This could be managed - controlled -, but I see no prospect of that happening. A re-balancing will inevitably have to happen at some stage. It's all been confined to the financial sector. Inflation in a range of asset prices has been rampant, but it has not affected the 'main street' economy because that's not where the cash is sloshing about. Claims that inflation has not occurred in the wake of Bank bailouts and QE seems to me to be a facile interpretation of what we've seen. And that's part of what fuels the unwarranted optimistic valuations) The only way to prevent that (if that assessment is correct) is to debase the currency to make up the difference through conventional inflation. Some commentators see a very serious disconnect between price and value and expect as much as a 50% correction downwards in index prices. I suspect we are seeing fantasy valuations at present. That, after all is what the stock market is supposed to be good at - matching price to value. Yet, far from settling the debate over Trump’s “America First” agenda and its economic effects, today’s strong indicators have raised even more questions about the direction of the economy.Īngus Deaton: "People do talk about the stock market, which has gone up a lot." If the current levels of stock market prices don't reflect the value of the underlying assets then a correction WILL occur at some stage. So far, those fears haven’t been borne out. Many economists, both before and after the 2016 election, feared that Trump’s trade protectionism, immigration restrictions, and rejection of multilateralism would send the economy into a tailspin. In fact, in 2016, the Nobel laureate economist Paul Krugman predicted that Trump’s election would trigger the next global recession. But with US stock markets growing increasingly jittery in the lead-up to the election on November 6, another possible explanation is that economic fundamentals are not as sound as Trump would like to think. Trump and the Republicans’ struggle to harness the political dividends of a strong economy may owe something to the president’s unconventional brand of politicking. Despite second-quarter US GDP growth of 4.2% and historically low unemployment, Trump’s approval rating has yet to reach 50%. Yet in the age of Donald Trump, this rule – like so many others – is being challenged. It is a truism that US midterm elections are referenda on the president, and that the incumbent’s party performs well when economic indicators are strong.
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