Changing perceptions on modern political economics is perhaps the second most important paradigm shift in 2016 political understanding. The most important cognitive shift being the professional political class’s use of “the splitter strategy”, and/or professional manipulative intents to elevate two UniParty candidates (Bush and Clinton).
The UniParty was successful with defeating Bernie Sanders; however, the UniParty failed in defeating Donald Trump. The Sanders Team only discovered the scope of the professional DNC betrayal after the primary was over. The Trump Team succeeded because they were a more ‘in-tune’ audience – with more cynical experiences gained from six previous years of transparent RNC betrayal.
The UniParty political fraud also applies to our political economy. However, just like the election, understanding the deception in modern economics means understanding previous false and promoted assumptions.
Economically speaking, Bernie Sanders supporters, and the various left-wing advocates therein, are correct in stating the greatest financial and economic benefits have been delivered to the top 2% wealthiest people, the Wall Street class per se’.
Factually, while not resenting the wealth, most intellectually honest conservatives admit this is also the current reality. The wealth disparity in the U.S. has increased substantially over the past two decades.
However, the professional political class would like both sides to continue disunity, argument/disagreement on the outcome, and avoid discussing the root cause. It is within a comprehensive understanding of the root cause where Americans find unity.
We’ve already discussed how two entirely divergent economies, a Wall Street economy, and a Main Street economy, were created by exploitation of financial interests and the accompanying legislative priorities.
Regardless of mid-1980’s political motives, the result was the creation of two entirely disconnected economies. The professional political class merely pandered to the demands of their most influential legislative donors. Hence, TARP, Bailouts, etc.
Main Street’s economy was/is a more traditional economy, based on “Americanism“. Wall Street’s economy is purely financial (mostly paper), based on the multinational financial instruments that underline “Globalism“.
This is not to say that all Wall Street engagements or activities are bad, they are not. Financial instruments and corporate interests have a large place within our traditional economy. However, global financial instruments may, or may not, have a similar positive influence.
Given the historic rise of global corporatism and massive multinational’s, it’s easy to spot the inherent anti-nationalist sensibility. Wealth doesn’t spread without a spreader; and American wealth doesn’t spread, without an American wealth spreader.
So we end up with two economies; which, over time, have grown further and further apart. The wealth disparity between the middle class and the “well off” class, tracks identically with the separation of these two economies. – SEE HERE –
The U.S. election of 2016, is the first time in two decades where the Main Street economy has won. Consequently the U.S. election of 2016 is the first time in three decades where the attention of the DC Legislation may look toward that now increasingly unfamiliar, and ever distant, economic model – Main Street.
The space between our two American economies is a massive chasm now, and as a direct result we are in seriously uncharted economic territory. I say it is so different, it’s actually an entirely new dimension.
The reason for saying “a new dimension” is simply because the space between the two economies is so large, so substantial, there is no accompanying economic theory to map out what happens within it. Until an economic balance, economic unity between Wall Street and Main Street, can be achieved -if ever- we will be in this weird new space.
However, just like the election tripwires, and accepting we are in unfamiliar terrain – I have been researching some potential outcomes and establishing “economic tripwires” to watch for. If triggered there may be much more predictability than most would think.
Many of these new economic tripwires are highly unusual. Most of them are antithetical to traditional economic theorem or historic ‘cause and effect‘ patterns. Feedback is very much welcomed and appreciated.
♦ The first economic tripwire is GDP (Gross Domestic Product). GDP is, by design and definition, exclusive to a Main Street economy. [Wall Street doesn’t actually produce anything.] GDP is the annual value of all economic output; the value of all goods and services produced within the U.S. economy. Currently the GDP value is around 18 trillion.
For the past six years (post recession) we have been bumping along the bottom of GDP growth evaluation like a fishing weight being dragged, jigged, across the sea floor. GDP at approximately 2% growth (+/- .05%). When you factor inflation, our GDP output is actually down over the same time period.
However, since the election there have been “economists” or business interests projecting forward GDP estimates with wild variances. Some say 3%, others have said up to 7 or 8% is possible. That’s a 5% spread on opinion. Think about that.
A five percent variance in GDP projection on a near $20 trillion economy is a trillion dollars. Put another way – that’s 1,000 x a billion dollar difference in a single year GDP projection amid economists. Why such a disparity? ….Because we are in that uncharted territory, the new economic dimension.
My tripwire is set at the upper scale of that projection, in the 7% range, based on a fiscal year (Oct through Sept), not a calendar year. Because all of the basic essentials for the massive growth are already there, and small amounts of capital can generate massive amounts of GDP output. The Main Street economic engine has just been sitting on idle; with no-one paying attention to it, or seeing it as a viable model – until now.
♦ The Second Tripwire is the inability of fiscal policy to curb the GDP growth rate. In my opinion, domestic capital investment will not be impacted by interest rates. Heck, I doubt there’s much the fed can do monetarily to actually impact GDP. In this new economic dimension, fed rate increases will only impede the economic engine they are closest to, Wall Street and the global economy.
The Wall Street economy will be impacted by fed policy rate hikes (ironically reversing the historic trend in wealth distribution) but not entirely for the reason most think. The investment outlook will find global investing less appealing as internationally networked economies begin to shrink, and national economies become more centric and expansive. Larger financial returns will be available domestically. Ex. watch Brexit.
Another dichotomy: Monetary policy -to include rate hikes- will be unable to stop GDP and the accompanying increasing valuations of the U.S. dollar.
Naturally, this makes exports more costly and imports less costly.
However, our imports and exports have been in an inverse relationship with inflation since the Wall Street economic emphasis began. We mostly export our consumable goods, and we mostly import our durable goods (see chart for inflation impact on durables and consumables):
The Wall Street global economy made us more dependent on imports for cheaper durable goods. Those international companies, importing into the U.S, hold the dollars they receive during the transaction. As the dollar increases in value, their holdings increase.
[*Note on Chart* notice almost everything below 0% inflation is an import, everything above 0% is a domestic product.] Given natural supply flows, a strengthening dollar can flip this inflationary outcome. From a consumption perspective you’re more likely to hold on to your older TV a year longer, but your cereal will be much cheaper.
This is why you see THIS STORY.
SAN FRANCISCO — The Japanese business mogul Masayoshi Son pledged to President-elect Donald J. Trump nearly two weeks ago that he would invest in the United States and create about 50,000 jobs.
On Monday, Mr. Son’s conglomerate, SoftBank, took what it described as the first step in fulfilling that commitment.
By leading a $1.2 billion investment in OneWeb, which makes satellites for internet access, SoftBank said it was continuing to invest in new technology and supporting job creation in the United States. (more)
♦ Tripwire Number Three – Another weird dichotomy, Housing Values. This one is a little tricky because region to region there are multiple variances and possible outcomes.
However, in a general sense, even with expansive GDP and growing wage rate pressure, home values in the aggregate will drop. Rent prices will also drop. The reason is odd, yet simple. Moving forward, investment ownership will be less favored and there is a massive amount of investment capital currently holding real estate.
A weird confluence exists. Check your local real estate listings you will most likely see many more homes, condos and apartments for sale. Increased inventory = lower overall prices. Large, multi-unit building investment, lags approximately 18 months behind most current economic trends.
Institutional and small investors are only just beginning the initial stages of asset relocation in anticipation of a new 2016 tax code. In essence, since November, most have made profit taking decisions based on Trump’s tax proposal being a reality in tax year 2016. In addition, interest rate hikes generally have a negative impact on the housing market, and if the GDP starts running hot there will be traditional pressure on the fed to cool it down with rate hikes.
To be continued…