For his entire first year in office, Donald Trump has touted a surging stock market and an overheating economy as two of his most significant accomplishments to date. Politicians with any experience know that it’s one thing to take credit for the economy. Like it or not, voters tend to view their political leaders as somehow responsible for the ups and downs of the economy, so politicians willingly claim credit for good times and hope the voters absolve them of the bad times. But the ups and downs of the stock market are another thing altogether. The stock market is governed by unpredictable “animal spirits,” those mysterious psychological vapors that motivate investors to buy or sell based on fear or greed.
Until a week ago, there was plenty of greed on display in the stock market. Since election day in 2016, the S&P 500 avoided even a mild correction, defined as a day when the index went down by more than 3%. Through all of 2017, the market relentlessly ploughed higher, with little resistance. Naysayers called for a correction over and over, and as their calls got louder, the market just kept going higher. It was obvious what was going on. The stock market loved tax cuts, especially the one Trump and the Republicans were crafting! Not for once did investors believe the Republican party line that their tax cut was going to be used by corporations to create products, new markets, and many more new jobs. Far from it. The stock market knew the Republicans were peddling nonsense. Stock traders preferred to put their faith in all the corporate CEO’s who were completely transparent about how they were going to use all this new money – they were going to give themselves a nice fat bonus, and their shareholders as well in the form of higher dividends.
Shareholders love themselves free money, especially if it’s of the magnitude that can only achieved by draining the pocketbooks of the taxpayers. The problem is that the Republican tax cuts weren’t coming solely from tax revenues; that hasn’t been the case for any of the Republican tax cuts in the past fifty years. It was estimated that $1.5 trillion of this tax cut was going to have to be financed, meaning it would add to the federal debt, and this coming from a political party that has made a fetish of the dangers of the $19 trillion debt that Barack Obama left the nation after his eight-year term.