The Trump "Boom"

There is no Trump boom. There are signs of improvement in some areas of the economy. Some of these are from Obama lows. In other areas such as lending, there is an increase in growth, but it is well below Obama highs. GDP growth is not accelerating.

New home sales are pushing on the upper limit of the post-2008 recovery. It could breakout, but hasn't yet.

Producer prices have broken out of the prior uptrend. I argue this is a peak in commodity prices, but if I'm wrong, this is where I'd look for a trend. This is the only data point that is breaking from trend under Trump. And I say it's China, not Trump, that caused this.

There are signs lending could be picking up, but an increase in growth only gets back to the faster growth rate seen several years ago. As the chart shows, teh slope of the current trend, even with a breakout, is lower than before.

Average hourly earnings are increasing a bit faster since 2014, but no breakout that suggests serious wage inflation.

Consumer prices are rising at the same pace for years on end.

Inflation expectations are in a downtrend.

The "inflationist" camp has been wrong at every single point since 2008. Most were calling for a dollar crash then and it never came. Inflation was supposed to take off. Interest rates were supposed to soar. At every turn they have been wrong because their economic model is wrong. QE doesn't work. If people don't borrow, credit doesn't flow into the economy, money supply growth is stagnant. Deeply indebted companies (crucially banks) will not borrow (or lend).

Ironically, I'm more open to a potential change today because the Federal Reserve is shrinking its balance sheet. That is a meaningful change. The Republicans were willing to boost deficit spending for tax cuts and military spending under President Trump. I don't know if that's enough to cause a major uptick in GDP growth, we'll soon find out. The question is whether rising interest rates will spark an uptick in economic activity, a rush to borrow and buy homes, a rush to borrow and invest in new businesses, new plant and equipment, before rates go higher. If yes, there's a case for inflation. If not, then the Fed was probably holding deflation at bay and the next downturn will be uglier than in 2011 and 2014.

The other key component is the U.S. dollar. It broke out of its 16-month downtrend this week.

A rising dollar amid rising interest rates is not only a deflationary scenario, it's the nightmare scenario for the global economy.