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babybull

Joined: 8/28/14 Posts: 3668
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Here is what he said and explanation of stock market to debt comparison


Hannity on Wednesday, President Donald Trump went on an odd riff about the stock market and the national debt.

He said:

"The country — we took it over and owed over $20 trillion. As you know the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up $5.2 trillion just in the stock market.

"Possibly picked up the whole thing in terms of the first nine months, in terms of value. So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt. But we’re very honored by it. And we’re very, very happy with what’s happening on Wall Street."

The president does not have a good point here. But what he is saying is not so unintelligible as a lot of people are taking it to be.

First of all, the president is showing he understands something that Republicans often pretend not to know: The trend in the total amount of nominal government debt is not the important matter for determining whether the government's debts are sustainable. What matters is whether the government has a debt it can reasonably service.

If the economy grows, the debt can grow too, and that's fine.

Trump's contention is that the stock market rally shows that the country's ability to service government debts has improved — that stocks are up in anticipation of higher profits, driven by higher future economic growth, which will reduce the country's debt-to-GDP ratio relative to current projections, even if the government does not take explicit steps to reduce the debt.

I assume he thinks it's like a real-estate investment: If you have a $50 million mortgage on a building, and its value rises from $80 million to $100 million, you have deleveraged without paying your debt down at all.

Of course, this is a gross overread of the stock market rally. Stock prices are volatile — we can't count on the recent rally as a clear sign of improved expectations for growth. One factor likely pushing stocks up is the expectation that corporate income taxes will be cut — this is unambiguously a good thing for stockholders, and will tend to push stocks up even if such a tax cut will not necessarily do much to grow the economy overall.

Trump also overreads the 3.1% second-quarter GDP growth figure, about which he brags constantly. There were occasional quarters where GDP growth broke 3% during the Obama administration, even though the long-run pace of growth remained slow, and that is likely to also be true under Trump. (Trump knows this, which is why he is already talking down the third-quarter GDP growth number, which he warns will be affected by hurricanes.)

Trump has made few policy changes, and none that seem likely to boost productivity or reverse the demographic trends that have driven slow growth. In the policy area where Trump has taken the most action — immigration — his actions are likely to push growth downward.

So, Trump is wrong to say he's fixing the debt. But he's wrong in the same way he's wrong whenever he oversells his ability to boost economic growth — he just put his wrong claim in unusual terms this time.

SEE ALSO: Here's why Trump's plan for a corporate tax holiday won't grow the economy
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by Taboola

(In response to this post by Newport)

Posted: 10/12/2017 at 1:45PM



+0
Current Thread:
 
  
OK, this may be the dumbest thing Trump's said yet.... -- Newport 10/12/2017 12:41PM
  I like It. By his own measure Obama economy kicked ass. ** -- State Stubble 10/12/2017 3:01PM
  Just when is that IQ cage match between donnie and rex? -- le alpe d huez 10/12/2017 2:29PM
  Not hat he said...Here is fact -- babybull 10/12/2017 1:33PM
  OMG. Did he really say that?... -- TD Elvis 10/12/2017 1:00PM
  How will that create jobs here in the US... -- Shiner 10/12/2017 1:50PM
  I dvr'd the interview to watch later last night... -- Dubya Why Oh 10/12/2017 12:59PM
  His executive order, -- SappBVP 10/12/2017 1:34PM
  LIE! ** -- babybull 10/12/2017 9:40PM
  Will we get a unicorn too? ** -- Newport 10/12/2017 1:44PM
  Just trust him. -- SappBVP 10/12/2017 1:47PM
  BINGO ** -- Newport 10/12/2017 1:40PM
vm312