Monday, November 28, 2016

j reacts to the ubiquity of junk economics in the mainstream press

"Trump's stated plans to cut taxes and ramp up infrastructure spending is expected to boost the U.S. economy, and the Federal Reserve is expected to boost U.S. interest rates, which could draw investors toward the U.S. greenback."

no.

rather, i'd expect that a congressional push for austerity and entitlement clawbacks is going to lead to a punishing recession, which will lead to a strong sell-off. republicans are generally terrible for the american economy, and usually create recessions. the combination of congressional austerity with a protectionist white house is likely going to be disastrous.

i agree with the rate hike, but i do not believe that rate hikes or cuts affect the value of the currency much.

the canadian dollar is traded on a market. rates are not meaningful because traders sell the currency quickly. it does not react to macroeconomic factors, either. it's value is determined by the perception of investors, not by causal economic laws. these predictions are consequently always worthless - when they are right, it is by sheer chance.

that said, i'd also expect that the sum effect of trump's policies is going to push oil lower (unless he manages to piss off opec, or something). and, because canada's dollar is perceived as a petro-currency, that remains the dominant psychological factor on the value that the canadian currency is traded at.

so, what we're going to be looking at with the loonie is finding a middle point between a worse-than-usual republican recession (which helps the loonie) and low oil prices (which doesn't). i'm not going to guess where it balances out, and don't think you should either. but, i'd bet more on stability than instability.

http://www.cbc.ca/news/business/loonie-us-dollar-forecasts-1.3863851

http://www.usatoday.com/story/money/markets/2016/11/20/trumps-turn-republican-presidents-rule-recessions/93976832/

"While we see substantial support in Congress for proposals to cut taxes and reform the tax code, our current impression is that market expectations of quick fiscal expansion may be running ahead of political and legislative realities," Goldman said.

yup.

tax cut? check.
infrastructure spending? nope.

the report also makes the "error" of assigning gdp growth to tax cuts. i say "error" because i do not believe that goldman sachs actually believes in reaganomics, so much as it is holding to the lie because it wants the tax cut.

expect a recession. and pretty quickly.

http://www.cnbc.com/2016/11/19/us-recession-odds-relatively-low-but-curb-your-enthusiasm-on-trumponomics-goldman.html

don't be surprised if the recession turns into a depression, either.