The other day, Ross Douthat of the New York Times observed that while politicos in and around DC are going nuts, Wall Street is all about Zen.
Douthat concluded this is because financial markets only care about the short term.
The article is worth the read, but he is only partially right, as his assessment misses important elements – some positive, some negative – which may, or may not bear on maintaining the economic stability Trump inherited from President Obama.
Why is Wall Street Happy?
First and foremost, Wall Street is happy about deregulation.
Deregulation is good for them. It mean more freedom, particularly it means less money to keep in reserve in case of trouble.
Deregulation, however, has been the cause of some big economic messes: think Savings and Loans and think the 2008 financial sector meltdown. “Meltdowns, smeltdowns” says Wall Street. It’s more lucrative to be free, especially if Washington will bail us out as they have done again, and again, and again.
Other deregulation…. say environmental deregulation…. also spurs economic growth (of course at the expense of the environment and natural assets). We have already seen portents of such with pipelines and drilling. Deregulating labor laws (to the benefit of business), health care, etc. etc. etc.…all good for Wall Street, seldom good for Main Street.
Deregulation will happen soon and often. Why? Well to start, there is probably nothing more that Trump hates than regulation, save perhaps personal criticism. Ditto GOP. They are in fact salivating to drill baby drill, drop minimum wages, deregulate prisons, deregulate schools….
Infrastructure Gone Wild, and Taxes Just Gone
On the other side of the equation, Trump’s planned $1 trillion infrastructure program promises goodies for politicos both sides of the isle to fight over. So this will happen too, and Wall Street likes it because companies throughout the economy will benefit. Of course, we will also witness trough feeding of historic proportion from the long line of KleptoTrumpiacs.
Then there are tax cuts to the wealthy and business. This is something the GOP can get behind as well, so it too will happen. It’s just a matter of time.
The Big FEAR
The way Wall Street sees it: lower capital requirements at banks, lower capital gains taxes, lower upper bracket income taxes, and fewer consumer financial protections, is a party like no other they have ever seen. Ever.
My biggest fear?
Because America has so desperately needed massive infrastructure investments for so long, decades really, the infrastructure plan will likely be the only thing good to come from the Trump regime. It will put his right-wing yo-yos, mostly white construction workers on the job. For three years. Then nada. But that may be enough to get Trump back in the big chair.
The result, a Wall Street’s short-term stiffy of epic proportion (intensity, not size). Of course, we still can’t discount a Trump political Full Monty upsetting its joy, but clearly Wall Street doesn’t see that in the cards….. just yet.