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Steve Mnuchin's Thoughts On Wages And Inflation Are Predictably Nonsense

Even Gundlach is calling bullshit to his face now.
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On Thursday, the world was once again treated to an all-you-can-drink trip to the wellspring of upside-down thinking that flows inexorably forth from the Trump administration.


We learned, for instance, that the best way to keep guns out of schools is to pay bonuses to teachers who are willing to tote Glocks to the classroom. We also learned that the best way to get to Mars is to put a senior citizen in charge of building gas stations on the moon.

You'd think that would have been enough for one day, but remember who we're talking about here. We're talking about Trump and all of the people who have been sucked into his orbit. Here's how the physics of Donald Trump works courtesy of a 2017 piece penned by one particularly astute political/economic blogger:

Whoever comes within Trump’s event horizon becomes afflicted with the same cognitive incapacity as Trump himself. There is a long list of transient (and a shorter list of persistent) surrogates, all of them disposable victims of cognitive asphyxiation: Kellyanne, both Steves, Giuliani, Christie, Newt, Ben Carson, Jeffrey Lord, and a long list of anonymous spokespersons. Not that these people were ever beacons of rationality, but they have broken new boundaries and set new records after entering the domain of Donald Trump. These creatures thrive in the space between real news and reality TV. They roam different mediascapes, mostly to boost the ratings of the mainstream networks — people tune in only to see the spectacle of public humiliation.

And the list does not stop there. Now, even former bankers, Cohn and Mnuchin, who, one can argue, may be ethically challenged, but are nominally still highly rational, they are not making any sense either, even when it comes to counting money.

Note that bolded bit. Trump turns ostensibly rational people irrational - even in areas where they purportedly specialize. Take notorious deficit hawk Mick Mulvaney for instance, who last week was forced to expound upon how much a military parade might cost under different assumptions for length and grandiosity. That would be the same Mick who, in 2010, famously proclaimed that he "really believes you can’t spend money you don’t have."

Well with all of that in mind, consider the following comments Steve Mnuchin made on Thursday while riding a train to Philly:

There are a lot of ways to have the economy grow. You can have wage inflation and not necessarily have inflation concerns in general.

So according to Steve Mnuchin, the market misinterpreted the average hourly earnings print that sent stocks reeling earlier this month. See everyone thought the swiftest annualized pace of wage growth since 2009 might be tipping rising price pressures which could in turn prompt the Fed to get more aggressive when it comes to how many times they're prepared to hike.

But if you thought that, you'd be wrong. Because what's going to happen, according to Mnuchin, is that wages are going to go up without a concurrent uptick in inflation.

Is that possible? Well, anything's possible. After all, Steve Mnuchin is Treasury Secretary and Donald Trump is his boss.

That said, what Mnuchin is suggesting is highly improbable and rests on laughable assumptions about how corporate management teams would likely respond to rising labor costs. Obviously, management isn't going to sit idly by as margins are squeezed without trying to pass on wage inflation to consumers. If they did sit on their hands, then the bottom line suffers.

Jeff Gundlach was kind enough to give Steve a good "truthing" on Twitter, noting that one way or another, this won't end well for stocks (he also made sure to throw in the obligatory shout out to Buffalo):


And look, you know that's the truth because it comes from @TruthGundlach and because Gundlach has spent almost a year now using Twitter to make himself synonymous with "truth", it is by definition impossible for him to say anything that isn't accurate. How does "the truth" lie? It doesn't. "Ergo", Gundlach is infallible.

Anyway, while we're all grateful to Jeff for "confirming" our suspicion that Mnuchin might have said something that doesn't make any sense, this is one case where consulting that other wellspring of wisdom (Jeff's Twitter feed) wasn't really necessary.

Because Mnuchin's outside-the-box thinking on wage growth is on par with Wilbur Ross's moon gas station in terms of being believable.



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