Trump’s economic agenda has become further delayed by what seems like daily leaks from the White House. This may finally bring about the long-awaited equity market pullback of at least 5 percent. However, what will prove to be far more troubling than Trump’s ongoing feuds with the DOJ and the press, is the upcoming market collapse due to the removal of the bids from global central banks.                                         Â
The markets have been feeding off artificial interest rates from our Federal Reserve and that of the European Central Bank and the Bank of Japan for years. In addition, the global economy has been stimulated further by a tremendous amount of new debt generated from China that was underwritten by the PBOC. After it reached the saturation point of empty cities, China is now building out its “Belt and Road Initiative†that could add trillions of dollars to the debt-fueled stimulus scheme that has been spewed out over the world-wide economy.
Adding to this, the NY Fed just informed us that households are spending like its 2008. In fact, Americans are now in more debt than they were at the height of the 2008 credit bubble – a new high of $12.7 trillion – exceeding debt loads right before the entire financial system fell apart. In fact, Total U.S. debt has now reached 350% of GDP.
The perma-bulls on Wall Street argue this willingness to take on debt demonstrates optimism among banks and consumers about economic growth. But the truth is the bull market in equities has been fueled by a record breaking pace of Central Bank money printing and an unsustainable accumulation of global debt that has reached $230 trillion, or 300% of GDP.
Right now, the daily leaks out of the White House are sucking all the oxygen out of the room. But worse, they are delaying what Wall Street really needs to sustain the illusion of economic viability–a massive corporate tax cut that is not offset by eliminating deductions or reduced spending. After all, the market is in a desperate need of a reason to justify these valuations now that the Fed has abandoned Wall Street—at least for the time being.
