After a long absence, another “Stock Market up” tweet was issued Wednesday by Donald Trump. He’d been the troubadour singing his own praises when the Dow Jones Industrial Average hit new highs, but when falling stock prices wiped out most of the gains for 2018, the music stopped. He was back even though the Dow was still sharply down for October.
On down days, Trump blames the market lows on Federal Reserve Chairman Jay Powell. Powell’s been raising interest rates, a concern for stock investors. Trump told the Wall Street Journal editorial board that he appointed Powell expecting “a low-interest-rate guy.” (Trump also reportedly believed that he could more easily influence Powell than the other candidates.)
Turns out that Powell is running an independent Fed, as he should. And no, the Fed is not raising rates to rain on Trump’s “winning” parade. The Fed is raising rates because that’s what a responsible central bank would do at this time of strong job numbers and a long-running economic expansion. Yes, the rates were kept very low during Barack Obama’s tenure, but that was also normal policy, seeing as we were in the jaws of a deep recession. Hence the Journal’s headline: “Trump Flunks Fed Politics.”
Presidents only partly control what happens in the economy. And as we keep hearing, the stock market is not the economy. Still, Trump takes ownership of the Dow when it sizzles. This year, it mostly hasn’t. And if you’re going to use numbers taken out of economic context, even his sizzle has been exaggerated. In Trump’s first year in office, the S&P 500 rose about 23 percent. In Obama’s first year, it was up 43 percent.
As Trump would tell you, Obama inherited a stock market so down and out it had nowhere to go but up. And as Obama would respond, he left Trump a strong economy with a stock market already booming.
Back in the real economy, things look good – if you’re not peeking ahead. Unemployment is quite low. Economic growth has slowed from earlier in the year but is still strong. And consumer confidence remains high.
But things look less rosy for the indicators investors watch closely. The economic stimulus from the tax cuts is clearly fading. For example, business investment, which grew at an 11 percent rate in the first quarter, shrank to less than 1 percent in the third. The stock market is further spooked by Trump’s continual trade warmongering against China.
The tax cuts were paid for with borrowed money. After the quick fix wears off, we still owe the money. That and increased government spending – both courtesy of Trump and the Republican Congress – is why the Treasury expects to issue twice as much debt this year as last year. Ramped-up government borrowing also sends interest rates higher.
Deficits under presidents must be judged by the cards presidents were handed. Obama faced a trillion-dollar deficit the day he took office. The financial crisis had pushed the economy into free-fall – causing tax revenues to crash and social spending to automatically spike. But by the time Obama left office, the deficit had fallen by two-thirds.
The only honest way to measure added debt is as a percentage of the economy. Using this yardstick, Obama places fifth among the presidents.
No. 1 is Franklin D. Roosevelt, burdened with both the Great Depression and World War II. He’s followed by Woodrow Wilson. Then comes Ronald Reagan, under whom the debt rose 186 percent. George W. Bush places fourth, with debt up 101 percent. Under Obama, debt rose 74 percent.
So Trump’s bragging tweets will probably continue to come and go. Sophisticated investors, now as earlier, will walk past the tent.
Froma Harrop can be reached at email@example.com.
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