Day 42: Trump’s Addresses Congress with Problems, Not Solutions

Day 42: Trump’s Addresses Congress with Problems, Not Solutions

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Trump’s address to Congress might be a landmark event for his first 100 days. His softer, more focused tone inspired markets yet again. The Dow Jones climbed to over 21,000 as the President spoke on restarting the economy and pouring new money into military developments. But the question of will his cuts and spending increases keep the dollar from weakening still remains.

Trump Calls for Economic Restart through Infrastructure Spending

  • Trump laid out his plans for $1 trillion infrastructure program and tax cuts.
  • He asked Congress to “lower costs, and at the same time, provide better health care.”
  • The speech’s theme was “America first.”

Trump’s congressional address focused on infrastructure plans, corporate tax cuts, and healing national divisions, according to Fox News; however, Trump seemed to suggest we could spend our way back to economic health instead of saving and investing. If a person is in massive amounts of debt, they shouldn’t go out and buy a new car. They should get a job and save their money.

Trump seemed to correctly identify problems but didn’t provide many free market solutions. Peter Schiff made a similar observation in his latest podcast:

“[Trump] correctly talked about a lot of the problems, but he didn’t actually articulate any solution (other than more government). The only way to fix what the government broke is for the free market to do it. There are no government solutions to our problems. It’s the government that created the problems.”

Dow Bubble Grows Larger and More Fragile After Trump’s Speech

  • The “more presidential” tone exhibited by Trump inspired confidence in the markets, bringing the Dow over 21,000.
  • Fed President Dudley hinted at rate hikes coming sooner following the speech, according to MarketWatch.

Investors are exuberant about the Dow’s record highs, but some are rightly skeptical about the forming bubble. Pullbacks may be on the horizon. “When markets are extended and overbought, they are vulnerable to any shocks that could trigger pullbacks or corrections,” said Quincy Krosby of Prudential Financial.

Rejoicing investors aren’t seeing the contradiction inherent in a $1 trillion spending increase and tax cuts. How can a government fund massive internal construction projects while lowering their tax income? As Peter has pointed out repeatedly, the only way to fix the economy is to stop regulation and allow the sacrifices that are necessary to balance interest rates and control debt.

Trump’s Plan to Fund the $54 Billion Military Increase

  • 10% cut to domestic programs and foreign aid.
  • Cuts to programs like the EPA are expected to take largest hits according to Forbes.

In addition to cutting corporate taxes, Trump’s plan to slash bloated government spending seems to be coming to fruition. The President’s proposed military spending increase is geared to once again make America’s military larger than the other top seven world powers combined.

However, some prominent Republicans were reluctant to call this a good plan. Representative Mike Simpson of Idaho spoke ill of the spending cuts from other agencies: “There’s a lot of members that have a lot of interest in a lot of these programs,” he said. “There’s more to our government than just defense.” Additionally, Senator John McCain claimed that the budget increase wasn’t enough, citing that it was barely higher than Obama’s own plans for military spending increases.

Ultimately the act of cutting government spending only to redistribute it elsewhere is a failure to see the major problem with our country. We can’t keep growing our government by throwing IOUs into the air. Eventually, it will catch up to us, and Trump isn’t changing the playbook. Peter states:

“If all the President does is write a new chapter in the same Keynesian book, nothing is going to change. We need to tear up that book. We need to destroy all the concepts that really began with the New Deal.”

Source – Schiff Gold

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.