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On Inauguration Day, the Trump White House declared 4% as its benchmark for the nation’s economic growth.
“To get the economy back on track, President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4% annual economic growth,” the White House said in one of its first postings on its website. The posting went on to say that Trump will “unleash economic growth and help Make America Great again.”
Well, I am taking a wait-and-see approach. And here’s a chart that shows you why…
The chart below reports economic growth by decade going all the way back to the 1790s. You can see for yourself that we haven’t had real GDP growth exceeding 4% since the 1960s. And while we’re obviously not finished with the decade beginning in 2010, we’re currently stumbling along at a clip of only about 2% to 2.5%.
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And that was well before we began accumulating the massive government-debt that we now face.
In fact, the debt-to-GDP ratio in the U.S. currently exceeds 100 percent. And that’s before Trump’s aggressive, new, government-backed infrastructure spending programs, which are the one element in his four-pronged economic program that could provide the most immediate boost to the economy. Even Democrats are on his side on this one.
That’s because Democrats consider talk of infrastructure projects as a way to piggyback on Trump’s vow to repair the nation’s crumbling roads and bridges. In fact, this week, a group of senior Senate Democrats revealed their own $1 trillion plan to revamp the nation’s airports, bridges, roads and seaports, urging President Trump to back their proposal, which they say would create 15 million jobs over 10 years.
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Urging Mr. Trump to make good on his grand infrastructure promises, Senator Chuck Schumer of New York, the Democratic leader, said, “From our largest cities to our smallest towns, communities across the country are struggling to meet the challenges of aging infrastructure. Our urban and rural communities have their own unique set of infrastructure priorities, and this proposal would provide funding to address those needed upgrades that go beyond the traditional road and bridge repair.”
But, here’s a chart that shows there’s not much that Trump, Paul Ryan or even the Democrats can cut out of government spending to finance the #HUUUGE $1 trillion investment in badly needed infrastructure improvements. That’s because mandatory spending for social service programs – primarily Medicare and Social Security – account for about two-thirds of current federal government spending. Worse yet, the social service percentage of federal outlays is projected to go even higher over the next decade.
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So, while everyone in Washington is in agreement that infrastructure spending is a good idea, the challenge is going to be finding a way to pay for it in a U.S. economy that’s already loaded up to its gills in debt.
Here’s another hurdle President Trump must overcome to jump-start U.S. GDP growth: The U.S. consumer – similar to the U.S. Government – is tapped out in terms of available discretionary spending money. Making things even more challenging is that the U.S. consumer represents about 65% to 70% of U.S. GDP. And without any extra cash in consumers’ pockets, it’s hard to see much of an improvement in GDP coming from more consumer spending.
Over the first 100 days of the Trump presidency, I’ll be watching GDP growth carefully – and you should too – for any sign of a sustainable uptick because it’s the anticipated rate of GDP growth that will set interest rates. And interest rates, in turn, will determine the direction for stocks.
For now, I expect GDP growth to fall well short of Trump’s goal and to come in around 2.5%, which means interest rates remain low for a longer time than the mainstream media would lead you to expect.
It also means that we won’t be able to make any significant progress toward peeling back the huge mountain of debt that’s smothering the U.S. economy. In my January 20th Money and Markets article, I revealed the increase in real GDP that’s required to reach escape velocity from the debt overhang in which we currently find ourselves.
All in all, despite Trump’s determined rhetoric and ambitious plans, the secular headwinds of an over-indebted U.S. economy remain. So, I see more “muddle-through” for the U.S. and global economy for the foreseeable future.
In this environment, with your portfolio, you should focus on companies that can grow through thick and thin. But be a value shopper and only buy them when the price is right as my subscribers are doing in my Safe Money Portfolio.
Best wishes,
Bill Hall
Bill Hall is the editor of the Safe Money Report. He is a Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Besides his editorial duties with Weiss Research, Bill is the managing director of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families all over the world.
{ 23 comments }
Didn’t mr. Trump say “money is not a problem, because we can print dollars”?
The one thing that could change the equation, is cutting government regulations. If Trump gets the government out of the way, the private sector will become healthy and thrive, and we will see real economic growth.
One thing that’s not addressed here is that most of the new jobs under Obama have been part-time. As economic conditions change for business these would need to revert back to real full time jobs. IF that happens it would have the impact of giving consumers confidence and that’s what the consumer end of the economy is all about. If the noose of the ObamaCare taxes and high premiums and deductibles are lifted this will also put more $s in consumer pockets with the same effect on confidence. AND, no one is talking about the Gov’t coming up with the Trillion dollars, except perhaps the Democrats. Democrats and Establishment Republicans prefer the Gov’t as the center of the financial universe whatever the downside and that should be obvious from their behavior during the Bush and Obama spending sprees resulting in more than half of our $19T+ debt in 16 years. Neither Bush or Obama ever vetoed a spending bill. Lots of dynamics in the economy.
actually obama added 10 trillion in debt in 8 yrs
We are currently living in a society which has centered their attention around materialistic consumerism. Most people I know live hand to mouth and are in debt. Until this behavior is unlearned and people get back to paying for their choices and their future, the situation will not get any better. Personally, I have NO debt, own my own cars, home and all personal property. I pay my credit card off every month in full. I have several friends my age who are in debt up to their chins with no savings. These are the people with the mentality of our leadership currently. I don’t see much hope for those people. Reverse mortgages possibly?
This only plays into the problem further.
I see the problemisthst we don’t teach ourselves and kids to long term plan, budget and invest in ourselves and this should start in grad or middle school
The U.S. economy, like its debt-laden population, is barely surviving, on debt of course, because that is all that remains. There is and will be no “real” growth and path out of this borrowed and printed money mess. We remain a nation of consumers, living on plastic, who don’t even bother to vote.
