Our European lecturers are utterly confused and dismayed. They are profoundly aggrieved by the demise of "America's 911 global military service" – an expression coined by Leon Panetta, the former defense secretary, during his Congressional testimony in February 2013. Germans are adding an angry rejoinder that Mr. Trump is a godsend to despots and tyrants around the world, but they refuse to buy spare parts for their grounded Luftwaffe (air force). They would rather use their riches to fund Germany's outstanding public services while America bleeds to defend them.
The Chinese are not so surefooted either. During a recent visit to Beijing of America's oldest and most famous sinologist, President Xi Jinping was quoted by Chinese media as saying: "Please tell me what is going on. I am all ears." And he apparently was for more than an hour-and-a-half. It seems that Mr. Trump has turned tables on those famously inscrutable Oriental sages.
Short on superior knowledge, not instincts
Shorts are hard work. During a presentation I gave some years ago to a group of Hong Kong investment managers, a youthful Chinese participant asked me a very pointed question about dissensions within the then governing Spanish Socialist Party (PSOE). Since he seemed satisfied with my answer, I asked him why he was so deeply interested in Spanish politics. And this is what he said: "I want to know everything about my shorts."
The Wall Street bull-run is a tempting contrarian play, especially for people who made a mint on Germany's failed attempts to throw Greece out of the euro area, and on similar "sure thing" sovereign defaults in a number of highly indebted EU countries.
And then they seem to think that there are some easy sitting-ducks: America's mature bull market, "excessive" valuations and, allegedly, a host of long-overdue, revert-to-mean, "imperatives."
That may be fair targets, but the massive bets are placed elsewhere. Indeed, people are betting on heroic assumptions that Mr. Trump's team will succeed in propping up the sagging U.S. economy.
Hopefully, these investors realize a tough slog that lies ahead. America's current growth dynamics (1.5 percent in the first nine months of this year) are not good. They are held back by tight physical limits to potential growth, estimated at about 1.6 percent, and the fact that the monetary policy, acting alone, cannot remove the cyclical and structural obstacles clogging up the way to faster and broader output gains.
It will take time to change that. A stronger consumer confidence and a traditionally buoyant retail business during the fourth quarter could have revved up demand in the past few months, but that would probably be a flash in the pan because jobs and incomes are still a problem.
Investments hop over trade barriers
The growth of the real disposable household income has slowed to 2.9 percent in the first three quarters of this year from 3.6 percent a year before. The jobless rate is down to 4.6 percent, but the actual number of people out of work – 15 million – is more than double the officially reported 7.4 million, and the long-term unemployed still account for a quarter of the total number of job seekers.
And here is how big a drag on growth that could be: In addition to credit costs, jobs and incomes are the key variables driving about 80 percent of U.S. economy.
The monetary policy has done a great deal in reversing the damage done by its serious mistakes in the run-up to the 2008 financial crisis and the ensuing Great Recession. But, from now on, the Fed's solo play should be over; the new role should be to work in concert with more active fiscal, trade and structural policies to gradually lift the economy to the 3-4 percent growth path.