Radio Show Notes: Trump, Jackson Hole

Thursday, August 24, 2017 // Written by Enzio von Pfeil
Soon the markets will take Trump's brassy trumpettes for what they are: background noise.  Forget any policy statement by Draghi at Jackson Hole: legally, he must stop buying German and other bonds!

  1. Trump threatens government shutdown if he doesn’t get his border wall funding and says he’ll probably have to pull the US out of NAFTA. That has sent US stocks lower and safe havens such as gold and yen higher
    • Brassy trumpettes. Trump’s trumpetings will become background noise: despite threats, 
      • He has not been able to “persuade”the Mexicans to pay for his beloved wall;
      • he has not delivered on his “fury” with North Korea;
      • he has softened  his stance on China’s currency and steel exports to America, and
      • he has got precisely nowhere with an antagonised Congress re. health care.
    • Trump’s  arrogance of ignorance. His arrogance of ignorance precludes his wanting to understand that the government debt ceiling is about to be hit – and that could shut the gov’t down! Not some petulant instant gratification about building a wall.
    • Surreally thinks he is still on reality TV
      • A qualified President? Not few Republicans etc are wondering just how qualified he is to be President
      • You have been elected! Trump keeps pandering to his voter base – but in case he missed it: the election is over with and he has to deliver now as an elected President….
      • My way or the highway.  And his petulance re. the wall  smacks of reality TV: you do as I say, or else….



  1. Jackson Hole preview: Mario Draghi says “QE has made economies more resilient.” Mohammed El Erian warns however that the low inflation demon is real and that loose monetary policy has repressed financial volatility, encouraged risk taking by non-banks and boosted asset prices beyond what is warranted by economic fundamentals.
    • Mario Draghi is running out of legal QE wriggle room 
      • Resilience. He is right: that welfare museum, Europe, has been given a shot of Vitamin B12 in the arm – but once the monetary stimulus wears off, we are back to the same drudgery: high taxes, over-regulation and intense jealousy of ambitious achievers…
      • The law will force his hand.
        • The ECB is running out of bonds to buy! According to yesterday’s “Hato” Financial Times, p. 18, “Rules limit purchases to a third of each country’s debt in circulation  and the supply of German and Portuguese debt is running thin.” 
          • For instance, citing the Hato Times, “ Out of Germany’s Euro 2.1 trillion of gross government debt, the ECB (already) owns more than Euro 400 bn…(so) the ECB could hit its 33 per cent purchase ceiling for German debt as early as February…”
          • And the ECB will have maxed out this Spring on government debt which it has bought from Portugal, Ireland and Holland
        • This means that he will have to stop buying and introduce Quantitative Tightening – not because he deems it prudent, but because the law says so…
    • Mohammad El Erian is right in his concerns.
      • Encouragement of risk-taking.
        • My mother in law says that with low rates, “the wrong people are getting rich”, and
        • Janice Joplin sang, “Freedom means you have nothing to lose”
        • At persistently  low rates, those who shouldn’t be getting rich truly have nothing to lose – short rates won’t rise meaningfully for a long, long time, and
      • Surreal asset prices ?
        • These reflect that the wrong people are getting rich…
        • No more “goods” inflation; instead, our Economic Clock’s® “excess supply of money” has led to pronounced asset inflation
        • But this asset inflation is in line with the economic fundamentals of our Economic Clock®: by definition, an excess supply of money breeds asset inflation

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