The felon & the geezer

There’s no good outcome to the US election. None.

We’ve all had a few days to reflect on the criminal conviction of Donald Trump. It reinforces the above. His pattern is set. He lost an election, so it must have been stolen. He lost civil judgments for sex abuse and business fraud. So the accuser and prosecutors were crooked and liars. He lost a criminal trial by jury. So the judge was a devil, the system rigged and Joe Biden was behind the sham.

This won’t change. He now leads a cult. After becoming a felon last week and crying persecution, followers gave him $55 million more. Hs poll numbers increased. If he loses the 2024 election, the result will not be accepted. Seventy or eighty million people, increduous, may see it as an illegitimate outcome – which he is already foretelling. Trump will not go away. January 6th could look mild.

The US would have a president aged 86 by the time his term ends, drawn deeper into the Russian and Gazan wars, racking up unfathomable debt and overseeing a country and Congress divided and restive with a failed opponent likely leading a resistance movement. The disruption could be epic.

A Trump loss is therefore worrisome.

So is a Trump win.

A majority of voters think the economy is bad (it’s not), largely because of high rates and high prices. A Trump presidency could make these matters far worse – and pose special pain for Canada.

His administration would extend the tax cuts (largely for business and wealthier individuals) that he brought in pre-Covid and will expire in 2025. The cost in foregone revenues is substantial – about $4 trillion. Combined with a big jump in defense spending, it’s estimated this could increase overall borrowing by $10 trillion – or two trillion more than during Trump’s first term.

More spending, like reduced taxation, is stimulative. That can goose the economy, inflate stocks and create the allure of progress – which is why politicians love stimulus. But this is not 2019-20 when rates were zero, inflation a nothingburger and the impact of a pandemic not yet felt. The Trump agenda today would be highly inflationary, and certainly lead the Fed to reverse rates. In fact, Trump has already made it clear he wants to be involved in CB policy. Once Mr. Market sees that approaching, look for bonds and equities to have a cow.

There’s more. Let’s review that recent report from Scotia’s chief economist, looking primarily at Trump trade policy.

As in his first term, President Trump would push an America First agenda and has promised a 60% tariff on all Chinese imports plus a 10% hit on goods from any nation. Says Scotia:

“This shock is negative for growth for all countries. The negative effect on growth on all countries is explained by trade and supply chains disruptions, misallocation of resources and production, trade uncertainty, increases of the price of intermediate inputs of production, and a negative wealth effect (fall in equity markets). Since we assume that the tariff shock is permanent, the shock generates a permanent fall of GDP worldwide.”

Among the anticipated outcomes of the Trump trade agenda:

• The American economy would decline by 2.2%.
• US inflation would surge by 1.5%.
• Interest rates would be forced higher at the central bank by a full 2%.

The situation in Canada would be worse. “Even greater economic harm,” says the report, “with a forecast peak decline of over 3.6% in the level of economic activity relative to current forecasts, inflation that is 1.7% higher than currently expected, and policy rates that are 190 bp above the current expected path for the Bank of Canada.”

Bond yields would shoot higher. Bond prices would tumble. The US stock market, the bank says, would lose about 10% of its value in the first year of a Trump presidency – 2025. The inflation surge would last roughly two years. In other words, the very factors which cripple support for Biden – rising prices and higher debt costs – could spiral during another Trump administration.

None of this reflects Trump’s avowed goal of ‘retribution’ for the injustices he alleges have rained down upon him. It’s unknown what disruption and distraction would be created as the president used his powers to punish those who took judicial action against him. Unknown also would be the geopolitical fallout resulting from a US retreat from NATO, a detente with Putin – ceding Ukraine and creating panic in Europe – or increased backing of Israel, now facing global pressure.

Yes, it’s a long road yet to the November vote. Much can change. But be ready.

About the picture: “This is my daughter’s dog, Peanut,” writes Glenn, “showing his displeasure at her recent business trip. Thanks again for all your investment advice!”

To be in touch or send a picture of your beast, email to ‘garthgarth.ca’.