Doing the year-end planning and organizing for next year, I’m seeing two big things at work.
First, I think we’re likely to see accelerating inflation and an increasing trade deficit, thanks to the tax bill. The nation is already at full employment — and the government is putting more money in circulation. That means more dollars chasing the same amount of goods, and that means inflation. Some of that will be offset by increasing imports — more jobs for other countries — but that means increasing trade deficits. Inflation points, in turn, toward higher interest rates. And, of course, if you want to borrow money you are going to be competing with the federal government, which will have to raise money to make good its deficits.
Builders will pay higher interest rates to borrow money to build homes, and manufacturers will pay higher rates to borrow money to make cars. Consumers, in turn, will face higher costs for both, and higher borrowing costs to purchase them.
So we are in for a year of economic turmoil, I think, and that will eat much of the benefit of the tax cut.
Second, I think the economic turmoil will be exacerbated by our political instability. Donald Trump is conspicuously, woefully, unfit for any public office — I wouldn’t allow him to sit at my kitchen table — and the pressure for his removal by either impeachment and conviction, or invocation of the 25th-Amendment, will grow. If the Cabinet or the Congress should muster-up the wherewithal to do its plain duty, Trump will try to ignore them and remain in place. The economy hates uncertainty, and so the steady growth of the Obama economy will probably stop next year.
The bottom-line here is that I think the tax cut will conduce toward economic instability that exacerbates our political instability, and vice versa. If you have any big purchases planned for next year, do it now — and shore-up your household defenses against chaos.