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The Economy: “Trump Just Blew The Dog Whistle On a Market Top”

Thursday, February 23, 2017 9:35
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(Before It's News)

“Trump Just Blew The Dog
Whistle On a Market Top”
by Karl Denninger
“A few minutes ago President
Trump said deficits are out of control. He’s right, of course. In
point of fact the real deficit increase was $1.4 trillion last
. How do we know this? Because debt to the penny
(an official Treasury site) tells us exactly how much the federal
government has “borrowed.” I put “borrowed” in quotes for a reason:
Banks, including the Fed, do not actually lend out deposits that
were previously made. Instead what they do is push a button, credit
your account and cover the reserve requirement when the money is
spent and someone else deposits it.
As such borrowing by the federal
government, which is not backed by collateral that has already been
made and is removed from the market until said loan is repaid,
always and immediately creates monetary inflation. You cannot
control where this shows up in prices but that it does and always
will is a mathematical fact.
Last year GDP was operating at
about an $18.7 trillion in the third quarter (when the total
deficit increase was totaled as well; Sept 30 2016.) This
means that approximately 7.5% monetary inflation occurred last
fiscal year.
How much was the stock market up
during that time? From 1951 -> 2168 (S&P 500),
approximately, or roughly 11.1%. Or was it? No, it was actually up
11.1 – 7.5% in real terms or 3.6%.
What happens if the deficit goes
to zero? Then the market at best grows at about 1/4 of the
rate it was before. This, of course, assumes the stock market got
an average benefit from that inflation. In point of fact it
probably got a much larger than average benefit. Why do we
know this? Because corporate profits have not been
accelerating materially and the market is now trading at crazy
price:sales ratios -which have only been seen before in the near
term before serious corrections or even crashes.
So again- what do you expect to
happen if the fuel that has driven the market up disappears? You
might want to start thinking about that.”
So, what’s the only direction you
can go from there?

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