary's dick in an advisory position but was denied due to her miserable failure. Oh, well...back to ripping off people with your useless newsletter.

TeethVillage88s's picture

Yes. His generalizations here are breath taking.

So here is an Economist that steps away from his realm to enter politics for the Democrats.

Political piece with no evidence and apparently Trump hasn't revealed enough to make any of these claims.

- Suppose Financial Ratings are tightened up in the USA across the Industry to weaken the US Dollar while Interest Rates rise... but I'm not an Economist. It just seems US Governments of all levels are over rated as are TBTF Banks

pitz's picture

Destructive policies?   WTF?  Cracking down on the H-1B visa, as Trump is scheduled to do, is not a destructive policy.  It will strengthen the US economy by actually putting American innovators back to work. 

WTFUD's picture

Fuck Roubini , he's past his sell by date! What does Jim Rogers who played the long-game on Russia recommend?