Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.
The year-end summing-up is harder than usual this year! Here are my five key factors for 2017.
- Continued uncertainty over what US policies will come out of the new Trump Administration.
Reason: we don’t know what he will propose, because he has said so many contradictory things, and we don’t know how much resistance he will face in the Congress.
- Strong dollar and widening US trade deficits
Reason: Rising US interest rates will continue to make dollar assets more attractive to global investors than other countries’ assets. A new monetary-fiscal policy mix, reminiscent of the early 1980s, underlies these trends.
- Difficulties in some Emerging Market countries, especially those dependent on commodity exports and/or with debts denominated in dollars.
Reason: their debt service ratios will worsen, because their debt service obligations are going up while their dollar export receipts are going down.
- China forced to choose between halting the depreciation of the RMB, on the one hand, versus further internationalization of the currency on the other hand.
Reason: Controls on capital outflows could be used to slow down the fundamentals-driven depreciation, but imply suspending the RMB internationalization project for the time being.
- The possible end of a 70-year period of US-led global progress toward a liberal international order.
Reasons: Global trade has stopped rising as a share of global GDP since 2008. One factor is that we have had no important successful new trade deals. Now the incoming US President appears explicitly to reject the very ideas of globalization, liberal values, and US leadership. Analogous nationalistic political forces have risen in other countries too, as shown by Brexit.
This post written by Jeffrey Frankel.
Beyond the five economics oriented key factors, here are five more general factors to add to your list:
#6 Turbulence in healthcare and health insurance. A lot of hospitals and insurance companies are already locked into negotiated rates. If Obamacare is undone, a lot of those hospitals and insurance companies will be shuttered by the end of the year.
#7 Growing inequality. We are already at Gini coefficients normally only found in banana republics.
#8 Ever rising crime rates in rural white America. Violent crime rates in rural America are already almost double the violent crime rates in urban America. Look for things to get worse as rural white voters discover they were conned by a predator.
#9 Saying good-bye to Gaia. Being at a tipping point means just that. 2017 could be the year that makes global warming irreversible. That’s because it will take time we don’t have just to reverse Trump’s reckless policies.
#10 Chaos in the Baltics. The Army’s top strategic priority is forward deploying bases out of Germany and into the Baltics, Poland and Romania. If “Putin’s Puppet” backtracks on the forward deployed NATO commitment, then I think you need to seriously worry about how DoD and various intelligence agencies respond.
Now I realize how the conservatives sounded about Obama in 2008. But, hyperbole is a time-honored political tool.
Be specific. Which point or points do you regard as hyperbole?
#6 – Presumes an abrupt end with no replacement features and no adjustments. This is most unlikely.
#7 – I’m surprised that you would say that 8 years under Obama and liberal policies have resulted in a “banana republic” situation. Surely you are not blaming half a century in eroding real income for the middle class on Trump’s election. Will he have to face that reality? Yes. Will he exacerbate it? Mere speculation.
#8 – See number #7. With the dislocation of coal mining, artificial limiting of oil exploration on federal lands, loss of jobs in manufacturing to overseas, rural America (with the exception of agriculture that employs only 2% of the population) has been stuck in reverse. Can policy changes impact that situation where many communities are drug dealing centers now? Sure. The Obama policies exacerbated the problems; perhaps there are measures to reverse the effects of those policies.
#9 – No comment on something that absurd.
#10 – Putin’s Puppet? Look who Trump has nominated for military and defense leadership positions. No pencil-necked Washington lawyers like HRC would have chosen. The likelihood of your scenario is zero.
You’ll notice that I’ve responded in kind.
Bruce Hall Merry Christmas.
#6: It presumes an abrupt end because that’s exactly what Team Trump has promised and it’s exactly what Trump’s voters have demanded. “Day one” sounds pretty immediate to me.
#7: Inequality has been a long term problem; however, tax cuts for the wealthy will not make that situation any better.
#8: It’s a little hard to see how any of Trump’s policies will help the spike in rural crime rates. Expanding the Kansas “solution” won’t make things better. Gutting Medicaid and implementing the House’s Medicare “reform” will not improve lives in rural America. And the Big Coal magnates have already told Trump to quit talking about jobs coming back to coal country. Big Coal wants to relax regulations against capital intensive coal mining; they are not interested in making coal mining labor intensive.
#9: Absurd? Tell it to your grandchildren.
#10: One of the few things Donald Rumsfeld got right was when he first came to office. He said that Clinton had been too deferential to the uniformed military because he didn’t have a military background himself and felt vulnerable there. Rumsfeld wanted to go back to civilian control, which he demonstrated with his own “Saturday night massacre” in which he fired seven 3-star and 4-star generals over the weekend. They all got the message. You obviously don’t know what the SECDEF job requires, so let me help you out. The SECDEF’s main job is running the civilian bureaucracy within the Office of the Secretary of Defense (OSD). The OSD then sets policies for the Component (i.e., the services plus DLA) secretaries. The SECDEF’s job is to manage a very large bureaucracy, and pencil-necked lawyers are usually better than combatant commanders. In fact, the Army’s Industrial War College even has a book that argues why combatant commanders (as opposed to staff officers) have such a poor track record managing bureaucracies and private sector companies. A principal reason is that combatant commanders are trained to think in terms of prioritizing among a small number of options across a very short time horizon. Think of the 1LT commanding a platoon on a hill. Bureaucracies and large companies need CEOs who are good at equalizing net marginal benefits across a long time horizon. It’s a very different skill set…and I see that problem (literally) every day. Combatant commanders understand operational tactics quite well, but they are fish out of water behind a desk. And oh by the way, did you notice that Trump picked a billionaire hedge fund manager for Secretary of the Army?
Putin’s latest speech about enhancing Russia’s ability to penetrate NATO defenses in the Baltics is pretty good evidence that he believes he owns Trump…which he just might given that Trump’s sons have admitted that their father owes hundreds of millions to a few Russian oligarchs. Anyway, Putin clearly wants Trump to undo the forward deployment of LRCs in the Baltics and Romania. I fully expect Trump will announce a deal whereby NATO reduces its presence and Putin agrees not to do something he wasn’t going to do anyway. Trump will think he won a great victory. It’s the same ploy that Sazonov used to pull way back in the old imperial days.
I was listening to a British immigrant, who loves this country and covers Silicon Valley. He stated, the culture in Silicon Valley is about social liberalism and environmentalism, yet, the tech firms are full of the most ruthless free market capitalists he’s ever seen.
added to the list. of the 60 million who didnt vote for Trump, how many of them will just buy what they need, and avoid any large purchases, unless they are forced too? this sort of sounds like what happened in 2001 , where the economy went no where
“He stated, the culture in Silicon Valley is about social liberalism and environmentalism, yet, the tech firms are full of the most ruthless free market capitalists he’s ever seen.”
Ha, Silicon Valley is full of the most anti-free market capitalists anywhere. They spend all their time trying to figure out ways to eliminate competition through mergers and buyouts and market domination. The spend all their time suing each other to maintain their government enforced anti-competitive patent monopolies. Silicon Valley hates free market competition. They spend inordinate amounts of time and money to reduce free market competition.
It’s anything goes for big profit margins and capturing market share in a most competitive labor-intensive knowledge and creative based environment.
You won’t find factories or production lines in those hundreds of impressive campuses throughout Silicon Valley.
Peak Trader It’s anything goes for big profit margins
Quick question. What are the expected economic profits in a competitive market?
It depends on the amount of exploitation.