Donald Trump warned of a stock market bubble on the verge of bursting, and slammed the Dodd-Frank financial regulations, which were roundly praised by the 2016 Democrats during their first primary debate on Tuesday night.
Trump called Dodd-Frank “terrible,” in an interview with The Hill, and said he would “absolutely” repeal it as President:
“Under Dodd-Frank, the regulators are running the banks,” Trump said. “The bankers are petrified of the regulators. And the problem is that the banks aren’t loaning money to people who will create jobs.”
Democrats have vehemently defended Dodd-Frank, claiming it strengthened regulators’ ability to go after Wall Street and financial institutions in hopes of preventing an economic collapse. Republicans say it went too far and punished small businesses.
“We have Dodd-Frank and we’re in a bubble right now anyway,” Trump said, alluding to social media companies that he says have initial public offerings worth “billions” but “haven’t even made 10 cents.”
He accused Federal Reserve chairwoman Janet Yellen of keeping interest rates low because President Barack “Obama doesn’t want to have a recession-slash-depression during his Administration.” It sounds like Trump doubts the Fed will raise interest rates soon, as The Hill notes it is supposedly planning to do.
Trump’s concluding comments illustrate one of the reasons he connects with so many people who should, in theory, consider him far removed from the realities of middle-class life:
“You know who gets hurt the most? People who practice the American dream and did what should have been the right way — the people that went through 40 years of their life and saved a hundred dollars every week [in the bank],” Trump said.
He paused, shaking his head before adding: “They worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.”
That doesn’t sound like pandering to most middle-class voters. It sounds sensible. It’s what they’ve been worried about since the big financial crisis, which rattled a middle-income investor class that had been growing very well. The dot-com bubble was something those mom & pop investors read about; the subprime mortgage bubble was something they experienced.
Trump’s critique of Dodd-Frank will make sense to those middle-income voters, too. Democrats should be carrying a political burden by defending those misconceived, ill-executed, big-government “reforms,” but Republicans need to explain why.
Trump isn’t the only one worried about a stock market bubble. A September review of the jitters by CNBC noted analysts were divided about whether a Federal Reserve rate hike would pop the bubble. The prevalent opinion seems to be “maybe,” which isn’t exactly comforting.
There are numerous indicators that stocks could be overpriced, including some recent economic reports – such as the hideous September jobs report – that came in well below expectations. Plenty of international events that could trigger a negative reaction in U.S. markets are looming on the horizon. Some fear that last-ditch efforts to manage market bubbles make them worse when they pop.
If bubbles burst because unrealistic expectations are dashed, the politicized economic reporting of the Obama years has set us up for quite a blow. Rhetoric about “recovery” gives way to mediocre economic growth and dreary employment reports. A few months of more cheery economic news leads to confident predictions of a sea change that never arrives.
Perhaps keeping interest rates low can stave off a crisis for a bit longer, but what we really need to defuse the bubble is economic performance that would match up with lofty expectations. If reality doesn’t catch up with those expectations pretty soon, there’s going to be trouble.