HomeArticlesMarket Minute: Trumponomics 2.0 Looks Like an Uphill Battle

Market Minute: Trumponomics 2.0 Looks Like an Uphill Battle

2 min read

Oliver Renick

Lead Anchor

It's all pretty exciting what's going on right now -- no doubt. The second inauguration ceremony of Donald Trump emanated a refreshing bipartisanship and earnest zeal for America & mankind (Mars), but the economic vision for the economy is unconvincing. 

I'm not even talking about the billions of dollars exchanged among the earliest followers of Trump and Melania-themed crypto tokens that were minted last weekend, leading to purported huge gains for those in the know, if you believe Reddit threads and screenshots of trading accounts. There's no particular reason not to -- this is crypto, after all. 

Let's talk about the other stuff. The inflation stuff. Inflation got more than a few mentions in the inauguration speech; did crypto get one? It's clear where Trump & Co are making their stand on the economy. It seems like they believe two things: inflation is a result of unnecessary government spending, and that crude oil production should be much higher.  

The first may be true to some degree, but only to a degree. Covid closures were a massive one-time shock to the supply chain, which contributed a great deal to prices increases, and so did some geopolitical events. The funny part though, is that if you do accept that inflation is the result of deficit spending, you must also accept it was the former Trump administration who ramped the Debt-to-GDP ratio up to record highs.  

Perhaps that's why we're hearing a lot about "drill baby, drill," -- the mantra to pump more oil and bring down prices. Energy did play a key role in inflation three years ago as crude oil surged back from negative, but in the past two years, energy prices haven't played a leading role in inflation. There was a pop in the most recent reading, but oil's almost 40% off its three-year high, and energy has contributed more negative than positive readings to inflation the past two years. Maybe oil prices can come down more, but production is currently at its highest ever and top in the world. 

Asset prices also support demand, and boy are they expensive: the Shiller P/E ratio is the highest for the start of any presidency going back to Reagan.  

There are probably ways to maintain sky-high valuations while bringing prices of goods and services lower, and it probably doesn't look a whole lot different from what we've been doing. After all, CPI was near 10% just a few years ago. Let's not fix it if it isn’t broke.

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