Billionaire investor Howard Marks thinks Donald Trump's economic policy is deluded

Howard Marks, the billionaire cofounder of Oaktree Capital Group, thinks Republican presidential nominee Donald Trump is delusional.

In his latest memo dubbed “Political Reality,” Marks dedicated a section to Trump’s statements on America’s finances.

“It’s fair to say that [Hillary Clinton] hasn’t been anywhere near as guilty as Trump of defying economic reality on the campaign trail, and that’s my subject here,” he wrote.

Marks is most disturbed by Trump’s idea of reducing the national debt possibly by either printing money or by some form of default or renegotiation.

Here is Marks:

“[Trump] built his net worth in part by borrowing money and not paying it back, and he seems proud of his companies’ repeated use of bankruptcy as a strategic tool. But Trump doesn’t have an ongoing need to tap the world capital markets, as the U.S. does (he now operates under an asset-lite business model that emphasises licensing fees rather than asset ownership; perhaps this is because his multiple defaults have caused the credit window to be closed to him). The United States could refuse to pay its debts in full — that’s called “rescheduling” or “default” — but we’d be unlikely to have the same access to the credit markets, and we would certainly cease to enjoy the benefits of a high credit rating and resulting low interest rates.”

Marks also skewered Trump’s comments on imports and job losses from trade, pointing out that increased tariffs could cause prices to rise for US consumers:

“As for economic reality, never has Trump said anything like this: ‘We may be able to increase manufacturing jobs by imposing protective tariffs, but that would require all consumers to pay higher prices for their purchases of goods from abroad.’ What would the average American’s everyday shopping experience be if imported goods were barred, discouraged or heavily taxed?”

He then highlighted the potential impact of Trump’s protectionist policies if other countries responded with their own tariffs, and how his campaign is mainly eyeing people “who fear being left behind by globalization”:

Further, Trump doesn’t point out that, in response to the adoption of protectionist measures by the U.S., other countries could retaliate with increased tariffs on U.S.-made goods, costing some Americans their jobs. Here’s what Moody’s Analytics says about his original economic agenda (I haven’t yet seen analysis of the plan he announced on August 8):

Broadly, Mr. Trump’s economic proposals would result in a more isolated U.S. economy. Cross-border trade and immigration will be significantly diminished, and with less trade and immigration, foreign direct investment will also be reduced. While globalization has created winners and losers in the U.S. economy in recent decades, it contributes substantially to the ongoing growth of the U.S. economy. Pulling back from globalization, as Mr. Trump is proposing, will thus diminish the nation’s growth prospects.”

This isn’t the first time Marks has touched on politicians’ tendency to overpromise. He warned in May that readers shouldn’t expect magical solutions to appear.

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