Punched in the Face

The Trump Team will stick with the Primary Political Trend, which is toward more spending, bigger deficits and more debt. Investment markets know what time it is.

A man punches himself in the face. Source: Getty Images

Thursday, November 7^th, 2024 

Bill Bonner, writing today from Baltimore, Maryland 

“That’s it. I’m voting for Trump.” 

Such were the words of [a member of our own household] when she got back from the grocery store on Monday.  

“I got a single bag of groceries. I’m sure it would have cost me about $50 a few years ago. Now, it’s $120. It’s no wonder Trump has so much support.” 

With these thoughts the country veered away from ‘more of the same’... to... more of the same. And today, we celebrate the exquisite blockheadedness of our great democracy. 

The stock market reacted yesterday... anticipating easier credit. The Dow rose more than 1,500 points.  And the world’s 10 richest people ended the day $64 billion dollars richer. 

During the four years of the Trump Team, 2016-2020, the US saw the greatest wingding of government spending in history. The federal budget went from $3.8 trillion in outlays during Obama’s last year, to $7.2 trillion in Trump’s last year. The nation had never seen anything like it... with trillions out the door and down the drains in stimmies, PPP loans, and the like. 

And then, as if that weren’t enough, the Biden Team came into office and added another $1.2 trillion of boondoggles and giveaways. 

What happens when you add that kind of money to the economy? Milton Friedman, recently channeled by Elon Musk, explained: 

Inflation is made in Washington because only Washington can create money, and any other attribution to other groups of inflation is wrong. Consumers don’t produce it. Producers don’t produce it. The trade unions don't produce it. Foreign sheiks don't produce it. Oil imports don't produce it. What produces it is too much government spending and too much government creation of money and nothing else. 

Chad Champion adds empirical evidence: 

A recent study out of MIT showed that “the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain.” Recall that there was about $7.5 trillion in additional spending from March 2020 when COVID hit, through December 2022. 

Trump planted wicked seed. Biden (and Harris) fertilized it and reaped the bitter harvest. Price increases showed up the year after Trump left office, with inflation ramping up to a 7% annual rate in the first quarter. In June, 2022, inflation hit a 9% rate. And while the rate of inflation has come down since then, the effect of sustained inflation at relatively high rates has raised prices across the board.   

During the Biden years, the cost of energy rose 34%. Car insurance went up 56%. Hotels 45%. Peanut butter, 41%. The price of the basic Ford F-150 went from $30,000 in 2019 to $39,000 today — up 30%. The price of a new house rose from $380,000 in 2019 to more than $500,000 today — a 25% increase.  

More than any human being on the planet, Donald Trump was responsible for these price increases. He was where the buck should have stopped. Instead, he passed out trillions of bucks. These are the bucks that raised consumer prices... and turned people against the Biden Team, helping Donald Trump retake the White House.  

And now, apart from the personal wackiness and unpredictability of the man himself, the Trump Team will stick with the Primary Political Trend... which is toward more spending, bigger deficits and more debt. Investment markets know what time it is.  Barrons: 

Treasury debt gets ‘punched in the face’ 

The Treasury market, arguably the world’s financial backbone, is seeing yields erupt higher as investors respond to the big shifts that could come from a second Donald Trump presidency. This isn’t a buying opportunity. The yield on the 10-year note, a metric that sets rates on mortgages and credit cards, leapt Wednesday to close at 4.425%, its highest end-of-day value since July, from 4.290% on Tuesday. 

Bloomberg: 

US Treasury yields surged — with the 30-year rising the most since the global flight to cash in March 2020 — as investors piled back into bets that Donald Trump’s return to the White House will boost inflation. 

Donald Trump is, after all, a “low interest guy.” As a leveraged New York real estate speculator, he understands as well as anyone what artificially low interest rates can do for rich people with financial assets. But as we’ve seen, ultra-low rates have a wretched effect on the real economy and real people with real jobs.  

That is the indiscreet charm of American democracy. The politicians do the wrong thing for the wrong reasons.  And the public, bloodied and abused, then re-elects the scoundrels who did it to them.   

Regards, 

Bill Bonner 

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Research Note, by Dan Denning

All eyes on Federal Reserve Chairman Jerome Powell today. The Fed’s rate setting committee is widely expected to cut the benchmark interest rate by another 25 basis points. For the benefit of any new readers to Bonner Private Research, we draw your attention to a chart we periodically publish. The shaded vertical lines on the chart are recessions. The blue line is the Fed’s target policy rate. The chart shows that nearly every US recession since 1905 begins once the Fed embarks on a rate-cutting cycle. The difference this time? The Fed is cutting rates while inflation is still ‘above target.’ And the recession isn’t official. Yet.