Government as we knew it doesn’t exist anymore. We have a do-nothing Congress comprised mostly of parasites and a clueless buffoon in the White House. The past election has lit the fuse.
hey frank i think you got things mixed up a little in 2008 obama was elected king oops i mean president he had the senate and the congress all were democrats and what got done literally nothing now all the crybabies are whining what the new president trump hasnt done give him a break its only been a week
All throughout the presidential race I heard we’re looking at all the polls and historically they’ve been right. Trump like a magician came out from behind the curtain and surprising all of them. No not surprising, Stunning all of them. I certainly agree that statically it looks as you’ve laid out your argument. Don’t count out the magician in the room.
‘In fact, this week, a group of senior Senate Democrats revealed their own $1 trillion plan to revamp the nation’s airports, bridges, roads and seaports, urging President Trump to back their proposal, which they say would create 15 million jobs over 10 years.’
Bill
The problem with the ACA was that the Democrats didn’t even read the legislation before enacting it. The ACA is now an unworkable mess. DJT by contrast is a negotiator of detail and an implementer of researched policy that works. The democrats and some republicans have created the mess we now have to dig ourselves out from. This is not a time for any politicians. It is now a time for the desperate change we need with leadership that unites a nation in economic trouble.
Bill
You also mention the direction of interest rates. These are influenced by the central banks of the larger economies. Lowering global rates and extending maturities to countries like Italy have so far prevented financial collapse and defaults. Rates should be looked at with a global perspective and derivatives contracts.
We have serious problems that need solving. These include but are not limited to:
1. Politicians that never leave. We desperately need term limits.
2. Colleges that teach students to hate their country.
3. Corrupt unions that now control all government agencies and schools.
4. A 75,000 page tax system that is a national disgrace. No one understands the gobbledygook of this mess.
5. Largely unprotected borders.
6. The continual barrage of “nanny-state” regulations that are destroying job-producing businesses and taking our freedoms.
7. A media that has an agenda to manipulate rather than report.
Very well put F151
Strictly from a technical perspective, there are strong arguments for raising taxes on the very wealthy to finance infrastructure, for two reasons. First, average incomes of the very wealthy have grown far faster than for everyone else, suggesting the wealthy can afford a tax increase.
Second, in today’s economy the argument that raising taxes to fund government investment in infrastructure crowds out private investment is weak. Corporations are sitting on trillions in cash because there is nothing to invest in that would generate a rate of return high enough to justify the investment. One of the reasons GDP growth is lagging is because, as Mr. Wall says, consumers don’t have the ability to increase demand because they’re tapped out. The wealthy spend a far lower share of their income on consumption, so taxing the wealthy will not lead to significant declines in consumer demand.
Using the increased tax receipts to fund infrastructure improves the US’s ability to compete in world markets by lowering transportation costs, and improves the lives of millions of workers that spend hour upon hour stuck in traffic. Plus, the spending will be directed to workers that spend a far higher share of their income on consumption, which creates multiplier impacts throughout the economy, which grows the economy.
great comment and Biblically sound ,
to one who has much , much IS expected
the rich can afford the taxes ,
and i will add
and we all can not afford deductions for any special case or class or business !
You pointed out that “You can see for yourself that we haven’t had real GDP growth exceeding 4% since the 1960s.”
if you study the chart you’ll see that the USA’s largest GDP growth usually came after a war. The rapid growth in GDP in the 1940’s, 50’s and 60’s was largely due to WW2. While factories and infrastructure in Europe, Japan, Russia and China was vastly damaged, factories and infrastructure in the USA was intact and productive. Europe and Japan largely rebuilt in the 1960’s while USA factories and infrastructure became aged. This contributed to a reduction in GDP growth in the USA. While I hope there is no war, trade or otherwise, getting USA GDP growth to 4% will be very difficult without adoption of the four points you have mention in your earlier articles that are linked herein.
This is an excellent analysis and thank you.We need to be VERY careful to VERIFY ANY figures coming from this administration based on the very loose hyperbole that we have heard thusfar.I would not trust ANY of them and they will do ANYTHING to make themselves look good..
Not that our last president ever did that sort of thing..
Anyone know what happened to Mike Larson? Nothing against Bill but I miss me some Mike. Level-headed guy.
Social Security and Medicare expense could be reduced if only those who pay in could receive it.
The one factor that you have not considered, President Trump is going to
Eliminate the bloat and wasteful spending of federal employees and all their little pet projects. He will reduce the size of agencies and reduce their budgets. My wild off the top of the head estimate is there is $1 trillion of wasteful government spending.
Like all your comments bvvut by curiosity I wonder if it is possible to calculate the economic, social and political contributions of socalled immigrants in the economy, to justify or contradict the new anti-immigration measures, I am sure there exist such sophisticated charts to demonstrate, or stat to, demonstrating something about that?
The data is interesting. Curious correlation between great stock market advances and modest economic growth, and vice versa. Even more significant, look at the growth of gum’ment in terms of mandatory spending. This is the noose around the nation’s neck. The “Great” Society crap was foisted on us in the 1960s and associated spending (mandatory) took off. It took a bit of a dip in the 1990s thanks to welfare reform but that went away in the last eight years, and mandatory spending is off to the races again.
Sadly, no matter who is in charge, nothing is going to change until one of two things happen: The economy collapses or the Democrats start working in the national interest and help to reform social programs.
Finally, I don’t trust the Fe’ral Reserve. They have propped up the administration for the last eight years. They have almost no ammunition available to effect monetary policy and even then, I do not trust to them to be as helpful when it won’t help Democrats.