Rising financial markets were to be President Trump’s primary measure of economic performance under his watch. Obama was astute enough not to highlight eight years of rising financial markets under his watch, not that the media nor the Republicans would have credited his administration with that anyway.

But the incoming Manhattan real estate shark, having added to his inherited wealth through skating on the edge of the law, stiffing his contractors and using his presidency to enrich himself and his children, sees it differently.

Trump has yet to either figure out, or doesn’t care, that financial markets are not a valid measure of the economy. 

After the Dow and the more significant S&P hitting record highs in 2018, these indices are finishing 2018 with the worst year since the Bush recession. Trump claims credit for the record highs of 2018, but attributes the recent dismal stock market performance to his political enemies and to his own appointee, Fed Chair Jerome Powell. This is what we have come to expect as normal behavior for him. The buck no longer stops at the president’s desk.

In a perverse sense, Trump deserves some credit for the temporary financial market highs. He was hailed by his supporters as a no nonsense businessman and financial genius. He campaigned on promised tax cuts and deregulation. Wall Street money managers and Fortune 500 CEOs think tax cuts and deregulation are the greatest things since sliced bread. With Trump’s election, spirits soared — the “financial genius” was now in charge.

Spirits soared even higher with what Republicans, with the help of the sycophantic media, bill as Trump’s signature accomplishment. The Trump/Republican tax bill was sold as a tax cut for the middle class, and as “leveling the playing field” for American corporations. While rendering an immediate cash windfall to the nation’s richest Americans who need it least, the bill would ostensibly encourage corporations to convert tax savings into wage increases, and investment in plans and equipment that would increase productivity, thereby further increasing wages.

As critics predicted, corporations used much of those tax savings for stock buybacks that increase value of remaining outstanding shares and, not incidentally, increase CEO salaries that are based partly on stock value.

No doubt, the euphoria induced by the tax bill produced a sugar high that contributed to high flying financial markets. Trump and his Republicans — they are indeed his Republicans — claimed credit.

But blame for falling financial markets is another matter.

Stock market volatility is not unusual, including a 6.2 percent annual decline in the S&P. What is unusual is its suddenness, and a president taking ill-advised actions that add to volatility.

Financial markets at the most basic level reflect investor expectations of future returns. This, in turn, depends on expected corporate profitability and, opposition to regulation notwithstanding, perceived integrity of financial markets. The long run trend of financial markets is upward. Those who ignore this have paid a stiff price in terms of foregone returns.

But short run volatility is inevitable. The fiction of Trump’s “financial genius” and the ill-advised tax bill produced a sugar high. But sugar highs are short lived. Other stuff happens.

Enter Trump’s tariffs and the uncertainty they have created. Sure, international trade deals need to be re-examined. But more emphasis should be placed on returns to labor, both here and abroad. Slapping tariffs on materials that American firms need for production is proving to be counterproductive. In addition, such unilateral actions incentivize other countries to retaliate, such as on American farm exports. While some American farmers seem willing to be “soldiers” in a trade war, it is a stiff price to pay. Some may pay by losing their farms.

A combination of factors, including waning of the tax bill sugar high, uncertainty with respect to international trade and indications of general softening of the global economy, has created a back drop for falling financial markets.

But wait — something more is occurring. With by some measures, a reasonably strong economy — low unemployment, economic growth rates of around 3 percent and moderate inflation — the Fed is gradually raising short-term interest rates. This has sent Trump into his latest blind rage, giving him an unjustified alibi for declining financial markets.

Trump has yet to figure out that with a buoyant economy, the Fed raises short-term rates — that’s what the Fed appropriately does. Wall Street money managers generally get nervous about the Fed raising short-term interest rates. Banks like to borrow at low short-term rates and lend at higher, long term rates. Rising interest rates make dividend-paying stocks less competitive with other financial instruments paying higher rates.

The Fed’s rising short-term rates coincide with uncertainty about tariffs and international trade amid signs of a softening global economy, resulting in falling stock prices. Pre-specified triggers unleash massive computer trading that results in markets overshooting on both the upside and downside. 

In a futile attempt to sooth volatile markets, Treasury Secretary Mnuchin calls heads of six big American banks for assurance of their stability. Mnuchin conveys their obligatory assurance to the public. This ill-advised action proves counterproductive, adding to frayed nerves of investors.

One is reminded of waking a sleeping man to inform him that he has no ominous phone calls, after which the disturbed man is unable to resume sleep.

The most corrupt administration in recent history, the Trump/Republican tax bill that exacerbates income inequality and violates basic macroeconomic policy principles, government shut down because of Trump’s failure to agree to an agreement he had ostensibly agreed to, a Trump-induced trade war, his Treasury secretary ineptly trying to reassure the faithful who had imbibed the Kool-Aid, a tantrum because he can’t sack the Fed Chair he holds responsible for the December market swoon — at year’s end it is fitting to paraphrase Yogi Berra when he took over the hapless New York Mets:

Does anybody out there (in the Trump Administration) know how to play this game?

— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.