During one of the 2016 Republican debates, the Wall Street Journal’s Kimberly Stassel challenged Donald Trump on the projected revenue from his proposed tax plan. In essence Stassel claimed some economists doubted the growth factor Mr. Trump projects in his tax proposal.

What was highlighted within the question was one of the larger hurdles Trump faced as he needs to re-educate an entire generation on a fundamentally new vision of the U.S. economy. A return to a goods-based manufacturing and industry driven economic model.

President Trump’s MAGAnomic trade and foreign policy agenda is jaw-dropping in scale, scope and consequence. There are multiple simultaneous aspects to each policy objective; they have been outlined for a long time.

Interestingly, many people have forgotten a 1991 (35 years old) video of Donald Trump testifying before congress – as evidence of him being tuned in to the economic consequences of political activity.

The entire video is well worth watching, because it gives us insight into a very specific moment in time as they discuss the ‘Reagan era’ 1986 tax reform act.

However, for the sake of this discussion post, I would like to draw your attention to a very specific exchange between Donald Trump and Representative Helen Delich Bently (R-MD).

Representative Bently takes the discussion a little off subject from real-estate and engages Mr. Trump on U.S. manufacturing.  Remember, this is 1991.  (The video is prompted to @39:24) Watch – it’s only about two minutes:

[Related Note – During Donald Trump’s testimony before congress in this video, Marco Rubio and Ted Cruz were approximately 20 years old.  This understanding sets the backdrop for a generation who were disconnected from the previous economic model being discussed within the congressional committee itself.]

In this 1991 hearing, Representative Helen Bently is pointing out an ongoing erosion of U.S. manufacturing.   Notice how she references current trade deals and “fair trade” versus “free trade”, sound familiar?  It should.

What you will find in all of Donald Trump’s positions, is a paradigm shift he necessarily understands must take place in order to accomplish the long-term goals for the U.S. citizen/worker as it relates to “entitlements” or “structural benefits”.

All other politicians, and even Presidents, begin their policy proposals with a fundamentally divergent perception of the U.S. economy.  They are working with, and retaining the outlook of, a U.S. economy based on “services”; a service-based economic model.  Consequently, their forecasted economic growth projections are based on ever-increasing foreign manufacturing dependency, and a self-fulfilling prophecy of service-based economics.

While this economic path has been created by decades old U.S. policy and is ultimately the only historical economic path now taught in school, Trump intends to change the course entirely.

Because so many shifts -policy nudges- have taken place in the past several decades, few academics and even fewer MSM observers, are able to understand how to get off this path and chart a better course.

President Trump continually proposed less dependence on foreign companies for cheap goods (the cornerstone of a service economy) and a return to a more balanced U.S. larger economic model, where the manufacturing and production base can be re-established and competitive based on American entrepreneurship and innovation.

No other economy in the world innovates like the U.S.A.  President Trump sees this as a key advantage across all industry – including manufacturing.

The benefit of cheap overseas labor, which is considered a global market disadvantage for the U.S, is offset by utilizing innovation and energy independence.

The third highest variable cost of goods beyond raw materials first, labor second, is energy.  If the U.S. energy sector is unleashed -and fully developed- the manufacturing price of any given product will allow for global trade competition even with higher U.S. wage prices.

In addition, the U.S. has a key strategic advantage with raw manufacturing materials such as: iron ore, coal, steel, precious metals and vast mineral assets which are needed in most new modern era manufacturing.  Trump proposes we stop selling these valuable national assets to countries we compete against – they belong to the American people; they should be used for the benefit of American citizens. Period.

EXAMPLE: China was buying and recycling our heavy (steel) and light (aluminum) metal products (for pennies on the original manufacturing dollar) and then using those metals to reproduce manufactured goods for sale back to the U.S.  – Donald Trump proposed we do the manufacturing ourselves with the utilization of our own resources; and we use the leverage from any sales of these raw materials in our international trade agreements.

When you combine FULL resource development (in a modern era) with the removal of over-burdensome regulatory and compliance systems, necessarily filled with enormous bureaucratic costs, President Donald Trump feels we can lower the cost of production and be globally competitive.

In essence, Trump changes the economic paradigm, and we no longer become a dependent nation relying on a service driven economy.

In addition, an unquantifiable benefit comes from investment, where the smart money play -to get increased return on investment- becomes putting capital INTO the U.S. economy, instead of purchasing foreign stocks.

With all of the above opportunities in mind, this is how we get on the pathway to rebuilding our national infrastructure.   The demand for labor increases, and as a consequence so too does the U.S. wage rate which has been stagnant (or non-existent) for the past three decades.

As the wage rate increases, and as the economy expands, the governmental dependency model is reshaped and simultaneously receipts to the U.S. treasury improve.   More money into the U.S Treasury and less dependence on welfare programs have a combined exponential impact.  You gain a dollar and have no need to spend a dollar.  That is how the SSI and safety net programs are saved under President Trump.

When you elevate your economic thinking, you begin to see that all of the “entitlements” or expenditures become more affordable with an economy that is fully functional.

As the GDP of the U.S. expands, so too does our ability to meet the growing need of the retiring U.S. worker.    We stop thinking about how to best divide a limited economic pie and begin thinking about how many more economic pies we can create.

Simply put, we begin to….

…..Make America Great Again !

If you understand the basic elements behind the new dimension in American economics, you already understand how three decades of DC legislative and regulatory policy was structured to benefit Wall Street and not Main Street. The intentional shift in fiscal policy is what created the distance between two entirely divergent economic engines.

