As the Trump rally rolls on, people up and down Wall Street and around the world keep finding reasons for why it should continue.
And in a Wednesday note following Trump’s speech before a joint session of Congress, Citigroup may have given us the worst reason we’ve heard yet.
From Citi in a section with the heading “Forget Maths for the Moment”:
In our view, those who say the “maths” doesn’t work to make tax cuts possible are missing the point. U.S. fiscal maths doesn’t work now. The federal deficit was $US587 billion in 2016, borrowing increased $US759 billion, and the same will be roughly repeated this year before any fiscal policy changes.
The U.S. federal debt ceiling will be raised this year like the 109 times it has since 1917.
Trump repeated pledges to raise military spending significantly and increase infrastructure investment by $US1 trillion with both “public and private financing,” presumably over the 10-year time span common to budget planning.
OK so lets walk through this logic here.
Citi is saying that budget maths doesn’t matter anymore, because it hasn’t worked for so long that whatever we spend will be more of the same. Perhaps this is Trumpenomics 101.
If we just add more to the deficit, whatever.
If we spend more than we take in, that’s just par for the course.
It doesn’t matter if there are levels to this stuff — which is to say, it doesn’t matter if we increase the deficit much more than we did the year before, because we already had a deficit. It doesn’t matter if we collect less revenue than we did before, because we weren’t collecting enough before anyway.
Guys, no. The best way to solve a problem is not to make the problem even bigger. You’re playing yourselves.
We should not just give up on having a more balanced budget and rational, revenue generating tax policy because… YOLO!*
Now to be fair, Citi does acknowledge that there is risk of a bust here.
“We also have to disagree with views that the present economic recovery has been so weak and incomplete that large scale stimulus comes with no risk of generating a boom/bust cycle. Even so, however, boom comes first.”
And apparently they can’t see beyond the boom. That takes maths. And we’re not doing maths now. If this is how analysts across Wall Street are thinking, no wonder the market is ripping.
*YOLO means You Only Live Once. The kids say it sometimes when they’re about to do something that might be stupid, but doesn’t matter.