Very funny: “President Trump’s policies have re-jiggered the incentive system in the economy.”  …Well, that’s a slightly different wording than CTH has used since 2016, but what Mr. Kudlow is highlighting is how POTUS has uncoupled the U.S. economic engine from Wall Street investment and re-coupled it to Main Street investment. [Go Deep]
Then comes the funniest pundit question ever…. “where is this disconnect coming from?”
Too funny.  Long-term CTH readers likely joining me in laughing at the predictability of it all.   [“Disconnect” January 2016]  or [“Disconnect” July 2017]

The Fundamentals of MAGAnomics HERE

Understanding the “Disconnect” HERE

Three years ago CTH was talking about this:  [The Fundamentals HERE] and [The New Dimension HERE]
2016 […]  Understanding the distance between the real Main Street economic engine and the false Wall Street economic engine will help all of us to understand the scope of an upcoming economic lag; which, rather remarkably I would add, is a very interesting dynamic.
Think about these engines doing a turn about and beginning a rapid reverse.  GDP can, and in my opinion, will, expand quickly.  However, any interest rate hikes (monetary  policy) intended to cool down that expansion -fearful of inflation- will take a long time to traverse the divide.
Additionally, inflation on durable goods will be insignificant – even as international trade agreements are renegotiated.  Why?  Simply because the originating nations of those products are going to go through the same type of economic detachment described above.
Those global manufacturing economies will first respond to any increases in export costs (tariffs etc.), by driving their own productivity higher as an initial offset, in the same manner American workers went through in the past two decades.  The manufacturing enterprise and the financial sector remain focused on the pricing.
♦ Inflation on imported durable goods sold in America, while necessary, will ultimately be minimal during this initial period; and expand more significantly as time progresses and off-shored manufacturing finds less and less ways to be productive.   Over time, durable good prices will increase – but it will come much later.
♦ Inflation on domestic consumable goods ‘may‘ indeed rise at a faster pace. However, it can be expected that U.S. wage rates will respond faster, naturally faster, than any monetary policy because inflation on fast-turn consumable goods become re-coupled to the ability of wage rates to afford them.
The fiscal policy impact lag, caused by the distance between federal monetary action and the domestic Main Street economy, will now work in our favor.  That is, in favor of the middle-class.
Within the aforementioned distance between “X” and “Y”, a result of three decades traveled by two divergent economic engines, is our new economic dimension…