The Fall Guy – US Showing Strain – TACO Trouble

Fri 30 May 2025

By Brian Dennehy

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QuoteThis lunchtimes headlines.  US consumer spending is slowing.  US companies are planning to increase prices.  Confidence of US CEOs records sharpest drop in 30 years.  Tariffs are on, they’re off, they’re on.  But Musk isn’t feeling at all chastised or lacking in confidence… he is planning to build 1,000 “Starships” for a multiplanetary life.

More worrying is how Trump will respond to being (more widely recognised as) a joke figure.  First by the Russians, “Trump has finally realised that Putin thinks he is an idiot” is the Telegraph headline.  Second by the global financial community, who now profit handsomely from “The TACO Trade”, as Trump Always Chickens Out.  When asked by a reporter about TACO, he squealed that his question was “nasty” in his typical juvenile fashion.  This would all be funny if it wasn’t so dangerously serious. 

While Trump’s flip-flops dominate the headlines, the extreme vulnerability of financial markets and economies has been built over decades, with debt and demographics being the drivers.

“Politicians and electorates of developed nations were broadly in harmony for 30 odd years.  An aura of prosperity was created.  Consumers took on more debt, a culture of “buy today, pay tomorrow” took a hold; similarly governments took on more debt knowing that tomorrow’s growing and increasingly prosperous population could meet the bill.  That is until the population stopped growing, and individuals weren’t so prosperous

That was our TopFunds Guide in July 2010And in July 2011:

In the US, voters and taxpayers are not just increasingly aware that the boom years since the 1990s were a fiction built on debt, but also that there was little benefit to most of them.  For example, after allowing for inflation, the average worker has not had a pay rise in almost 15 years.”

This selection followed in 2016:

“Politics continues to be the big variable around the globe…Everywhere there appears to be a lack of leadership and clear ideas on how the economic mess (particularly overwhelming debt) will be resolved….Such vacuums tend to be filled with unexpected (if not extreme) outcomes, so we will stay on our toes, as we believe a political accident remains one of the biggest risks in the year or two ahead.”

“Rather than reforming and restructuring our economies, the politicians have ducked the problem. Instead unelected central bankers are centre stage, taking part in a vast financial experiment to keep markets afloat – not to keep economies afloat, but markets.  A key, stated objective of QE was to push markets higher – meaningless for the greatest number of voters and tax payers in the developed world.

As the ageing, less affluent, voters and taxpayers realise this, they increasingly look for political solutions beyond the mainstream.  This creates a difficult mix for the years ahead.”

Yet those voters and taxpayers should be careful how they cast their vote.  As Plato put it:

“Those who are too smart to engage in politics are punished by being governed by those who are dumber”

As we said from July 2011, no spreadsheet can adequately quantify a self-interested politician’s tendency to stupidity.

In a nutshell, lack of broadly-based economic growth, for at least two decades, created a growing sense of being underpaid and under-appreciated among the many, while the few often flaunted their wealth.

But no one writes an angry tweet proclaiming “I have a sense of being under appreciated”. Instead, encouraged by populist politicians and hysterical media, they will rant against migrants, “the rich”, “the establishment”, the EU, the Chinese, central bankers, and the mother-in-law. Angry, emotional people don’t often think about why they are angry – they just lash out at convenient targets.

We warned in 2019:

“You must expect greater volatility in markets for some years to come, because these social trends are not going to change.  On the one hand, the demographic problem will only naturally resolve itself over a predictable number of years.  On the other hand, the authorities (whether elected politicians or unelected central bankers) would have to make very radical and very painful choice to deal with debt.  No existing government in the developed world will do that – this will eventually change, but not for some time.”

DOGE hinted that Trump might understand the need to get government spending under control.  It didn’t last.  Musk has an extraordinary brain but is not renowned for his common sense, but even he spotted that the US is bankrupt. 

As increasingly grumpy baby Boomers aged, it was only time before trade became a target.  This from us in 2007:

“In the U.S. there are a very large number of individuals (particularly unskilled) that have not participated in the boom of recent years, and they are a significant voting block for Presidential hopefuls…  At some point in future years… the globalisation bogeyman will be wheeled out by politicians.” 

Oh yes all of that makes me very smart.  Except it was hardly rocket science.  And it told me absolutely nothing about when the price would be paid, across economies and financial markets.  So not so smart!

And it did nothing to inform me that in 2008/9 the Federal Reserve was about to embark on an extraordinary and reckless financial experiment, pumping the US financial markets to extraordinary levels, while politicians stood by, but for signing the cheques on even greater expenditure.

If the Fed had done something like that in 1929, we would now be talking about the 1939 Wall Street Crash, not 1929. 

If Trump’s destiny is to be the fall guy for a generation of errors by central bankers and politicians, so be it.  Let’s just get on with the re-set.  Because there lie the best opportunities of our lives.

 

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