University of Maryland economist Peter Morici tells Newsmax TV that the stock market can easily tumble as investors’ honeymoon with Donald Trump’s presidential campaign rhetoric comes to a sudden end.
“Investors can easily become disappointed and skeptical about today's valuations, the market could take a dive, and that in turn could create an environment of pessimism that ripples through the economy,” he told "America Talks Live."
“Already consumers are not spending. Look at car sales, look at retail sales generally. They're not happening,” Morici explained to Miranda Kahn.
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“People are starting to get cautious, they're starting to get skeptical. It's not that the people that voted for Trump don't believe in Trump or don't believe in what he has to say and wants to do, but let's face it, the Freedom Caucus, if it doesn't get its way, doesn't get its way,” the Newsmax Finance Insider said.
“And with that in mind, we have a situation where with narrow majorities in the House and Senate, the Democrats considering Trump basically illegitimate. We can disagree about it, but that's the way they behave," Morici said.
"It's very, very hard to get anything done. Historically, Republican presidents have governed from the center. That's been part of the problem. That's why the Freedom Caucus is upset. But governing from the center requires them to make friends with some Democrats. Who on the Democratic side are willing to make friends with Donald Trump? Not many,” he said.
In a wide-ranging interview, Morici also sees a handful of potential trip wires to a financial crisis under Trump.
- China's economic timebomb. “China has a mammoth debt bubble and its economy could have a hard landing. There's a lot of corporate debt and we've recently discovered a lot of its denominated in dollars. And remember, corporate debt doesn't have access to that big tranche of reserves the Chinese government holds,” Morici said.
- American real estate. “Housing has recovered on average to its pre-recession level," Morici said. "However, in some big cities because of very cheap credit and the banks penchant for lending to basically high-income folks and eschewing low-income and middle-income people these days, we've seen a lot of property values escalate to levels that may not be sustainable," he said. "We've seen a lot of rental housing throw up that requires rents of $5,000 to $10,000 a month beyond the numbers of people that can sustain that,” he said.
- Student debt of $1.3 trillion. "Most young people simply can't repay their debt. A lot of your recent graduates are behind the eight ball and will be there for a long time,” he said.
- Europe. “The European banks ono the continent, not in Britain, have never really been fully recapitalized. The largest German bank, Deutsche Bank, has repeatedly gone to shareholders for additional capital and European banking rules are written in a way very different than ours. The Federal Reserve can't bail them out. Think what you want in bailouts, the Federal Reserve used that opportunity to straight out the banks. That's never happened in Europe and I can see a German or Italian banking crisis quite easily,” he said.
- U.S. economy. “All of these things, they're manageable if the U.S. economy is healthy and if the U.S. economy is growing. But at 2 percent, you know that's almost neutral here. I mean 2 percent is rather weak and that's been going on now for seven years. There has been a lot of hype, there's been a lot of expectation, the markets are up on the basis of Trump getting something done and we've seen with healthcare there's no guarantee of him getting something done," he said. "A lot of your regulatory changes, all of your tax changes require legislation and the Republicans, well you've seen how they can squabble among themselves. That's the biggest threat,”
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1
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