ECONOMIC OUTLOOK 2025:

SOME THOUGHTS

Trump's victory was nothing short of a political earthquake. It was unexpected and will have significant consequences. A key question is the nature of those consequences for the economy and investors. In the near term, the money lords are excited there will be less antitrust enforcement and regulation.

A fundamental debate is the structure of taxes in 2025. The 2017 tax law (like so many other tax laws) was a Rube Goldberg mix of various fine print about when things expire or don't to achieve meeting budget goals without being straightforward. In other words, tax cuts are inserted, which expire in a couple of years, and therefore, the total cost could be manipulated and presented as less than it is. The question now is, what will happen to the cuts in individual tax rates and the estate tax reduction that expire in 2025? The corporate tax cuts of 2017 were set as permanent.

A big problem is that Trump has discussed bringing down the corporate tax rate to 15%, though that needs to be more clearly defined as to who will receive it. There is talk that it will only apply to companies that manufacture in US but this could be very hard to define.

Another big problem is that Biden is leaving Trump a complete economic mess and a $2 trillion deficit, so there's little room to maneuver. The Trump people are talking about increasing military spending. It's not really defense. It's funding for a global empire, so that's an issue. Trump has also claimed he doesn't want to cut Medicare or Social Security, so that's another issue.

Once you deal with interest, Social Security, Medicare, and war spending, the rest of the government has already been eviscerated over the years since the 1980's. These parts of the government have already been cut and cut again many times. It doesn't mean there aren't still many things there in need of cuts, but at the starting point of a $2 trillion deficit, it is very unclear to see major budget cuts.

When the Federal Reserve cut interest rates recently, long-term rates went up, which should be a warning sign from the world capital markets about where America is in the near term. There's a lot of optimism on Wall Street about Trump and a lot of feeling that Trump will be Wall Street's guy. However, the overall sorry state of the U.S. economy will be challenging, especially with it still losing about a trillion dollars a year in world trade. Meanwhile, America still has no national health insurance and is a socioeconomic basket space in terms of its treatment of people who are not wealthy. 60% of Americans work paycheck to paycheck, so adding all this together does not create a happy picture.

Something else that has not been widely discussed on Wall Street is Trump's tariff policy and whether we can put all this through by executive action, making it the critical wild card in the budget equation.

THE END OF CHEAP CREDIT

Between 2001 and 2022, interest rates were artificially held down, and this so-called quantitative easing was a way of funneling money to Wall Street and the upper classes. In 2021, Biden's pork barrel American rescue plan poured money into state and local governments and the education industry, which didn't need the money but led to colossal consumer inflation. Trump's tariff policies are a real wild card since they will drive up consumer prices even though they will help fund the deficits.

Between 2001 and 2022 a good part of US industries were destroyed by foreign competition which reduced prices. This cannot continue. The political and economic costs of losing one trillion dollars a year cannot be tolerated any longer. Moving industries back to US will raise prices.

There's a lot of enthusiasm for Trump, which is understandable because of Biden's disastrous performance. This enthusiasm will keep the markets happy for a while. However, by the middle of 2025, the full scope of the budget situation may become evident, and long-term interest rates could go up quite rapidly. The entire structure of the U.S. economy, particularly all these Wall Street buyout firms, is based on low interest rates.

Wall Street is assuming rates are coming down and a return to the 2001-2022 cheap money world will take place. This is not likely to happen and American business may have a very hard time adjusting to this.

Since 2001 cheap money has helped create a boom in the world of the rich. Stock prices and luxury real estate prices have soared. Meanwhile average wages are back to where they were 50 years ago.

Biden's record was so bad Trump will have a honeymoon but how long will it last? 2 + 2 still = 4. We all hope for the best. However, there is a need for some caution.