Which is to say that markets aren't betting on a big Trump stimulus anymore.

They did for a while. It didn't take investors long, in the immediate aftermath of Trump's shock victory, to learn to stop worrying and love the Trump tax cuts. A couple of hours, really. That, as economist Justin Wolfers points out, was all the time it took for markets to stop their initial sell-off at the prospect of, say, Trump blundering us into a big war, and start their subsequent rally at the prospect of his passing a big corporate tax cut and infrastructure package.

AD

AD

Wall Street, in other words, fell victim to one of the classic blunders. The most famous is: Never get involved in a land war in Asia. But only slightly less well-known is this: Never trust Donald Trump when money is on the line. His creditors, his contractors and Trump University students could all tell you that. But, if you looked at the way the dollar went up, traders forgot it. They listened to Trump say he was going to pass all this stimulus, and they believed him.

Here's why investors thought that would send the dollar up. If Trump really did pass deficit-financed tax cuts and infrastructure spending, then investors expected that the Federal Reserve would have to raise rates more than it had said it would to keep inflation in check. And if it did that, more money would come into the country. Why? Because money always moves to where it can get the best return, which is just another way of saying where interest rates are higher. After all, would you rather buy a U.S. 10-year bond that pays 2.2 percent or a German 10-year bond that pays 0.2 percent? That's a pretty easy math question, and one with pretty big implications for the value of the dollar. That's because the more money comes into the United States, the more demand there will be for dollars — so their price will go up. Which, as you can see below, they did to the tune of a 4.4 percent increase between the end of the election and the end of the year.

That's what trusting Trump looks like.

But a funny thing happened on the way to Trump's making great deals. It turns out that everything is more complicated than anyone named Donald Trump knew. It isn't easy to get Republicans to agree on a health-care plan when some of them think the problem with Obamacare is everything, and others think it's just the name. Or to get the whole party to agree on which tax loopholes to close to pay for all their tax cuts. The result, according to Trump, is that health-care reform is always a week away, and tax reform, always two weeks.

AD

AD

In the meantime, though, the economy is still chugging along at the same 2 percent pace it has been the whole recovery. So when you add it all up — a government that's doing nothing today, that looks as if it will be doing nothing tomorrow, and an economy that's doing nothing different from what it has been the last decade — there's no reason to expect the dollar to go up anymore. And it hasn't. It has given back most of its post-election gains to now only be up 1 percent over that time.

Wall Street is like the last kid on the block to figure out that Santa isn't real. For a long time, bankers had believed that Trump was going to deliver all the tax cut and infrastructure goodies their bonuses desired. But now it's December 26, metaphorically speaking, and they're beginning to doubt their parents' promises that Santa will show up any day now with something terrific. That's why the dollar isn't rising anymore. Nobody trusts Trump to pass his agenda anymore.

Not that Trump minds the dollar going down. The opposite, actually. He has said that “our country has been run so badly,” because we “know nothing about devaluation” when “every other country lives on devaluation.” The idea is that a cheaper currency would make our exports cheaper for other countries to buy, so they would, yes, buy more of them. And that, in turn, would boost manufacturing employment.

AD

AD

The irony, though, is that Trump is getting the weaker dollar he wants because he's getting the gridlock he doesn't. Trump hasn't given businesses any more confidence to invest, and hasn't gotten Congress to push any more money into the economy, so its fundamentals haven't changed — and, as a result, the value of the dollar hasn't, either.