(Note: with apologies to Carl Reiner and Steve Martin, who directed and co-wrote “The Jerk,” respectively)
Just when you thought Trump’s “leadership” could not get any more insane, he adds a third ring to the circus going on at 1600 Pennsylvania by hiring “economist,” Larry Kudlow to be the head of his economic advisors.
For those of you not familiar with financial market history beyond the last 10 years, which includes the majority of money managers and other sundry financial “professionals,” Kudlow was the chief economist at Bear Stearns from 1987 to 1994. His tenure at Bear ended infamously when it was revealed that he had developed a nasty cocaine and alcohol addiction at some point in his career.
Prior to Bear, Kudlow began his post-college career as a Democratic political operative. He parlayed his political connections to get a job as a junior staff “economist” at the Fed. I use quotations marks around the term “economist” in reference to Kudlow because he does not have a degree beyond undergrad from the University of Rochester, where he majored in history.
At some point Kudlow, likely for political expedience given the political “winds” of the country in the early 1980’s, became a Republican. He wheeled his political connections into a job in Reagan’s OMB (David Stockman was the Director). From there, he moved on to Bear Stearns. The rest is history.
I thought it would be interesting to peer into the mind of an untrained economist to examine the thought process. Clearly Kudlow excelled at wheeling and dealing his political connections. But is he qualified to be the president’s chief economic advisor, especially at a time when the U.S. is systemically collapsing?
In November 2007, Trump’s new Chief Economic Advisor, Larry “Señor Snort” Kudlow wrote an article about the economy titled, “Three More Years of Goldilocks” for which he should receive the Darwin Award (credit goes to @RudyHavenstein for posting the article). Let’s examine some excerpts – keep in mind Kudlow wrote this about 5 months before Bear Stearns collapsed, triggering a financial crisis that anyone with more than two brain cells could see coming:
“I think the election-year economy will be stronger than the Fed’s estimate — closer to 3 percent. Too much is being made of both the sub-prime credit problem and the housing downturn.” IRD note: Many of us predicted and made big bets on the outcome of “too much being made of the sub-prime credit problem;” a caveman could see what was coming.
“What’s more, the entire market in sub-prime debt is just 1.4 percent of the global equity market.” – IRD note: Maybe 1.4% of a global stock bubble – but that’s like saying a small nuclear bomb in the hands of a madman is just 1.4% of the total stockpile of nuclear weapons. Notice that Kudlow overlooks the $10’s of trillions of OTC derivatives connected to the sub-prime debt, something that was obvious to many.
In issuing a forecast for 2008, Kudlow goes on to say: “Both consumer spending and business capital investment are advancing…Right now, stocks are in a classic declining-profits correction. This downward trend has so far reduced the Dow by roughly 8 percent. As a rough guess, a 10 percent correction ought to spell the end to the Dow’s slump. And Fed rate cuts should be a big booster for stocks.” IRD note – Where on earth was he getting his data on consumer spending? By November 2007, households that weren’t living in fear of foreclosure were living in fear of losing their job. Between October 2007 and March 2009, the S&P 500 collapsed 58%.
Kudlow’s assertions back in 2007 were a joke. What happened to Kudlow’s “Goldilocks economy?” This is the person who is now Trump’s lead economic advisor. Now Kudlow once again is asserting that, “the profit picture is good. It’s looking real good, and growth is not inflationary just let it rip for heaven’s sakes. The market is going to take care of itself.”
Based on his track record of issuing bullish forecasts right before a collapse, I’d suggest that the economy and financial system is closer to taking care of itself by “ripping” off a cliff without a parachute than it is to producing real growth. Retail sales have tanked three months in a row, the housing market appears to be headed south, auto sales plummeting, restaurant sales have dropped 19 out of the last 20 months. Where is this growth you seeing, Larry? Please do tell…