Wall St pretending Trump is 'crazy but harmless' will come back to bite them on the butt: Paul Krugman
President Donald Trump. (AFP / SAUL LOEB)

In a column for the New York Times, Nobel Prize-winning economist Paul Krugman warned Wall Street investors that they are whistling past the graveyard if they continue to treat President Donald Trump like a "toothless" fool as he continues to disrupt the markets with his tweets and threats.

Beginning, "The events of the past few weeks destroyed whatever credibility Donald Trump may still have had on economic policy. And investors are celebrating. At this point, evidence that Trump tweets are sound and fury signifying nothing is, in effect, good news," Krugman ridiculed Trump for one of his all-cap tweets that turned out to be false.

“MEXICO HAS AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!” Trump tweeted, to which Krugman responded, "Like many Trump tweets, it reads like a clumsy translation from the original Russian ('great patriot farmers'?). More to the point, there was nothing at all about agriculture in the official agreement. And at the most basic level, that’s just not something the Mexican government could deliver, even if it wanted to. "

More importantly, he pointed out that Wall Street investors and traders continue to go blithely about their business not realizing the longterm damage Trump is doing to international trade with his promises of more tariffs and threats to pull out of international trade agreements.

"What’s clear, however, is that on trade policy — his signature issue — the president of the United States is seriously out to lunch. And you might think that this would worry investors," he wrote. "Financial markets are basically discounting Trump’s rants; they’ve stopped treating evidence of his unfitness for office as news. Yes, he’s deeply ignorant about policy. Yes, his rage-tweets constantly remind us of his egomania and insecurity. But we’ve known all that for a while; Trump’s personality is, in effect, already priced in."

"But as of right now, markets appear to be betting that he tweets loudly but carries a small stick. Is this a good bet? I have my doubts," he continued. "The trade war with China still seems to be on, and Europe may be next. More generally, when you have an attention-seeking president, ignoring his antics could well provoke him into even more extreme behavior."

"But for now, investors are effectively treating Trump as crazy but harmless. Is America great, or what?" he sarcastically concluded.

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