Obama, The Federal Reserve, and Donald Trump
You have been led to believe that the Obama Presidency ran the National Debt to $19.5 Trillion Dollars. Further, that Obama doubled the amount of US Debt of all of his predecessors combined. What did you miss?
Remember Ben Bernanke at the Federal Reserve and his wonderful invention called “Quantitative Easing”? What? Well, QE is a shifty way of “increasing” the National Debt without it increasing the National Debt! Really? Yep! What happens is, the Federal Reserve, which is its own government independent of the US Government and can “borrow” money, print money, buy US Treasury notes, Money Backed Securities (remember the crash of 2008 when Freddie and Fannie blew up the real estate markets by allowing the bundling of bad sub-prime loans), and indirectly purchase stocks on the stock market. Well, Obama and his brilliant team had no idea how to stimulate the economy organically, via tax cuts and investment incentives, so they joined the Federal Reserve and came up with Quantitative Easing. So, what does this have to do with the National Debt?
Well, the Fed “increased” its securities assets by $4 Trillion dollars over the Obama 8 years. But, since the Fed and Obama did not want to flood the money supply by printing worthless currency, so they used Quantitative easing to increase the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity! The end result is the same! Your dollars are worth $4 Trillion less and the Fed, and you the taxpayer, are on the hook for $4+ Trillion in debt that is not included in the National Debt!
So, the real Obama National Debt is $24 Trillion!
Why does this matter to you?
There is no free lunch!
So while the Fed and Obama were able to create a stock market bubble and drive up “preferred” stock prices for preferred companies, and absorb a lot of the residual Freddie and Fannie funny money debt, ($2 Trillion Dollars), they were postponing the need to payback this bubble once the economy got back on track!
Enter Donald J. Trump and a US Economic Resurgence
So, in November 8th, 2016, Donald J. Trump was elected! Immediately he reversed the Obama business choking regulations and by the end of his first year passed a historic Tax Cut. The result, the economy immediately responded with new jobs, new business investment, repatriation of corporate money held overseas, and an optimism the country had not seen since Reagan. Then, last week, the investor community woke up and suddenly remembered the $4+ Trillion dollar debt we have in the Fed Closet! In a few short days, the Dow dropped precipitously to December 2017 highs.
Why did panic set in? Well, the markets are not necessarily logical and always are driven of EXPECTED future events! What are the panic drivers? FEAR of higher interest rates and their impact on the economy and consumer spending, FEAR of inflation as wages increase and more people enter the job market, and FEAR of FEAR!
Are interest rate hikes and inflation increases fears realistic? Probably to some degree. The Janet Yellen Federal Reserve had been slowly increasing interest rates since Trump took office from the Obama zero interest rate era! Last week, during Yellen’s last Fed meeting, she did not raise interest rates as expected and she should have and irresponsibly stated that the stock market was overvalued! She was irresponsible because the Price/Earnings ratios of Dow and other markets have not grown unreasonably over the past year in spite of rising stock prices. Earnings have risen pretty much with stock prices. The Dow showed the highest gain in 2018 v 2017 with an increase to $25.98 from $20.31, the NASDAQ increased to $26.10 from $24.15 and the S&P 500 actually dropped to $21.71 from $24.18.
Where will the Market Go and How do we Get Rid of Obama’s Extra $4+ Trillion in Fed Funny Money?
The economic fundamentals are sound. Companies will continue to repatriate cash into the US, continue to expand manufacturing and other investments in the US, the labor participation rate will continue to add more citizens into the job force, and more jobs will be created. Would an increase in interest rates kill the economy? As long as interest rates stay around 5% and inflation stays around 3%, the world as we know it will not end! Corporate borrowing will be almost nil for global entities due to the piles of cash they have had offshore that they will repatriate. The tax cuts will provide all companies with additional cash flow that will lower the demand for borrowing. Consumers benefiting from higher wages will stay about where they are in terms of borrowing and interest rate increases will have minimal impact on already high credit card interest.
If US GDP grows at 4-5%, and President can get his budget through in order to control costs, the Federal Government should generate sufficient tax revenues to start to reverse the National Debt. As employment numbers continue to rise, payments into Social Security and Medicare will slow than stop the bleeding from these funds. The Federal Reserve has initiated a program whereby it will start to chip away at its $4+ Trillion dollars in quantitative easing debt at the rate of $10 Billion per month. At this rate of principal reduction, no real impact on the overall economy should occur.
So, the bad news is that Obama actually topped $24 Trillion in total national debt. The good news is that Donald J. Trump is the current President of the US now! If Clinton had been elected, the Obama economy that was based on a ballooning National Debt and a ballooning Federal Reserve debt on its balance sheet would have been perpetuated. It would have been a matter of time before the US became a rival junk economy to Greece!
It is critical that Republicans hold the House of Representatives and pick up 9+ seats in the Senate during the 2018 mid-term elections. President Trump will be able to then attack capital gains taxes and complete his revamping of the tax codes. He will also be able to rebalance Social Security and Medicare funds and put them back on a solvent path. Welfare reform via work programs will continue the cost reductions for the Federal and State governments. There are a lot of systemic changes that still need to be made and President Trump needs a Congress that will support his policy changes…
P/Es & Yields on Major Indexes
|2/5/2018†||Year ago†||Estimate^||2/5/2018†||Year ago†|
|2/2/2018†||Year ago†||Estimate^||2/2/2018†||Year ago†|