Interesting. I think he's right. But I don't think Trump is understands any of this. Trump hates losing, and when the economy crashes, he's not gonna be happy.
I think he's spot-on. Related to this view is an interesting article from FT:
The mother of all bubbles: The US has never been so overhyped, relative to the rest of the worldhttps://www.ft.com/content/49cca8d7-7b6e-47e3-a50c-9557d7c85fc0"United by faith in the strength of US financial markets and their capacity to keep outperforming all other economies, global investors are committing more capital to a single country than ever before in modern history. The US stock market now floats above the rest. Relative prices are the highest since data began over a century ago and relative valuations are at a peak since data began half a century ago. ...
"As a result, the US accounts for nearly 70 per cent of the leading global stock index, up from 30 per cent in the 1980s. And the dollar, by some measures, trades at a higher value than at any time since the developed world abandoned fixed exchange rates 50 years ago.
"The overwhelming consensus is that the gap between the US and the world is justified by the earnings power of top US companies, their global reach and their leading role in tech innovation. These strengths are all real. But one definition of a bubble is a good idea that has gone too far. Awe of “American exceptionalism” in markets has now gone too far.
"America’s share of global stock markets is far greater than its 27 per cent share of the global economy. The upcoming return of Donald Trump to the White House has reinforced the disconnect. Investors believe his plans to raise tariffs, lower taxes and cut regulations will further inflate US markets, which have outrun the rest of the world since the end of the global financial crisis. In November, with Trump’s victory, the US put in its strongest month of outperformance yet. ..."
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This is a pretty compelling argument that dollar-denominated investments are in a bubble, regardless of strong economic performance in the US economy.
When it bursts, massive economic turmoil and pain will result. When will it burst, and how much higher will the bubble grow before the bust? Impossible to say. "Markets can remain irrational longer than you can remain solvent." - Keynes
What might trigger the burst? Any kind of black swan evenrt. In my mind, the most likely might be that Trump makes good on his threat to impose tariffs on all imported goods. This would lead to retaliatory tariffs by the entire globe against the US. Trump might then escalate the tariffs. Repeat the retaliatory tariffs. The net result would be very ugly, for the US more than other nations. The bubble then bursts.
Alternatively, Trump might massively overreach his Executive authority, triggering a severe constitutional crisis - which then devastates global confidence in the US economy.
Alternatively, Trump tries to "renegotiate" the terms of US government debt. He's previously threatened this before his first term. Everyone who holds treasury bonds would conclude that they're now risky investments. US interest rates then skyrocket, crippling the entire economy. The Federal Reserve would try to mitigate this crisis by massive purchases of Treasury debt, but that injects massive amounts of money into the economy, leading to very high inflation. Global confidence in the US economy then craters.
Alternatively, Trump succeeds in deporting most undocumented aliens, something like 10 million people, mostly of working age. The labor market is already tight. Pull that many workers out of the economy, and many enterprises will fail, for inability to to get people to do the work (at affordable wages). If that happens, Trump might try to impose wage *limits*. Chaos and civil unrest would be massive.
Even if he does none of these idiotic things, the existing bubble might burst spontaneously. We'd best be prepared.