REMEMBER […] there had to be a point where the value of the second economy (Wall Street) surpassed the value of the first economy (Main Street).

Investments, and the bets therein, needed to expand outside of the USA. hence, globalist investing.

However, a second more consequential aspect happened simultaneously. The politicians became more valuable to the Wall Street team than the Main Street team; and Wall Street had deeper pockets because their economy was now larger.

As a consequence Wall Street started funding political candidates and asking for legislation that benefited their interests.

When Main Street was purchasing the legislative influence the outcomes were -generally speaking- beneficial to Main Street, and by direct attachment those outcomes also benefited the average American inside the real economy.

When Wall Street began purchasing the legislative influence, the outcomes therein became beneficial to Wall Street. Those benefits are detached from improving the livelihoods of main street Americans because the benefits are “global”. Global financial interests, multinational investment interests -and corporations therein- became the primary filter through which the DC legislative outcomes were considered.

There is a natural disconnect. (more)

As an outcome of national financial policy blending commercial banking with institutional investment banking something happened on Wall Street that few understand.

♦ When U.S. banks were allowed to merge their investment divisions with their commercial banking operations (the removal of Glass Stegal) something changed on Wall Street.

Companies who are evaluated based on their financial results, profits and losses, remained in their traditional role as traded stocks on the U.S. Stock Market and were evaluated accordingly. However, over time investment instruments -which are secondary to actual company results- created a sub-set within Wall Street that detached from actual bottom line company results.

The resulting secondary financial market system was essentially ‘investment markets’. Both ordinary company stocks and the investment market stocks operate on the same stock exchanges. But the underlying valuation is tied to entirely different metrics.

Financial products were developed (as investment instruments) that are essentially wagers or bets on the outcomes of actual companies traded on Wall Street. Those bets/wagers form the hedge markets and are [essentially] people trading on expectations of performance. The “derivatives market” is the ‘betting system’.

♦Ford Motor Company (only chosen as a commonly known entity) has a stock valuation based on their actual company performance in the market of manufacturing and consumer purchasing of their product. However, there can be thousands of financial instruments wagering on the actual outcome of their performance.

There are two initial bets on these outcomes that form the basis for Hedge-fund activity. Bet ‘A’ that Ford hits a profit number, or bet ‘B’ that they don’t. There are financial instruments created to place each wager. [The wagers form the derivatives.] But it doesn’t stop there.

Additionally, more financial products are created that bet on the outcomes of the A/B bets. A secondary financial product might find two sides betting on both A outcome and B outcome.

Party C bets the “A” bet is accurate, and party D bets against the A bet. Party E bets the “B” bet is accurate, and party F bets against the B. If it stopped there, we would only have six total participants. But it doesn’t stop there, it goes on and on and on…

The outcome of the bets forms the basis for the tenuous investment markets. The important part to understand is that the investment funds are not necessarily attached to the original company stock, they are now attached to the outcome of bet(s). Hence an inherent disconnect is created.

Subsequently, if the actual stock doesn’t meet it’s expected P-n-L outcome (if the company actually doesn’t do well), and if the financial investment was betting against the outcome, the value of the investment actually goes up. The company performance and the investment bets on the outcome of that performance are two entirely different aspects of the stock market. [Hence two metrics.]

♦Understanding the disconnect between an actual company on the stock market, and the bets for and against that company stock, helps to understand what can happen when fiscal policy is geared toward the underlying company (Main Street MAGAnomics), and not toward the bets therein (Investment Class).

The U.S. stock markets’ overall value can increase with Main Street policy, and yet the investment class can simultaneously decrease in value even though the company(ies) in the stock market is/are doing better.

This detachment is critical to understand because the ‘real economy’ is based on the company, the ‘paper economy’ is based on the financial investment instruments betting on the company.

Trillions can be lost in investment instruments, and yet the overall profit valuation – as measured by company operations/profits – can increase.

Conversely, there are now classes of companies on the U.S. stock exchange that never make a dime in profit, yet the value of the company increases. This dynamic is possible because the financial investment bets are not connected to the bottom-line profit. (Prior examples included tech stocks, social media companies, Amazon and a host of internet stocks.) It is this investment group of companies that stands to lose the most if/when the underlying system of betting on them stops or slows.

Specifically due to most recent U.S. monetary policy, modern multinational banks, including all of the investment products therein, are more closely attached to this investment system on Wall Street. It stands to reason they are at greater risk of financial losses overall with a shift in economic and monetary policy.

That financial and economic risk was the basic reason behind President Trump and then Treasury Secretary Mnuchin putting a protective, secondary and parallel, banking system in place for Main Street.  They deregulated smaller banks and credit unions with under $10 billion in assets.

Big multinational banks can suffer big losses from their investment instruments, yet the Main Street economy can continue growing and have access to capital, uninterrupted.

Bottom Line: U.S. companies who have actual connection to a growing U.S. economy can succeed; based on the advantages of the new economic environment and MAGA policy, specifically in the areas of manufacturing and domestic production (and the ancillary supply benefactors).

Meanwhile U.S. investment assets (multinational investment portfolios) that are disconnected from the actual results of those benefiting U.S. companies, and as a consequence also disconnected from the U.S. economic expansion, can simultaneously drop in value even though the U.S. economy is thriving.

Trump’s Policy and Economic Solutions in Three Easy To Understand Parts:

Trump Solutions #1 – Domestic Policy

Trump Solutions #2 – Entitlement Reform / Economics

Trump Solutions #3 – The Chinese Example

Posted in Auto Sector, Donald Trump, Economy, Trade Deal, Uncategorized, US Treasury, USMCA
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